**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-KSB**

 
| **(Mark  One)** |   |
|-----------------|--------|

 
| **ý** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|------------|--------------------------------------------------------------------------------------------|

 

**FOR THEYEAR ENDED DECEMBER 31, 2001**

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

 

**FOR THETRANSITION PERIOD FROM                                 TO                       **

 

**CommissionFile Number 1-21738**

 

**GLOBAL EPOINT, INC.**

(formerly On-PointTechnology Systems, Inc.)

 

(Exact name of registrantas specified in its charter)

 

| **NEVADA**                                                                         |   | **33-0423037**                    |
|------------------------------------------------------------------------------------|--------|-----------------------------------|
| (State of  Incorporation)                                                          |   | (I.R.S. Employer  Identification) |
|                                                                               |   |                              |
| **1370  W. SAN MARCOS BLVD., SUITE 100, SAN MARCOS, CALIFORNIA 92069**             |
| (Address of  Registrant’s Executive Offices)  (Zip  Code)                |
|                                                                               |   |                              |
| Registrant’s telephone  number, including area code:  **(760) 510-4900** |
|                                                                               |
| Securities registered  pursuant to section 12 (b) of the Act: **None**             |

 

Securities registeredpursuant to section 12(g) of the Act:

Common Stock, par value$.03 per share

 

Check whether the issuer (1)has filed all reports required to be filed by section 13 or 15 (d) of theExchange Act during the past 12 months (or if such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    YES ý NO o

 

Check if disclosure ofdelinquent filers in response to item 405 of regulation S-B is not contained inthis form, and no disclosure will be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in part III of this form 10-KSB o.

 

The registrant’s revenuesfor fiscal year ended December 31, 2001 were $3,379,255

 

The aggregate marketvalue of the registrant’s common stock held by nonaffiliates of the Registrantas of March 5, 2002, was $7,319,493

 

The number of sharesoutstanding of the Registrant’s common stock as of March 5, 2002, was 4,305,584

 

Documents incorporated byreference: None

 

 

ITEM 1. BUSINESS

 

General

 

In 2001, the Company completed the sale of its lotterybusiness, which was the first step in a series of actions intended to transformthe Company and to strategically move forward with new market opportunitiesthat can better enhance shareholder value. The Company had been engaged primarily in the lottery industry over thepast 10 years and was one of the largest providers of vending terminals for thesale of instant-winner lottery tickets. On February 23, 2001, the Company executed a definitive agreement tosell to Interlott Technologies, Inc. (Interlott) the assets used in itsexisting lottery business, relating to the manufacture, sale, lease, andservice of instant lottery ticket vending machines in exchange for up to $28.5million, including cash of $13.5 million at closing (subject to closingadjustments), and deferred and earn-out amounts (subject to certain conditions)for the remainder.  A more detaileddescription of the agreement with Interlott is under “Agreement withInterlott”.  Such sale, which wasapproved by the Company’s shareholders on May 18, 2001, was completed on June1, 2001.  As a result of the sale, theCompany changed its name from On-Point Technology Systems, Inc. to GlobalePoint, Inc.

 

The Company’s revenues through June 1, 2001 had beenprimarily generated from (i) sales of vending terminals (ii) leases of vendingterminals (iii) performance of service on vending terminals (iv) upgrades tovending terminals, and (v) sales of associated parts.  The Company’s products were sold or leased to a limited number ofcustomers worldwide.  As a result, theCompany had experienced fluctuations in its financial results and capitalexpenditures because of the timing of significant individual contract awardsand customer orders as well as associated product delivery schedules.  The Company’s sales cycle could, at times,be relatively long due to the lead time required for business opportunities toresult in signed sales or lease agreements. Operating results were affected by such lead time as well as workingcapital requirements associated with manufacturing vending terminals pursuantto new orders, increased competition, and the extended time which could elapsebetween the customer’s firm order and the receipt of revenue from the sale orlease of the applicable vending terminals. In addition, there had been an accelerating trend by customers to leaserather than purchase vending terminal equipment.  Leasing vending terminals required the Company to invest capitalor otherwise finance the manufacture of the vending terminals.

