**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-Q**





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




**For
      the quarterly period ended September 30, 2007**




**-OR-**




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




**For
      the transition period from

      to**




**Commission
      file number 001-15775**







**GLOBAL
      EPOINT, INC.**


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





**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)**







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




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




Large
                accelerated filer   ̈
            Accelerated
                filer   ̈
            Non-accelerated
                filer  x




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




**As
      of November 13, 2007, there were 19,513,812 shares of Common Stock ($.03 par
      value) outstanding.**















GLOBAL
      EPOINT, INC.


QUARTERLY
      REPORT ON FORM 10-Q


FOR
      THE PERIOD ENDED SEPTEMBER 30, 2007




TABLE
      OF
      CONTENTS







**Page**Part
                I. FINANCIAL INFORMATIONItem 1.
                Interim Financial Statements (unaudited):Condensed
                Consolidated Balance Sheets as of  September 30, 2007 and
                December 31, 2006
            3Condensed
                Consolidated Statements of Operations for the Three and Nine Months
                Ended
                September 30, 2007 and 2006
            4Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended September
                30, 2007 and 2006
            5Condensed
                Consolidated Statement of Stockholders’ Equity for the Nine Months Ended
                September 30, 2007
            6Notes
                to Condensed Consolidated Financial Statements
            7Item 2.
                Management’s Discussion and Analysis of Financial Condition and Results of
                Operations
            19Item 3.
                Quantitative and Qualitative Disclosures about Market Risk
            25Item 4.
                Controls and Procedures
            30Part
                II. OTHER INFORMATIONItem 1.
                Legal Proceedings
            31Item 6.
                Exhibits
            31SIGNATURES
            32





2




**GLOBAL
      EPOINT, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Thousands
      of dollars, except per share amounts)**







September
                302007
            
            
            December
                31,ASSETS
            
            (Unaudited)
            
            
            2006CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            101
            
            
            $
            -Accounts
                receivable, net
            
            
            1,597
            
            
            
            1,668Inventories
            
            
            1,644
            
            
            
            1,216Assets
                of discontinued operations, net (Note 8)
            
            
            2,875
            
            
            
            12,120Other
                current assets
            
            
            893
            
            
            
            685Total
                current assets
            
            
            7,110
            
            
            
            15,689Property,
                plant and equipment, net
            
            
            321
            
            
            
            418Card
                dispensing equipment and related parts
            
            
            385
            
            
            
            885Goodwill
            
            
            1,394
            
            
            
            2,788Other
                intangibles
            
            
            1,980
            
            
            
            1,990Deposits
                and other assets
            
            
            155
            
            
            
            763Total
                other assets
            
            
            4,235
            
            
            
            6,844Total
                assets
            
            $
            11,345
            
            
            $
            22,533LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            1,838
            
            
            $
            1,554Accrued
                expenses
            
            
            1,376
            
            
            
            564Customer
                deposits
            
            
            2,223
            
            
            
            103Due
                to stockholder
            
            
            1,375
            
            
            
            1,311Loans
                payable
            
            
            1,470
            
            
            
            -Liabilities
                of discontinued operations, net
            
            
            3,295
            
            
            
            3,382Mandatorily
                redeemable preferred stock (Note 10)
            
            
            7,533
            
            
            
            7,485Total
                current liabilities
            
            
            19,110
            
            
            
            14,399NON-CURRENT
                LIABILITIES
            
            
            1,985
            
            
            
            1,997Total
                liabilities
            
            
            21,095
            
            
            
            16,396Commitments
                and Contingencies (Notes  10 and 11)STOCKHOLDERS'
                EQUITY:Common
                stock, $.03 par value, 50,000,000 shares authorized and 19,513,812
                sharesissued
                and outstanding
            
            
            584
            
            
            
            581Paid-in
                capital
            
            
            28,985
            
            
            
            28,596Accumulated
                other comprehensive loss
            
            
            (77
            )
            
            
            (56
            )Accumulated
                deficit
            
            
            (39,242
            )
            
            
            (22,984
            )Total
                stockholders' equity (deficit)
            
            
            (9,750
            )
            
            
            6,137Total
                liabilities and stockholders' equity (deficit)
            
            $
            11,345
            
            
            $
            22,533




See
      accompanying notes to unaudited condensed consolidated financial
      statements.




3




**GLOBAL
      EPOINT, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**


**(Thousands
      of dollars, except per share amounts)**








For
                the three months ended
            
            
            For
                the nine months endedSeptember
                30,
            
            
            September
                30,
            
            
            September
                30,
            
            
            September
                30,2007
            
            
            2006
            
            
            2007
            
            
            2006Sales,
                net
            
            $
            302
            
            
            $
            1,064
            
            
            $
            2,317
            
            
            $
            4,386Cost
                of sales
            
            
            252
            
            
            
            1,071
            
            
            
            1,602
            
            
            
            3,831Gross
                profit
            
            
            50
            
            
            
            (7
            )
            
            
            715
            
            
            
            555Operating
                expenses:Selling
                and marketing
            
            
            56
            
            
            
            162
            
            
            
            279
            
            
            
            500General
                and administrative
            
            
            749
            
            
            
            1,713
            
            
            
            2,761
            
            
            
            4,131Goodwill
                impairment
            
            
            -
            
            
            
            -
            
            
            
            1,393
            
            
            
            -Depreciation
                and amortization
            
            
            68
            
            
            
            94
            
            
            
            220
            
            
            
            243Total
                operating expenses
            
            
            873
            
            
            
            1,969
            
            
            
            4,653
            
            
            
            4,874Loss
                from operations
            
            
            (823
            )
            
            
            (1,976
            )
            
            
            (3,938
            )
            
            
            (4,319
            )Other
                income (expense)
            
            
            (813
            )
            
            
            -
            
            
            
            (1,868
            )
            
            
            185Loss
                before income tax provision
            
            
            (1,636
            )
            
            
            (1,976
            )
            
            
            (5,806
            )
            
            
            (4,134
            )Income
                tax provision
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loss
                from continuing operations
            
            
            (1,636
            )
            
            
            (1,976
            )
            
            
            (5,806
            )
            
            
            (4,134
            )Loss
                from discontinued operations, net of tax
            
            
            (3,801
            )
            
            
            (1,307
            )
            
            
            (10,452
            )
            
            
            (3,336
            )Preferred
                stock dividend
            
            
            -
            
            
            
            (159
            )
            
            
            -
            
            
            
            (5,235
            )Net
                loss applicable to common stockholders
            
            $
            (5,437
            )
            
            $
            (3,442
            )
            
            $
            (16,258
            )
            
            $
            (12,705
            )Loss
                per share - basic and dilutedLoss
                from continuing operations
            
            $
            (0.08
            )
            
            $
            (0.11
            )
            
            $
            (0.30
            )
            
            $
            (0.55
            )Loss
                from discontinued operations
            
            
            (0.19
            )
            
            
            (0.07
            )
            
            
            (0.54
            )
            
            
            (0.20
            )$
            (0.27
            )
            
            $
            (0.18
            )
            
            $
            (0.84
            )
            
            $
            (0.75
            )Weighted
                average shares and share equivalents
            
            
            19,514
            
            
            
            19,199
            
            
            
            19,514
            
            
            
            17,028





See
      accompanying notes to unaudited condensed consolidated financial
      statements.




4




**GLOBAL
      EPOINT, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**(Thousands
      of dollars)**


For
                the nine months endedSeptember
                30,
            
            
            September
                30,2007
            
            
            2006CASH
                FLOWS USED IN OPERATING ACTIVITIES:Net
                loss
            
            $
            (16,258
            )
            
            $
            (7,470
            )Adjustments
                to reconcile net loss to net cash flows used in operating
                activities:Depreciation
                and amortization
            
            
            342
            
            
            
            348Goodwill
                impairment
            
            
            7,261
            
            
            
            -Provision
                for bad debts
            
            
            165
            
            
            
            329Stock
                based compensation
            
            
            440
            
            
            
            721Non
                refundable acquisition deposit
            
            
            500
            
            
            
            -Inventory
                and other asset reserve
            
            
            2,250
            
            
            
            -Increase/(decrease)
                from changes in:Accounts
                receivable
            
            
            535
            
            
            
            137Accounts
                receivable - related parties
            
            
            139
            
            
            
            (1,930
            )Inventory
            
            
            383
            
            
            
            (879
            )Other
                current assets
            
            
            288
            
            
            
            6Accounts
                payable
            
            
            818
            
            
            
            (981
            )Accounts
                payable - related parties
            
            
            (6
            )
            
            
            1,768Accrued
                expenses
            
            
            663
            
            
            
            (202
            )Customer
                deposits
            
            
            2,120
            
            
            
            340Net
                cash used in operating activities
            
            
            (360
            )
            
            
            (7,813
            )CASH
                FLOWS (USED IN)/PROVIDED BY INVESTING ACTIVITIES:Additions
                to property and equipment
            
            
            (14
            )
            
            
            (207
            )Additions
                to goodwill and other intangibles
            
            
            (111
            )
            
            
            (710
            )(Increase)/decrease
                in other assets
            
            
            (502
            )
            
            
            413Net
                cash used in investing activities
            
            
            (627
            )
            
            
            (504
            )CASH
                FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:Proceeds
                from (repayment of) loan payable
            
            
            1,100
            
            
            
            1,674Net
                borrowings from related parties
            
            
            (76
            )
            
            
            167Proceeds
                from advances from stockholder
            
            
            64
            
            
            
            53Proceeds
                from exercise of stock options
            
            
            -
            
            
            
            731Net
                proceeds from preferred stock offerings
            
            
            -
            
            
            
            3,594Net
                proceeds from the exercise of stock warrants
            
            
            -
            
            
            
            2,465Preferred
                stock dividend payments
            
            
            -
            
            
            
            (304
            )Preferred
                stock redemption
            
            
            -
            
            
            
            (843
            )Net
                cash provided by financing activities
            
            
            1,088
            
            
            
            7,537NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            101
            
            
            
            (780
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            -
            
            
            
            780CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            101
            
            
            $
            -SUPPLEMENTAL
                DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:Beneficial
                conversion included in preferred stock dividend
            
            $
            -
            
            
            $
            1,828Preferred
                stock dividend
            
            $
            -
            
            
            $
            2,991Increase
                in preferred stock dividend payable
            
            $
            -
            
            
            $
            154Preferred
                stock reclassified to short term debt
            
            $
            47
            
            
            $
            5,941Tops
                Digital Security, Inc acquisition
            
            $
            -
            
            
            $
            2,003Compensation
                on consulting agreement
            
            $
            103
            
            
            $
            175





See
      accompanying notes to unaudited condensed consolidated financial
      statements.




5




**GLOBAL
      EPOINT, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**


**(Thousands
      of dollars and shares)**




**SEPTEMBER
      30, 2007**







Accumulated
            
            
            RetainedAdditional
            
            
            Other
            
            
            Earnings/
            
            
            TotalPreferred
                Stock
            
            
            Common
                Stock
            
            
            Paid
                in
            
            
            Comprehensive
            
            
            (Accumulated
            
            
            Stockholders'Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Loss
            
            
            Deficit)
            
            
            Equity**Balances-
                December 31, 2006**
            
            
            625
            
            
            $
            -
            
            
            
            19,414
            
            
            $
            581
            
            
            $
            28,596
            
            
            $
            (56
            )
            
            $
            (22,984
            )
            
            $
            6,137Common
                stock and option based compensation
            
            
            -
            
            
            
            -
            
            
            
            100
            
            
            
            3
            
            
            
            389
            
            
            
            -
            
            
            
            -
            
            
            
            392Net
                loss from operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,806
            )
            
            
            (5,806
            )Loss
                from discontinued operations, net of tax
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10,452
            )
            
            
            (10,452
            )Other
                Comprehensive Loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (21
            )
            
            
            -
            
            
            
            (21
            )**Balances-
                September 30, 2007**
            
            
            625
            
            
            $
            -
            
            
            
            19,514
            
            
            $
            584
            
            
            $
            28,985
            
            
            $
            (77
            )
            
            $
            (39,242
            )
            
            $
            (9,750
            )




See
      accompanying notes to unaudited condensed consolidated financial
      statements.




6




**GLOBAL
      EPOINT, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**




**SEPTEMBER
      30, 2007**







**1.Basis
      of
      presentation**




The
      accounting and reporting policies of Global ePoint, Inc. (“Global,” or “Global
      ePoint” or the “Company”) conform to accounting principles generally accepted in
      the United States of America. The condensed consolidated financial statements
      as
      of September 30, 2007 and for the three and nine months ended September 30,
      2007
      and 2006 are unaudited and do not include all information or footnotes necessary
      for a complete presentation of financial condition, results of operations and
      cash flows. The interim financial statements include all adjustments, consisting
      only of normal recurring accruals, which in the opinion of management are
      necessary in order to make the condensed consolidated financial statements
      not
      misleading. These condensed consolidated financial statements should be read
      in
      conjunction with the Company’s December 31, 2006 audited financial
      statements, which are included in the Company’s Annual Report on Form 10-KSB for
      the year ended December 31, 2006. The results of operations for the three
      and nine months ended September 30, 2007 are not necessarily indicative of
      the
      results to be expected for the year ending December 31, 2007. The financial
      statements were prepared assuming that the Company is a going concern. The
      financial statements do not include any adjustments to reflect the possible
      future effects on the recoverability and classification of assets or the amounts
      and classification of liabilities that may result from the outcome of this
      uncertainty.




The
      preparation of condensed consolidated financial statements in conformity with
      accounting principles generally accepted in the U.S. requires management to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.




The
      Company has suffered recurring losses from operations and at September 30,
      2007
      had a shareholders deficit of $9.8 million that raises substantial doubt about
      its ability to continue as a going concern. The Company believes that it can
      satisfy its cash requirements for at least the next three months, however
      it will need to raise up to an additional $3 million in order to continue
      to operate its business for the next twelve months thereafter. If the Company
      is
      unable to achieve projected operating results and/or obtain such additional
      financing if and when needed, management will be required to curtail plans
      and
      scale back planned activities. No assurances can be given that the Company
      will
      be successful in raising additional financing should such financing be required
      by future operations.





**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 have been operated
      from
      three divisions: our aviation division, contract manufacturing division and
      our
      digital technology division. Our aviation division provides digital
      technology and other electrical applications to the airline
      industry.  Our contract manufacturing division, which 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 digital technology division designs and markets
      digital video technology primarily for surveillance systems. We are revising
      our
      business plan and reducing our operations.   We have closed the
      operations of our contract manufacturing division which we completed in the
      third quarter of 2007. Additionally, we have closed our digital technology
      division operations which we expect to be completed in the fourth quarter of
      2007.  In accordance with our revised business plan,we will focus our
      resources on our aviation division.




***Principles
      of consolidation*** The accompanying consolidated financial
      statements include 100% of the accounts of the Company and its wholly-owned
      subsidiaries, Global AirWorks, Inc., which was incorporated under the laws
      of
      the state of California in May 2003, 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. Best
      Logic LLC (“Best Logic”), which was organized in California in November 2000,
      operations were discontinued in the second quarter of 2007; McDigit, Inc.,
      which
      was incorporated under the laws of the state of California in November 2002
      and
      Tops Digital Security, LLC which was organized in Nevada in April 2006 comprised
      our digital technology division the operations of which were discontinued in
      the
      third quarter of 2007 as described in Note 8. In accordance with Statement
      of
      Financial Accounting Standards No. 144, “Accounting for the Impairment or
      Disposal of Long Lived Assets,” results of operations for the three and nine
      months ended September 30, 2007 and 2006 included in our consolidated statements
      of income have been reclassified and presented as discontinued operations.
      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.




7




***Accounting
      for stock options***  The Company recorded expenses for stock
      based compensation of $148 thousand and $643 thousand for the three months
      ended
      September 30, 2007 and 2006, respectively, and $440 thousand and $689 thousand
      for the nine months ended September 30, 2007 and 2006,
      respectively.




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




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




**Loss**
            
            
            **Shares**
            
            
            **Per-share****(Numerator)**
            
            
            **(Denominator)**
            
            
            **Amount**For
                the three months ended September 30, 2007:Basic
                and fully diluted loss per shareLoss
                applicable to common stockholders
            
            $
            (5,437
            )
            
            
            19,514
            
            
            $
            (0.27
            )For
                the three months ended September 30, 2006:Basic
                and fully diluted loss per shareLoss
                applicable to common stockholders
            
            $
            (3,442
            )
            
            
            19,199
            
            
            $
            (0.18
            )For
                the nine months ended September 30, 2007:Basic
                and fully diluted loss per shareLoss
                applicable to common stockholders
            
            $
            (16,258
            )
            
            
            19,514
            
            
            $
            (0.84
            )For
                the nine months ended September 30, 2006:Basic
                and fully diluted income per shareLoss
                applicable to common stockholders
            
            $
            (12,705
            )
            
            
            17,028
            
            
            $
            (0.75
            )




**3.Inventories**




As
      of
      September 30, 2007, inventories consisted of $1.6 million of cockpit door
      surveillance system and wire harness finished goods and components.





8





**4.Property
      and
      equipment**




Property
      and equipment consisted of the following as of September 30, 2007 (in
      thousands):




Furniture
                and equipment
            
            $
            350Building
                improvements
            
            
            450Tooling
                and demo units
            
            
            34Totals
            
            
            834Less
                accumulated depreciation
            
            
            (513
            )Property
                and equipment, net
            
            $
            321





**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, 2007 the net amount
      of
      $3.4 million of goodwill and intangible assets represented 30% 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 thousand 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. 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
      contract manufacturing division has been discontinued, and the Company
      recognized non-cash goodwill impairment charges of $1.5 million in March 2007.
      Additionally, the digital technology division has been discontinued and the
      Company recognized non-cash goodwill impairment charges of $3.8 million as
      of
      September 2007.




On
      August
      15, 2007 the Federal Aviation Administration (FAA) published its final rule
      on
      flightdeck door monitoring and crew discreet alerting systems. The FAA’s final
      rule provides for alternative methods to comply with monitoring on the passenger
      side of the flightdeck door other than a video monitoring system. The Company
      expected an FAA mandate for its CDSS system would provide substantial near
      term
      opportunity from US based air carriers. Without the mandate, the near term
      opportunity becomes less certain. The lack of a FAA mandate for CDSS systems
      resulted in a revision to Management revenue assumptions. Application of the
      discounted cash flows methodology using the revised assumptions, resulted in
      a
      $1.4 million non-cash goodwill impairment charge for the aviation
      division.




The
      Company is restructuring its operations and continually monitors its operations
      for any potential indicators of impairment of goodwill and intangible assets.
      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, 2007 and
      2006, one and two customers accounted for 56% and 79% of the Company’s sales,
      respectively. For the nine months ended September 30, 2007 and
      2006  two customers accounted for 74% and 67% of the Company’s sales,
      respectively, and 25% of the accounts receivable as of September 30, 2007.
      For the three months ended September 30, 2007 and 2006. one and two
      vendors, respectively, accounted for 70% and 76% of the Company’s purchases,
      respectively. For the nine months ended September 30, 2007 and 2006, one
      and two vendors, respectively, accounted for 70% and 68% of the Company’s
      purchases, respectively, and none of the accounts payable as of
      September 30, 2007. A substantial amount of the above sales and purchase
      transactions in 2006 were conducted with related parties through our contract
      manufacturing division the results of which have been reclassified as
      discontinued operations as discussed in Note 8.




9


**7.Related
      party
      transactions**




**Rent
      agreement** Mr. John Pan, the Company’s Chairman, Chief Financial
      Officer, and principal stockholder, leased a facility to the Company and to
      Avatar Technologies, Inc. (“Avatar”), a Related Party (as defined below).
      Facility rental costs, totaled none and $92 thousand for the three months ended
      September 30, 2007 and 2006, respectively, and $98 thousand and $308 thousand
      for the nine months ended September 30, 2007 and 2006, respectively. The rental
      costs were conducted with related parties through our contract manufacturing
      and
      digital technology divisions the results of which have been reclassified as
      discontinued operations as discussed in Note 8.




Rental
      costs for manufacturing and assembly equipment were approximately none and
      $21
      thousand for the three months ended September 30, 2007 and 2006, respectively,
      and $18 thousand and $83 thousand for the nine months ended September 30, 2007
      and 2006, respectively.  The rental costs were conducted with related
      parties through our contract manufacturing division the results of which have
      been reclassified as discontinued operations as discussed in Note
      8.




**Loans
      Payable** In June 2004, the Company borrowed $1,000,000 from John
      Pan, the Company’s Chairman, Chief Financial Officer and President. Interest
      accrues on the unpaid principal balance of this loan at a rate equal to the
      prime rate at Bank of the West, plus 0.25%. The aggregate interest rate was
      8.50% as of December 31, 2006. The Company is required to accrue interest
      payments each month until the principal balance is paid in full, which was
      to
      occur no later than December 15, 2006. The total outstanding on the loan
      including accrued interest is $1.4 million.  The Company is
      negotiating with Mr. Pan to extend the term of the loan.




**Other
      arrangements** The Company had various sales and purchase transactions
      with companies that are owned or controlled by the Company’s Chairman, Chief
      Financial Officer, and principal stockholder, Mr. John Pan (“Related
      Parties”). Substantially all of our related party transactions are through our
      contract manufacturing division whose operations have been
      discontinued.




**8.Discontinued
      operations**




In
      the
      second quarter of 2007, the Company discontinued the contract manufacturing
      operations.  Additionally, the Company discontinued the digital
      technology division operations in the third quarter of 2007.  These
      operations were discontinued to focus the Company’s resources on its aviation
      services operation which the Company believes has higher margin and growth
      potential.




The
      discontinuation of the contract manufacturing division resulted in an after
      tax
      charge of $2.4 million for the nine months ended September 30, 2007 of which
      $1.5 million was due to the impairment of goodwill.  The
      discontinuation of the digital technology division resulted in an after tax
      charge of $8.1 million for the nine months ended September 30, 2007 of which
      $4.3 million was due to the impairment of goodwill and other intangible
      assets.




The
      Company has reflected the results of its contract manufacturing and digital
      technology businesses as discontinued operations in the unaudited Condensed
      Consolidated Statements of Operations. Summary results of operations for the
      contract manufacturing and digital technology divisions were as follows (in
      thousands):





For
                the three months ended September 30, 2007Digital
            
            
            Contract***($
                in thousands)***
            
            Technology
            
            
            Manufacturing
            
            
            TotalNet
                sales
            
            $
            81
            
            
            $
            63
            
            
            $
            144Cost
                of sales
            
            
            1,462
            
            
            
            509
            
            
            
            1,971Gross
                profit
            
            
            (1,381
            )
            
            
            (446
            )
            
            
            (1,827
            )Operating
                expenses
            
            
            1,901
            
            
            
            52
            
            
            
            1,953Loss
                from operations
            
            
            (3,282
            )
            
            
            (498
            )
            
            
            (3,780
            )Other
                income (expense)
            
            
            (21
            )
            
            
            -
            
            
            
            (21
            )Loss
                before income tax provision
            
            $
            (3,303
            )
            
            $
            (498
            )
            
            $
            (3,801
            )




10




For
                the three months ended September 30, 2006Digital
            
            
            Contract***($
                in thousands)***
            
            Technology
            
            
            Manufacturing
            
            
            TotalNet
                sales
            
            $
            387
            
            
            $
            8,686
            
            
            $
            9,073Cost
                of sales
            
            
            316
            
            
            
            8,064
            
            
            
            8,380Gross
                profit
            
            
            71
            
            
            
            622
            
            
            
            693Operating
                expenses
            
            
            1,312
            
            
            
            661
            
            
            
            1,973Loss
                from operations
            
            
            (1,241
            )
            
            
            (39
            )
            
            
            (1,280
            )Other
                income (expense)
            
            
            (27
            )
            
            
            -
            
            
            
            (27
            )Loss
                before income tax provision
            
            $
            (1,268
            )
            
            $
            (39
            )
            
            $
            (1,307
            )For
                the nine months ended September 30, 2007Digital
            
            
            Contract***($
                in thousands)***
            
            Technology
            
            
            Manufacturing
            
            
            TotalNet
                sales
            
            $
            595
            
            
            $
            1,012
            
            
            $
            1,607Cost
                of sales
            
            
            1,865
            
            
            
            1,240
            
            
            
            3,105Gross
                profit
            
            
            (1,270
            )
            
            
            (228
            )
            
            
            (1,498
            )Operating
                expenses
            
            
            6,723
            
            
            
            2,143
            
            
            
            8,866Loss
                from operations
            
            
            (7,993
            )
            
            
            (2,371
            )
            
            
            (10,364
            )Other
                income (expense)
            
            
            (71
            )
            
            
            (17
            )
            
            
            (88
            )Loss
                before income tax provision
            
            $
            (8,064
            )
            
            $
            (2,388
            )
            
            $
            (10,452
            )For
                the nine months ended September 30, 2006Digital
            
            
            Contract***($
                in thousands)***
            
            Technology
            
            
            Manufacturing
            
            
            TotalNet
                sales
            
            $
            1,013
            
            
            $
            20,275
            
            
            $
            21,288Cost
                of sales
            
            
            736
            
            
            
            18,533
            
            
            
            19,269Gross
                profit
            
            
            277
            
            
            
            1,742
            
            
            
            2,019Operating
                expenses
            
            
            3,349
            
            
            
            1,924
            
            
            
            5,273Loss
                from operations
            
            
            (3,072
            )
            
            
            (182
            )
            
            
            (3,254
            )Other
                income (expense)
            
            
            (55
            )
            
            
            (27
            )
            
            
            (82
            )Loss
                before income tax provision
            
            $
            (3,127
            )
            
            $
            (209
            )
            
            $
            (3,336
            )





11





The
      assets of the contract manufacturing and digital technology divisions are
      reflected as net assets of discontinued operations in the Condensed Consolidated
      Balance Sheets and were as follows (in thousands):





September
                30, 2007Contract
            
            
            DigitalManufacturing
            
            
            Technology
            
            
            TotalCash
                and cash equivalents
            
            $
            4
            
            
            $
            -
            
            
            $
            4Accounts
                receivable, net
            
            
            150
            
            
            
            256
            
            
            
            406Accounts
                receivable - related parties
            
            
            -
            
            
            
            -
            
            
            
            -Inventories
            
            
            513
            
            
            
            1,073
            
            
            
            1,586Property,
                plant and equipment, net
            
            
            12
            
            
            
            250
            
            
            
            262Deposits
                and other assets
            
            
            76
            
            
            
            541
            
            
            
            617Assets
                of discontinued operations, net
            
            $
            755
            
            
            $
            2,120
            
            
            $
            2,875December
                31 2006Contract
            
            
            DigitalManufacturing
            
            
            Technology
            
            
            TotalAccounts
                receivable, net
            
            $
            398
            
            
            $
            624
            
            
            $
            1,022Accounts
                receivable - related parties
            
            
            139
            
            
            
            -
            
            
            
            139Inventories
            
            
            1,318
            
            
            
            2,830
            
            
            
            4,148Property,
                plant and equipment, net
            
            
            18
            
            
            
            353
            
            
            
            371Deposits
                and other assets
            
            
            1,620
            
            
            
            4,820
            
            
            
            6,440Assets
                of discontinued operations, net
            
            $
            3,493
            
            
            $
            8,627
            
            
            $
            12,120




**9.Segment
      reporting**




The
      Company’s continuing operation is in the flight support business including
      aircraft electronics and communications systems (aviation). 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:





12





For
                the three months ended September 30,
                2007***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            302
            
            
            $
            -
            
            
            $
            302Cost
                of sales
            
            
            252
            
            
            
            -
            
            
            
            252Gross
                profit
            
            
            50
            
            
            
            -
            
            
            
            50Operating
                expenses
            
            
            446
            
            
            
            427
            
            
            
            873Loss
                from operations
            
            
            (396
            )
            
            
            (427
            )
            
            
            (823
            )Other
                income (expense)
            
            
            (47
            )
            
            
            (766
            )
            
            
            (813
            )Loss
                before income tax provision
            
            $
            (443
            )
            
            $
            (1,193
            )
            
            $
            (1,636
            )Total
                assets as of  September 30, 2007
            
            $
            7,593
            
            
            $
            3,752
            
            
            $
            11,345For
                the three months ended September 30, 2006***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            1,064
            
            
            $
            -
            
            
            $
            1,064Cost
                of sales
            
            
            1,071
            
            
            
            -
            
            
            
            1,071Gross
                profit
            
            
            (7
            )
            
            
            -
            
            
            
            (7
            )Operating
                expenses
            
            
            653
            
            
            
            1,316
            
            
            
            1,969Loss
                from operations
            
            
            (660
            )
            
            
            (1,316
            )
            
            
            (1,976
            )Other
                income (expense)
            
            
            -
            
            
            
            -
            
            
            
            -Loss
                before income tax provision
            
            $
            (660
            )
            
            $
            (1,316
            )
            
            $
            (1,976
            )Total
                assets as of  September 30, 2006
            
            $
            9,933
            
            
            $
            20,173
            
            
            $
            30,106For
                the nine months ended September 30, 2007***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            2,317
            
            
            $
            -
            
            
            $
            2,317Cost
                of sales
            
            
            1,602
            
            
            
            -
            
            
            
            1,602Gross
                profit
            
            
            715
            
            
            
            -
            
            
            
            715Operating
                expenses
            
            
            2,697
            
            
            
            1,956
            
            
            
            4,653Loss
                from operations
            
            
            (1,982
            )
            
            
            (1,956
            )
            
            
            (3,938
            )Other
                income (expense)
            
            
            (107
            )
            
            
            (1,761
            )
            
            
            (1,868
            )Loss
                before income tax provision
            
            $
            (2,089
            )
            
            $
            (3,717
            )
            
            $
            (5,806
            )Total
                assets as of  September 30, 2007
            
            $
            7,593
            
            
            $
            3,752
            
            
            $
            11,345




13




For
                  the nine months ended September 30, 2006***($
                  in thousands)***
              
              Aviation
              
              
              Corporate
              
              
              TotalNet
                  sales
              
              $
              4,386
              
              
              $
              -
              
              
              $
              4,386Cost
                  of sales
              
              
              3,831
              
              
              
              -
              
              
              
              3,831Gross
                  profit
              
              
              555
              
              
              
              -
              
              
              
              555Operating
                  expenses
              
              
              2,074
              
              
              
              2,800
              
              
              
              4,874Loss
                  from operations
              
              
              (1,519
              )
              
              
              (2,800
              )
              
              
              (4,319
              )Other
                  income (expense)
              
              
              -
              
              
              
              185
              
              
              
              185Loss
                  before income tax provision
              
              $
              (1,519
              )
              
              $
              (2,615
              )
              
              $
              (4,134
              )Total
                  assets as of  September 30, 2006
              
              $
              9,933
              
              
              $
              20,173
              
              
              $
              30,106


**10.Preferred
      Stock and
      Common Stock Warrants**




**Series
      C Preferred Stock**




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




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




14




Pursuant
      to the terms of the Certificates of Designations, if the Company’s common stock
      is not listed on the New York Stock Exchange, American Stock Exchange, Nasdaq
      National Market, Nasdaq Capital Market or the OTC Bulletin Board for a period
      of
      seven consecutive trading days, holders of the outstanding preferred shares
      may
      elect that we repurchase their preferred shares. Effective upon the opening
      of
      the market on September 19, 2006, the Company’s securities were delisted
      from the Nasdaq Capital Market. Since that time, the Company’s common stock has
      been trading on the electronic Pink Sheets. There are outstanding 501,917 shares
      of Series C preferred stock. Beginning September 29, 2006, the Company has
      received demands for redemption on an aggregate 287,508 Series C preferred
      shares with an aggregate redemption amount of $805,022 plus $12,210 accrued
      but
      unpaid dividends. If the holders of all Series C preferred shares outstanding
      as
      of September 30, 2007 request redemption, the aggregate redemption amount of
      all
      Series C preferred shares outstanding as of September 30, 2007 would be $1.4
      million, plus $171 thousand of accrued but unpaid dividends and interest. All
      demands for redemption payments are due within sixty (60) days of the date
      the Company receives written notice from such stockholder of its election and
      to
      date the redemption demands have not been paid. The preferred shares were
      reclassified as liabilities resulting in a beneficial conversion of $0.4 million
      which was recorded as a non cash preferred dividend. The preferred stock is
      included in current liabilities on the accompanying condensed consolidated
      balance sheets.




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




**Series
      D Preferred Stock**




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




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




Pursuant
      to the terms of the Certificates of Designations, if the Company’s common stock
      is not listed on the New York Stock Exchange, American Stock Exchange, Nasdaq
      National Market, Nasdaq Capital Market or the OTC Bulletin Board for a period
      of
      seven consecutive trading days, holders of the outstanding preferred shares
      may
      elect that the Company repurchase their preferred shares. Effective upon the
      opening of the market on September 19, 2006, the Company’s securities were
      delisted from the Nasdaq Capital Market. Since that time, the Company’s common
      stock has been trading on the electronic Pink Sheets. There are outstanding
      5,500 shares of Series D preferred stock for which the Company has received
      redemption demands. The aggregate redemption amount is $275 thousand plus $32
      thousand accrued but unpaid dividends and interest. All demands for redemption
      payments are due within sixty (60) days of the date the Company receives
      written notice from such stockholder of its election and to date the redemption
      demand has not been paid. The preferred shares were reclassified as liabilities
      resulting in a beneficial conversion of $0.1 million which was recorded as
      a
      non-cash preferred dividend. The preferred stock is included in current
      liabilities on the accompanying condensed consolidated balance
      sheets.




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




15




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




**Series
      E Preferred Stock**




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




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




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




The
      Company is subject to 1% liquidated damages to the extent the registration
      statement for the underlying shares was not declared effective by the SEC as
      of
      August 21, 2006. The liquidated damages are payable monthly until such time
      as the registration statement is declared effective or the shares may be sold
      without restriction pursuant to Rule 144(k) under the Securities Act. The SEC
      has not declared the registration statement effective and the Company may be
      subject to liquidated damages in the aggregate amount of $136 thousand as of
      September 30, 2007. The rights of the holders of the Series E preferred stock
      are senior to the rights of the holders of the Series C and D preferred
      stock.




There
      are
      outstanding 117,314 shares of Series E preferred stock. Beginning
      September 29, 2006, the Company has received demands for redemption on an
      aggregate of 101,878 Series E preferred shares with an aggregate redemption
      amount of $5,093,900 plus $701 thousand accrued but unpaid dividends and
      interest. If the holders of all Series E preferred shares outstanding request
      redemption, the aggregate redemption amount of all Series E preferred shares
      outstanding as of September 30, 2006 would be $5.9 million, plus $533
      thousand of accrued but unpaid dividends and interest. All demands for
      redemption payments are due within sixty (60) days of the date the Company
      receives written notice from such stockholder of its election and to date the
      redemption demands have not been paid. The preferred shares were reclassified
      as
      current liabilities resulting in a beneficial conversion of $2.8 million which
      was recorded as a non-cash preferred dividend. The preferred stock is included
      in current liabilities on the accompanying condensed consolidated balance
      sheets.




16




**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.




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





**11.Other
      Financing
      Transactions**




On
      March 9, 2005, the Company’s wholly-owned subsidiary, Best Logic, LLC,
      entered into a loan agreement with Far East National Bank pursuant to which
      the
      bank has agreed to loan Best Logic up to $1 million. Pursuant to a promissory
      note, dated March 9, 2005, executed in connection with the loan agreement,
      interest on the outstanding principal balance of the loan will accrue at a
      variable rate equal to the lender’s prime rate plus 2%. As of December 31,
      2006 the interest rate is 10.25% per annum, subject to change each time the
      lender’s prime rate changes. Interest is payable monthly with all outstanding
      principal and accrued and unpaid interest due and payable in full on
      March 15, 2007. The Company is currently in default on the loan agreement
      and has negotiated a forbearance agreement with Far East National Bank. As
      of
      September 30, 2007, a total of $558,000 remains outstanding on the loan
      agreement.




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




On
      January 15, 2007, the Company’s wholly-owned subsidiary, Global Airworks,
      Inc., entered into a loan agreement with Hu Cheng-Lien, an individual, to loan
      Global Airworks, Inc. up to $1.5 million. Pursuant to a promissory note, dated
      January 15, 2007, executed in connection with the loan agreement, interest
      on the outstanding principal balance of an advance will accrue at an interest
      rate equal to 10%. Interest is payable at the maturity date of each advance
      which is 180 days from the date of each advance. As of September 30, 2007,
      a
      total of $1.47 million has been advanced to Global Airworks, Inc. pursuant
      to
      the loan agreement. The Company is currently in default on the loan and plans
      to
      enter into negotiations with Hu Cheng-Lien to revise the terms or restructure
      the loan.




17




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


**12.Subsequent
      Events**





On
      September 5, 2007, Portside Growth and Opportunity Fund filed a summons and
      complaint against Global ePoint, Inc. in the United States District Court for
      the Southern District of New York (Case No. 07 CIV 7834). In its complaint,
      Portside alleges that the Company owes Portside a total of approximately
      $949,228 pursuant to the mandatory redemption features of the Company’s Series C
      and Series E convertible preferred stock previously purchased by
      Portside.  Pursuant to a Stipulation entered into between the parties
      in November 2007, the Company has agreed to the entry of a judgment against
      the
      Company in the amount of $851,458, inclusive of court costs.  By way
      of the Stipulation, Portside has agreed not to take action to enforce the
      judgment until the earlier to occur of (i) April 7, 2008; (ii) a bankruptcy
      event within the meaning of subparts (a) through (e), (g) or (h) of the
      definition “Bankruptcy Event” as defined in the Securities Purchase Agreement
      (“Purchase Agreement”) dated  May 23, 2006 between the Company and
      Iroquois;  (iii) a “Change of Control” as defined in the Purchase
      Agreement; or (iv) any person obtains a
      judgment against defendant in excess of $50,000 that is not stayed and becomes
      enforceable prior to April 7, 2008.




18





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




**OVERVIEW**




Our
      working capital deficiency and continued operating loss, requires us to
      restructure our operations. Our goal is to focus our resources in the area
      we
      believe will lead us to the fastest opportunity to reach profitability and
      long
      term growth. To achieve our goal, we initiated a new business plan to narrow
      our
      focus to allow us to achieve the highest level of return on the lowest level
      of
      capital requirements; thereby decreasing our overall cash needs as well as
      decreasing our overall need for other resources.  After analysis of
      our business opportunities, we determined that our aviation division was best
      positioned to achieve our objectives as it had the highest potential of
      near-term profitability, the highest potential for accelerated near-term revenue
      growth, the potential for the highest return on capital, and the largest and
      most easily assessable market for its products.  Therefore, in
      accordance with the plan we have closed our contract manufacturing and digital
      technology divisions.  Although the closure of these divisions
      substantially reduced our revenues and forced us to incur additional debt and
      losses, we believe the costs and other resources necessary to operate these
      divisions would have exceeded the near-term revenue and would have forced us
      to
      need even greater cash resources than we otherwise would need with our
      continuing operations.




Our
      continuing operation consists of our aviation division which primarily provides
      surveillance and safety products and aircraft modification products and services
      to the commercial airline industry.  Those products and services
      include our cockpit door video surveillance system (“CDSS”), electronic flight
      bag system (“EFB”), cost effective in–flight entertainment systems (“IFE”), and
      other products and integration services for the aviation market.  We
      believe the market for these products to be over $2.5 billion and the revenue
      that is generated by our aviation division not only has higher profit margins
      and lower associated marketing and administrative costs as a percentage of
      revenue, it is more likely to increase dramatically given the potential market
      for these products.  Supporting our more focused business plan is the
      $8 million contract from Thai Airways International Public Company Limited
      to
      install a fully integrated electronic flight bag to include cockpit door
      surveillance and cargo door recording applications on their fleet of passenger
      aircraft.  We have completed the design review with Thai Airways and
      we are on schedule to complete product certification and begin deliveries and
      installation of the system into their fleet in early
      2008.  Additionally, although the Federal Aviation Administration did
      not mandate CDSS for passenger aircraft, as we expected, several
      other countries have recently mandated CDSS such as Italy, India and Mexico
      as well as other countries where we expect mandates to occur such as
      China.  These expected near term opportunities provide us with the
      potential for substantial revenue growth.




Although
      we believe the reduction of our operations and decrease of overhead will provide
      us with additional opportunity to obtain the working capital required to move
      forward, we have continued to have difficulty financing our
      operations.  We entered into our Series E preferred stock financing in
      order to continue with our product development, acquisitions and sales and
      marketing strategies. As a result of the transaction, we were delisted from
      the
      Nasdaq Capital Market due to shareholder approval issues arising from the
      Nasdaq’s determination to aggregate our Series C, D, and E financings
      and our failure to file “listing of additional share” forms for these
      financings on a timely basis. Although we appealed the determination our appeals
      were denied and we were delisted from the Nasdaq Capital Market. Our common
      stock is currently quoted in the Pink Sheets under the trading symbol
“GEPT.PK.”




As
      a
      result of the delisting substantially all of our preferred stockholders have
      submitted redemption demands which has resulted in a working capital deficit.
      On
      March 1, 2007, Iroquois Master Fund Ltd filed a summons and complaint against
      Global ePoint, Inc. in the United Stated District Court for the Southern
      District of New York (Case No. 07 CIV 1789). In its complaint, Iroquois alleged
      that the Company owed Iroquois a total of approximately $5,292,503 pursuant
      to
      the mandatory redemption features of the Company’s Series D and Series E
      convertible preferred stock previously sold to Iroquois. Pursuant to a
      Stipulation entered into between the parties in July 2007, the Company has
      agreed to the entry of a judgment against the Company in the amount of
      $5,292,853, inclusive of court costs. By way of the Stipulation, Iroquois has
      agreed not to take action to enforce the judgment until the earlier to occur
      of
      (i) eight (8) months from the date of the judgment; (ii) a bankruptcy event
      within the meaning of subparts (a) through (e), (g) or (h) of the definition
      “Bankruptcy Event” as defined in the Securities Purchase Agreement (“Purchase
      Agreement”) dated May 23, 2006 between the Company and Iroquois; or (iii) a
“Change of Control” as defined in the Purchase Agreement. We intend to improve
      our working capital position by negotiating with Iroquois regarding its judgment
      and the holders of our remaining Series C, D and E preferred stock to resolve
      their demands without the need to make the required cash
      payments.




There
      can
      be no assurance, however that we will be successful in our restructuring
      efforts, including the resolution of the Iroquois judgment or the
      preferred stockholders’ redemption demands without the need to make the
      required cash payments or obtain additional working capital.




19




**RESULTS
      OF OPERATIONS—COMBINED**




The
      following is a schedule showing the combined operations for our aviation
      division 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, 2007***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            302
            
            
            $
            -
            
            
            $
            302Cost
                of sales
            
            
            252
            
            
            
            -
            
            
            
            252Gross
                profit
            
            
            50
            
            
            
            -
            
            
            
            50Operating
                expenses
            
            
            446
            
            
            
            427
            
            
            
            873Loss
                from operations
            
            
            (396
            )
            
            
            (427
            )
            
            
            (823
            )Other
                income (expense)
            
            
            (47
            )
            
            
            (766
            )
            
            
            (813
            )Loss
                before income tax provision
            
            $
            (443
            )
            
            $
            (1,193
            )
            
            $
            (1,636
            )Total
                assets as of  September 30, 2007
            
            $
            7,593
            
            
            $
            3,752
            
            
            $
            11,345For
                the three months ended September 30, 2006***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            1,064
            
            
            $
            -
            
            
            $
            1,064Cost
                of sales
            
            
            1,071
            
            
            
            -
            
            
            
            1,071Gross
                profit
            
            
            (7
            )
            
            
            -
            
            
            
            (7
            )Operating
                expenses
            
            
            653
            
            
            
            1,316
            
            
            
            1,969Loss
                from operations
            
            
            (660
            )
            
            
            (1,316
            )
            
            
            (1,976
            )Other
                income (expense)
            
            
            -
            
            
            
            -
            
            
            
            -Loss
                before income tax provision
            
            $
            (660
            )
            
            $
            (1,316
            )
            
            $
            (1,976
            )Total
                assets as of  September 30, 2006
            
            $
            9,933
            
            
            $
            20,173
            
            
            $
            30,106For
                the nine months ended September 30, 2007***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            2,317
            
            
            $
            -
            
            
            $
            2,317Cost
                of sales
            
            
            1,602
            
            
            
            -
            
            
            
            1,602Gross
                profit
            
            
            715
            
            
            
            -
            
            
            
            715Operating
                expenses
            
            
            2,697
            
            
            
            1,956
            
            
            
            4,653Loss
                from operations
            
            
            (1,982
            )
            
            
            (1,956
            )
            
            
            (3,938
            )Other
                income (expense)
            
            
            (107
            )
            
            
            (1,761
            )
            
            
            (1,868
            )Loss
                before income tax provision
            
            $
            (2,089
            )
            
            $
            (3,717
            )
            
            $
            (5,806
            )Total
                assets as of  September 30, 2007
            
            $
            7,593
            
            
            $
            3,752
            
            
            $
            11,345




20




For
                the nine months ended September 30, 2006***($
                in thousands)***
            
            Aviation
            
            
            Corporate
            
            
            TotalNet
                sales
            
            $
            4,386
            
            
            $
            -
            
            
            $
            4,386Cost
                of sales
            
            
            3,831
            
            
            
            -
            
            
            
            3,831Gross
                profit
            
            
            555
            
            
            
            -
            
            
            
            555Operating
                expenses
            
            
            2,074
            
            
            
            2,800
            
            
            
            4,874Loss
                from operations
            
            
            (1,519
            )
            
            
            (2,800
            )
            
            
            (4,319
            )Other
                income (expense)
            
            
            -
            
            
            
            185
            
            
            
            185Loss
                before income tax provision
            
            $
            (1,519
            )
            
            $
            (2,615
            )
            
            $
            (4,134
            )Total
                assets as of  September 30, 2006
            
            $
            9,933
            
            
            $
            20,173
            
            
            $
            30,106




**RESULTS
      OF OPERATIONS—AVIATION DIVISION**




*For
      the Three Months Ended September 30, 2007 Compared to September 30,
      2006*




Revenues
      for the three months ended September 30, 2007 totaled $302 thousand compared
      to
      $1.1 million for the three months ended September 30, 2006. Cost of goods sold
      was $252 thousand for the three months ended September 30, 2007 compared to
      $1.1
      million for the three months ended September 30, 2006.  We established
      a maintenance operation in Tulsa, Oklahoma, in September 2005, to service a
      contract we obtained from a large Latin American airlines. The operation did
      not
      meet our expected profitability, therefore, we no longer offer the services
      and
      closed the maintenance facility in Tulsa Oklahoma at the end of 2006 upon
      completion of the contract.  The decrease in revenue and in cost
      of goods sold in the quarter ended September 2007 from the quarter ended
      September 2006 is due to the closed maintenance services
      operations.




Operating
      expenses declined $207 thousand to $446 thousand for the three months ended
      September 30, 2007 from $653 thousand for the three months ended September
      30,
      2006. The decrease in operating expenses is due to $357 thousand decline in
      selling and administrative expenses offset by an increase of $150 thousand
      in
      the provision for bad debt.   The decline in selling and
      administrative expenses is primarily due to a reduction of $105 thousand in
      sales and sales related expenses, the costs associated with the closed
      maintenance services operation resulted in a decrease of $131 thousand,
      personnel reductions resulted in a $98 thousand decline in administrative
      salaries and a $19 thousand reduction in rent expense.




Other
      expenses increased $47 thousand due to an increase in interest and legal
      expenses on the $1.5 million secured line of credit which was established in
      January 2007.




As
      a
      result of the foregoing, the aviation division incurred loss from operations
      of
      $396 thousand for the three months ended September 30, 2007 compared to a
      loss from operations of $660 thousand for the three months ended September
      30,
      2006.




21




*For
      the Nine Months Ended September 30, 2007 Compared to September 30,
      2006*




Revenues
      for the nine months ended September 30, 2007 totaled $2.3 million compared
      to
      $4.4 million for the nine months ended September 30, 2006. The decrease in
      sales
      is the result of a decrease in aircraft maintenance services of $2.4
      million.  Cost of goods sold was $1.6 million for the nine months
      ended September 30, 2007 compared to $3.8 million for the nine months ended
      September 30, 2006. Gross margins increased to 31% for the nine months ended
      September 30, 2007 compared to 13% for the nine months ended September 30,
      2006.
      The increase in gross margins is due to the change in revenues to higher margin
      modification equipment in the nine months ended September 30, 2007 compared
      to
      revenue from the low margin maintenance services operations for the nine months
      ended September 30, 2006.




Operating
      expenses totaled $2.7 million for the nine months ended September 30, 2007
      compared to $2.1 million for the nine months ended September 30,
      2006.  Operating expenses increased due to a non cash charge of $1.4
      million for the impairment of goodwill.  On August 15, 2007 the
      Federal Aviation Administration (FAA) published its final rule on flightdeck
      door monitoring and crew discreet alerting systems. The FAA’s final rule
      provides for alternative methods to comply with monitoring on the passenger
      side
      of the flightdeck door other than a video monitoring system. The Company
      expected an FAA mandate for its CDSS system would provide substantial near
      term
      opportunity for US based air carriers. Without the mandate, the near term
      opportunity becomes less certain. The lack of a FAA mandate for CDSS systems
      resulted in a revision to Management revenue assumptions. Application of the
      discounted cash flows methodology using the revised assumptions, resulted in
      a
      $1.4 million non-cash goodwill impairment charge.  Excluding the
      goodwill impairment charge, operating expenses declined $747 thousand for the
      nine months ended September 30, 2007 from the nine months ended September 30,
      2006.  The decrease in expenses is primarily due to a decrease of $668
      thousand in costs associated with the maintenance services operation and
      reduction in administrative overhead and personnel and $229 thousand decrease
      in
      sales and sales related expenses offset by a $150 thousand increase in the
      provision for bad debt.




Other
      expenses increased $107 thousand in the nine months ended September 30, 2007
      from the nine months ended September 30, 2006.  The increase is due to
      interest expense on a $1.5 million secured line of credit which was established
      in January 2007.




As
      a
      result of the foregoing, the aviation division incurred a loss from operations
      of $2.0 million for the nine months ended September 30, 2007. Excluding the
      non
      cash charge for impairment of goodwill, the aviation division reduced the loss
      from operations to $589 thousand for the nine months ended September 30, 2007
      from $1.5 million for the nine months ended September 30, 2006.




**RESULTS
      OF OPERATIONS—CORPORATE**




*For
      the Three Months Ended September 30, 2007 Compared to September 30,
      2006*




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, 2007,
      corporate general and administrative costs declined $889 thousand to $427
      thousand compared to $1.3 million for the three months ended September 30,
      2006.
      The decrease in corporate expenses was primarily due to $555 thousand decrease
      in stock option compensation expense, $204 thousand decline in accounting and
      legal fees and $120 thousand decline in public company related
      expenses.




Other
      expenses increased $766 thousand for the three months ended September 30, 2007
      from the three months ended September 30, 2006.  The increase in other
      expenses is due to $500 thousand increase to the reserve for the card dispensing
      machines and $266 thousand increase for damages and interest penalties related
      to defaults associated with our preferred stock.




The
      net
      result for corporate operations was a loss from operations of $427 thousand
      for
      the three months ended September 30, 2007 compared to a loss from operations
      of
      $1.3 million for the three months ended September 30, 2006.




*For
      the Nine Months Ended September 30, 2007 Compared to September 30,
      2006*




During
      the nine months ended September 30, 2007, corporate general and administrative
      costs declined $844 thousand to $2.0 million compared to $2.8 million for the
      nine months ended September 30, 2006. The decline in corporate expenses was
      due
      to $331 thousand decrease in stock option compensation expense, $275 thousand
      decrease in the general allowance for doubtful accounts, $198 thousand decrease
      in public company related expenses, $143 thousand decline in legal fees, $133
      thousand decrease in travel and other expenses and $49 thousand decrease in
      corporate salaries and wages. The decline in expenses was offset by the
      expensing of $199 thousand of accumulated legal and other professional fees
      related to the termination of discussions for the acquisition of Astrophysics,
      LLC and $85 thousand increase in accounting fees.  The decline in
      expenses is the result of cost cutting efforts as we complete the restructuring
      of our operations.




22




Other
      expenses were $1.8 million for the nine months ended September 30, 2007 compared
      to other income of $185 thousand for the nine months ended September 30,
      2006.  The increase in other expenses is due to the termination of
      discussions for the acquisition of Astrophysics, LLC resulting in the expensing
      of a $500 thousand non refundable good faith deposit, $500 thousand increase
      to
      the reserve for the card dispensing machines and $761 thousand increase for
      damages and interest penalties related to defaults associated with our preferred
      stock.  Other income decreased $185 thousand for the nine months
      ended  September 30, 2007 due to the receipt of uncollected funds from
      the State of Pennsylvania from the pre-merged public entity in the nine months
      ended September 30, 2006.




The
      net
      result for corporate operations was a loss from operations of $2.0 million
      for
      the nine months ended September 30, 2007 compared to a loss from operations
      of
      $2.8 million for the nine months ended September 30, 2006.




**DISCONTINUED
      OPERATIONS**




In
      the
      second quarter of 2007, we discontinued the contract manufacturing
      operations.  Additionally, we discontinued the digital technology
      division operations in the third quarter of 2007.  These operations
      were discontinued to focus our resources on our aviation services operation
      which we believe has higher margin and growth potential.




The
      discontinuation of the contract manufacturing division resulted in an after
      tax
      charge of $2.4 million for the nine months ended September 30, 2007 of which
      $1.5 million was due to the impairment of goodwill.  The
      discontinuation of the digital technology division resulted in an after tax
      charge of $8.1 million for the nine months ended September 30, 2007 of which
      $4.3 million was due to the impairment of goodwill and other intangible
      assets.





**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      of
      September 30, 2007, due primarily to the reclassification of $7.5 million of
      our
      Series C, D and E preferred stock to short term loans payable, the Company
      had a
      $11.9 million net working capital deficit and $101 thousand cash or cash
      equivalents. Since then, our working capital position has worsened due to
      continuing losses from operations. In July 2007, we agreed to the entry of
      a
      judgment in the amount of $5,292,503 in favor of our largest preferred
      stockholder, Iroquois Master Fund Ltd., in settlement of Iroquois' claim
      for mandatory redemption of our Series C and Series E convertible preferred
      stock previously sold to Iroquois. We intend to improve our working capital
      position by pursuing negotiations with Iroquois and the other holders of our
      Series C, D and E preferred stock to resolve the judgment and their redemption
      demands, respectfully, without the need to make the required cash
      payments. However, there can be no assurance that we will be successful in
      resolving their demands for cash payments. There can also be no assurance
      that we will not receive additional redemption demands from other holders of
      our
      Series C and E preferred stock. We also intend to improve our working capital
      position by restructuring our operations through discontinuing our contract
      manufacturing and digital technology divisions. Additionally, we are exploring
      opportunities to sell various assets and product offerings while pursuing
      various funding alternatives, however at this time there are no understandings
      or arrangements on the part of any third party to provide us with additional
      funding. In this regard, our delisting from the Nasdaq Stock Market and the
      shareholder derivative lawsuit against our board of directors is likely to
      impair our ability to resolve the redemption demands of our preferred
      shareholders and successfully acquire funding from other sources. In the
      meantime, we are solely dependent on our existing current assets to meet our
      operating expenses, capital expenditures, and other commitments, which we
      believe will provide sufficient funds only for three months from the date of
      this report assuming we do not fund the required mandatory redemption
      payments.




We
      have
      substantially completed the restructuring of our operations and have
      significantly reduced our overhead expenses, we believe that we will require
      a
      minimum of $3 million of additional funding, in addition to any funding required
      to resolve the $5.2 million Iroquois judgment and the $0.9 million in redemption
      demands of our preferred shareholders, in order to fund our ongoing and planned
      operations over the next 12 months. If we are not successful in
      resolving the Iroquois judgment and the preferred
      stockholders redemption demands without a cash payment, we will need a
      minimum of $11.4 million of additional funding over the next 12 months. In
      the
      event we are unable to acquire the required financing within the next few
      months, our company’s financial condition will be severely impacted and we may
      be unable to continue as a going concern. In that event, we may be forced to
      seek protection under the bankruptcy laws. There can be no guarantee that the
      funds we require will be available on commercially reasonable terms, if at
      all.
      The report of our independent registered public accounting firm for the fiscal
      year ended December 31, 2006 states that due to recurring losses,
      reclassification of all preferred stock as current liability because of
      mandatory redemption and working capital deficiency there is substantial doubt
      about our ability to continue as a going concern.




23




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




•  
                 the overall levels of sales of our products and gross profit
                margins;


•  
                 market acceptance of the technology and
                products;


•  
                 our business, product, capital expenditure and research and
                development plans, and product and technology
                roadmaps;


•  
                 the overall levels of sales of our products and gross profit
                margins;


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


•  
                 volume price discounts and customer
                rebates;


•    the
                levels of inventory and accounts receivable that we
                maintain;


•  
                 acquisition opportunities;


•  
                 capital improvements to new and existing
                facilities;


•  
                 technological advances;


•  
                 our competitors’ responses to our
                products;


•  
                 our relationships with suppliers and customers;
                and


•  
                 the effectiveness of our expense and product cost control and
                reduction efforts.




Net
      cash
      used by operations for the nine months ended September 30, 2007 was $360
      thousand as compared to cash used by operations of $7.8 million for the
      corresponding period in 2006. In the nine months ended September 30, 2007 and
      2006, the primary use of cash was funding the operating loss.




Cash
      used
      by investing activities for the nine months ended September 30, 2007 consisted
      of $627 thousand compared to cash used by investing activities of $504 thousand
      for the nine months ended September 30, 2006. For the nine months ended
      September 30, 2007 the cash was used for accrued costs for the delivery of
      the
      EFB system related to the Thai Airways contract and the acquisition of other
      intangibles. For the nine months ended September 30, 2006 the cash was comprised
      of the payment of $500 thousand 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.




The
      Company’s wholly-owned subsidiary, Best Logic, LLC, extended a loan agreement
      with Far East National Bank pursuant to which the bank has agreed to loan Best
      Logic up to $1 million. Pursuant to a promissory note, dated March 9, 2005,
      executed in connection with the loan agreement, interest on the outstanding
      principal balance of the loan will accrue at a variable rate equal to the
      lender’s prime rate plus 2%. The initial interest rate was 10.25% per
      annum, subject to change each time the lender’s prime rate changes. Interest is
      payable monthly with all outstanding principal and accrued and unpaid interest
      due and payable in full on March 15, 2007. Best Logic has worked out a
      forbearance plan to pay down the note by December 1, 2007 through monthly
      payments based on the collection of outstanding receivables and liquidation
      of
      its assets. Best Logic is current on the payments due per the terms of the
      forbearance agreement. As of September 30, 2007, a total of $559 thousand is
      outstanding by Best Logic pursuant to the loan agreement.




On
      January 15, 2007, the Company’s wholly-owned subsidiary, Global Airworks,
      Inc., entered into a loan agreement with Hu Cheng-Lien, an individual, to loan
      Global Airworks, Inc. up to $1.5 million. Pursuant to a promissory note, dated
      January 15, 2007, executed in connection with the loan agreement, interest
      on the outstanding principal balance of an advance will accrue at an interest
      rate equal to 10%. Interest is payable at the maturity date of each advance
      which is 180 days from the date of each advance. As of September 30, 2007,
      a
      total of $1.47 million has been advanced to Global Airworks, Inc. pursuant
      to
      the loan agreement. In connection with the loan agreement, and as collateral
      for
      the loan, Global Airworks, Inc executed a security agreement granting Hu
      Cheng-Lien a security interest in certain assets of Global Airworks, Inc.
      including all inventory, accounts, equipment, and general intangibles. In
      addition, the loan is secured by a guaranty executed by Global ePoint, Inc.
      and
      Tops Digital Security, LLC. Global Airworks is currently in default on $1.47
      million of  the loan agreement. The Company is attempting to negotiate
      a work-out or extension of the loan, however there can be no assurance it will
      be able to do so.




Net
      cash
      provided by financing activities for the nine months ended September 30, 2007
      totaled $1.1 million primarily from advances on the loan agreement from our
      Global Airworks, Inc. As of September 30, 2007, the total outstanding balance
      on
      loans from related parties was $1.4 million.




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 $0.7 million, all of which were offset by $0.3 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.




24




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




On
      September 29, 2006, we received redemption notices from certain holders of
      our Series C and Series E preferred stock demanding that we repurchase an
      aggregate of 136,908 shares of their Series C preferred stock, representing
      27%
      of the issued and outstanding Series C preferred stock, and 95,703 shares of
      their Series E preferred stock, representing 82% of the issued and outstanding
      Series E preferred stock. Subsequently, we received redemption notices demanding
      that we repurchase an additional 150,600 shares of Series C preferred stock,
      5,500 remaining shares of the Series D preferred stock and 6,175 shares of
      Series E preferred stock. As of September 30, 2007, the aggregate redemption
      amount under the notices received is $6.2 million plus $1.2 million accrued
      and
      unpaid dividends and interest.




On
      March
      1, 2007, Iroquois Master Fund Ltd filed a summons and complaint against Global
      ePoint, Inc. in the United States District Court for the Southern District
      of
      New York (Case No. 07 CIV 1789). In its complaint, Iroquois alleged that the
      Company owed Iroquois a total of approximately $5,292,503 pursuant to the
      mandatory redemption features of the Company’s Series D and Series E convertible
      preferred stock previously sold to Iroquois. Pursuant to a Stipulation entered
      into between the parties in July 2007, the Company has agreed to the entry
      of a
      judgment against the Company in the amount of $5,292,853, inclusive of court
      costs. By way of the Stipulation, Iroquois has agreed not to take action to
      enforce the judgment until the earlier to occur of (i) eight (8) months from
      the
      date of the judgment; (ii) a bankruptcy event within the meaning of subparts
      (a)
      through (e), (g) or (h) of the definition “Bankruptcy Event” as defined in the
      Securities Purchase Agreement (“Purchase Agreement”) dated May 23, 2006 between
      the Company and Iroquois; or (iii) a “Change of Control” as defined in the
      Purchase Agreement.




After
      giving effect to the settlement with Iroquois, 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 $7,532,787, plus accrued but unpaid dividends. All
      demands for redemption payments are due within sixty (60) days of the date
      the Company receives written notice from such stockholder of its
      election.




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




**OFF-BALANCE
      SHEET ARRANGEMENTS**




We
      do not
      have any off-balance sheet arrangements.




**ITEM 3.****QUANTITATIVE
      AND
      QUALITATIVE DESCLOSURES ABOUT MARKET RISK**




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




Our
      borrowings are in fixed and variable rate instruments, with interest rates
      tied
      to either the Prime Rate or the LIBOR. A 100 basis point change in these rates
      would have an impact of approximately $15,000 on our annual interest expense,
      assuming consistent levels of floating rate debt with those held at September
      30, 2007.




25




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





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




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




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




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




***We
      require additional funding of $3 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, 2007, due to the
      reclassification of $7.5 million for redemption demands on our Series C, D
      and E
      preferred stock to short term loan payable, we had a net working capital deficit
      of $12.0 million and $100 thousand cash or cash equivalents. Since then, our
      working capital position has worsened due to continuing losses from operations.
      In July 2007, we agreed to the entry of a judgment in the amount of $5,292,503
      in favor of our largest stockholder, Iroquois Master Fund Ltd, in settlement
      of
      Iroquois' claim for mandatory redemption of our Series C and Series E
      convertible preferred stock previously sold to Iroquois. We intend to improve
      our working capital position by pursuing negotiations with Iroquois and the
      holders of our Series C, D and E preferred stock to resolve the judgment and
      their redemption demands, respectively, without the need to make the
      required cash payment. However, there can be no assurance that we will be
      successful in doing so. There can also be no assurance that we will not receive
      additional redemption demands from other holders of our Series C and E preferred
      stock. We also intend to improve our working capital position by restructuring
      our operations through discontinuing our contract manufacturing and digital
      technology divisions. Additionally, we are exploring opportunities to sell
      various assets and product offerings while pursuing various funding
      alternatives, however at this time there are no understandings or arrangements
      on the part of any third party to provide us with additional funding. In this
      regard, our delisting from the Nasdaq Stock Market and the recently filed
      shareholder derivative lawsuit against our board of directors is likely to
      impair our ability to resolve the Iroquois judgment and 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 $3 million of additional funding, in
      addition to any funds needed to resolve the $5.2 million Iroquois judgment
      and
      the $0.9 million in redemption demands of our preferred stockholders, in order
      to fund our ongoing and planned operations over the next 12 months. If we are
      not successful in resolving the Iroquois judgment and the preferred
      stockholders redemption demands without a cash payment, we will need a
      minimum of $11.4 million of additional funding over the next 12
      months.  In the event we are unable to acquire the required financing
      within the next few months, our company’s financial condition will be severely
      impacted and we may be unable to continue as a going concern. In that event,
      we
      may be forced to seek protection under the bankruptcy laws. There can be no
      guarantee that the funds we require will be available on commercially reasonable
      terms, if at all.




26




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




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




·
            the
                percentage ownership of our existing stockholders will be
                reduced;


·
            our
                stockholders may experience additional dilution in net book value
                per
                share; or


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




***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.




***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.”




27




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




***Our
      current revenues and purchases are dependent on a limited number of customers
      and suppliers.*** For the three months ended September 30,
      2007 and 2006, one and two customers accounted for 56% and 79% of the Company’s
      sales, respectively. For the nine months ended September 30, 2007 and
      2006  two customers accounted for 74% and 67% of the Company’s sales,
      respectively, and 25% of the accounts receivable as of September 30, 2007.
      For the three months ended September 30, 2007 and 2006. one and two
      vendors, respectively, accounted for 70% and 76% of the Company’s purchases,
      respectively. For the nine months ended September 30, 2007 and 2006, one
      and two vendors, respectively, accounted for 70% and 68% of the Company’s
      purchases, respectively, and none of the accounts payable as of
      September 30, 2007. A substantial amount of the above sales and purchase
      transactions in 2006 were conducted with related parties through our contract
      manufacturing division the results of which have been reclassified as
      discontinued operations. If we were to lose one or more of these customers
      before we are able to secure sales from other customers, our income and
      financial condition would be adversely affected. If we are unable to enter
      into
      and maintain satisfactory distribution arrangements with leading suppliers
      and
      an adequate supply of products, our sales could be adversely
      affected.




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




Currently,
      we have three series of preferred stock outstanding, C, D, and E, all of which
      may be converted into shares of our common stock at any time at the option
      of
      the holders, which will result in dilution to holders of our common stock.
      In
      addition, all of the preferred shareholders are entitled to receive dividends
      on
      their shares of preferred stock, and upon a liquidation 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, 2007, there were 501,917 shares of Series C Preferred Stock
      outstanding, which are convertible into 501,917 shares of our common stock,
      5,500 shares of Series D Preferred Stock outstanding, which are convertible
      into
      66,106 shares of our common stock, and 117,314 shares of Series E Preferred
      Stock outstanding, which are currently convertible into 2,125,254 shares of
      our
      common stock. The conversion price of the Series C and Series D Preferred Stock
      is not adjustable except for standard anti-dilution adjustments relating to
      stock splits, combinations and similar events. However, the conversion price
      of
      our Series E Preferred Stock will be adjusted downward if we issue shares of
      common stock, or securities convertible into shares of common stock, at an
      effective price less than $2.76 per common share. If this occurs, the Series
      E
      Preferred Stock can be converted into a larger number of shares than stated
      above, resulting in even greater dilution to holders of our common stock. Upon
      a
      liquidation 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 liquidation 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.




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***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.




***Our
      intellectual property rights may not be adequate to protect our
      business.*** We currently do not hold any patents for our
      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.




29




***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
      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. Acquisitions, joint ventures and strategic alliances may involve
      significant other risks and uncertainties, including distraction of management’s
      attention away from normal business operations, insufficient revenue generation
      to offset liabilities assumed and expenses associated with the transaction,
      and
      unidentified issues not discovered in our due diligence process, such as product
      quality and technology issues and legal contingencies. In addition, in the
      case
      of acquisitions, we may be unable to effectively integrate the acquired
      companies’ marketing, technology, production, development, distribution and
      management systems. Our operating results could be adversely affected by any
      problems arising during or from acquisitions or from modifications or
      termination of joint ventures and strategic alliances or the inability to
      effectively integrate any future acquisitions.





**ITEM 4.****CONTROLS
      AND PROCEDURES**




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




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




Based
      on
      our continuing evaluation, the Company’s management, including the CEO and CFO,
      concluded that the Company’s disclosure controls and procedures are designed to
      provide reasonable assurance of achieving their objectives, and, further, that
      such controls and procedures were effective at the reasonable assurance level
      as
      of September 30, 2007. The Company’s management has concluded that the
      deficiencies described above do not prevent the controls and procedures from
      being effective because management has identified the issues and is taking
      action to resolve them, other aspects of the Company’s business are not
      negatively impacted, and the controls and procedures are subject to continuous
      review by management. During the quarter ended September 30, 2007, there were
      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.




30




**PART
      II. OTHER INFORMATION**




**ITEM 1.****LEGAL
      PROCEEDINGS**




On
      September 5, 2007, Portside Growth and Opportunity Fund filed a summons and
      complaint against Global ePoint, Inc. in the United States District Court for
      the Southern District of New York (Case No. 07 CIV 7834). In its complaint,
      Portside alleges that the Company owes Portside a total of approximately
      $949,227.89 pursuant to the mandatory redemption features of the Company’s
      Series C and Series E convertible preferred stock previously purchased by
      Portside. Pursuant to a Stipulation entered into between the parties in November
      2007, the Company has agreed to the entry of a judgment against the Company
      in
      the amount of $851,458, inclusive of court costs.  By way of the
      Stipulation, Portside has agreed not to take action to enforce the judgment
      until the earlier to occur of (i) April 7, 2008; (ii) a bankruptcy event within
      the meaning of subparts (a) through (e), (g) or (h) of the definition
“Bankruptcy Event” as defined in the Securities Purchase Agreement (“Purchase
      Agreement”) dated  May 23, 2006 between the Company and
      Iroquois;  (iii) a “Change of Control” as defined in the Purchase
      Agreement; or (iv) any person obtains a
      judgment against defendant in excess of $50,000 that is not stayed and becomes
      enforceable prior to April 7, 2008.





**ITEM 1A.****RISK
      FACTORS**




See
      Part
      I, Item 2, “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations - Cautionary Statement Regarding Future Results,
      Forward-Looking Information and Certain Important Factors”, above.




**ITEM 6.****EXHIBITS**


31.1
            Certifications
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            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)





31





**SIGNATURES**




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




**GLOBAL
                EPOINT, INC.**Date:
                November 19, 2007
            /s/
                DARYL F. GATES**Daryl
                F. Gates,**
              **Chief
                Executive Officer**Date:
                November 19, 2007
            /s/
                JOHN PAN**John
                Pan,**
              **Chief
                Financial Officer and
                Chairman**






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