 

Over the past four years, the Company had undergone anextensive development program in accordance with a comprehensive strategicproduct development plan for the lottery market.  The plan envisioned the development of a proprietary design forthe world’s first central-computer activated instant winner lottery ticket aswell as the next generation of dispensing equipment for instant winner lotterytickets capable of ultimately dispensing the new ticket design.  Prior to the sale of its lottery assets, theCompany had obtained a patent for its on-line instant ticket concepts and hadfinalized most of the development of its next generation lotteryequipment.  The Company had expendedover $5 million on its product development strategy through June 1, 2001.  As a result of the tremendous focus andresources required over the past four years for the development of its new nextgeneration lottery products, results of operations were negatively impacted dueto the expense of the development costs and the transitional impact of changingproducts on the Company’s revenue and gross margins.

 

As a result of the sale of the lottery business, theCompany is no longer engaged in the business of manufacturing, selling, leasingand servicing of lottery vending machines subsequent to June 1, 2001, the closeof the transaction.  The Company is nowpositioned to proceed with further actions designed to transform itself into amore diversified company.  Since June 1,2001, the Company has been in the process of establishing new strategicinitiatives and transitioning the Company into new business activities.  In that connection, the Company is movingforward with marketing plans for the redeployment and sale of its existingnon-lottery related products, which consist primarily of card dispensingequipment (see “Debit Card Retailer” herein). The Company has obtained the substantial majority of this equipment froma former customer that was liquidated under bankruptcy proceedings in 2000.  The former customer had the equipment undera long-term lease agreement with the Company. The Company, since June 1, 2001, has been refurbishing the equipment toready it for redeployment and sale in 2002.

 

In addition to the redeployment and sale of the carddispensing equipment, the Company intends to distribute and sell prepaid phonecards under arrangements to be negotiated with the prospective purchasers ofthe Company’s card dispensing equipment. In order to pursue this business activity, the Company has formed asubsidiary called Global Telephony, Inc. The Company intends to fully begin the launch of this business activityduring 2002.  However, no assurances canbe given that this business activity will commence and, if commenced, will beprofitable.

 

The Company is also reviewing a variety of new marketopportunities that would provide it with the ability to accelerate the initialdevelopment phase generally required of a new product.  In that regard, management is currentlyreviewing the possibilities of merging with an established business and/oracquiring a developed product line.  TheCompany’s goal with respect to securing a new market opportunity is to identifywhich opportunities best leverage its management expertise, technologicalproperty, international relationships and corporate value, while maximizing itsabilities to enhance shareholder

 

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value.  TheCompany anticipates that if a new business opportunity is completed, a furtherrestructuring of its operations may be required.  The extent of the restructuring and the effect on the Company’sfinancial statements will depend on the particular business opportunity.

 

In connection with its review of new marketopportunities, the Company signed a letter of intent on December 26, 2001 to mergewith Fusion Telecommunication International, Inc. (“Fusion”), a private companyspecialized in providing international communications for voice, internetaccess and point-to-point private lines to corporate clients, communicationcarriers and Internet Service Providers (ISPs) in developing countries in Asia,Latin America and the Caribbean.  Theletter of intent regarding the proposed merger with Fusion provides that, ifthe merger is consummated, the current owners of Fusion would receive shares ofthe Company’s common stock, such that the shares of common stock to be issuedto Fusion shareholders would be equal to a percentage ownership of the Companyof between 65% to 75%, depending on a number of financial conditions.  A definitive agreement with respect to thistransaction has not yet been reached and, as a result, the letter of intent hasexpired with no further obligation of either party.  However, the Company and Fusion continue to discuss thepossibilities of a merger transaction.

 

Separately, the Company entered into an internationalservice agreement with Fusion, pursuant to which the parties commenced astrategic partnership to provide Voice-over Internet Protocol (VoIP) servicesinto a country in Southeast Asia.  Underthe agreement, the Company may be required to fund up to $500,000 forequipment, fees and deposits necessary to commence telecommunicationoperations, while Fusion will be required to provide the telecommunicationservices.  The parties will share netprofits, if any, equally under the venture. Operations are expected to commence in 2002; however, no assurances canbe given that operations will commence and, if commenced, they will beprofitable.

 

About Global ePoint

 

We are a Nevada Corporation organized in March1990.  Our executive offices are locatedat 1370 W. San Marcos Blvd, Suite 100, San Marcos, California, telephone (760)510-4900.

 

Forward-LookingStatements

 

*Some ofthe statements in this report are forward looking statements about what mayhappen in the future.  They includestatements regarding our current beliefs, plans, expectations and assumptionsabout matters such as our expected financial position and operating results,our business strategy and our financing plans. These statements can sometimes be identified by our use of forwardlooking words such as “anticipate,” “believe,” estimate,” “expect,” “intend,”“plan,” “seek,” “should,” and similar expressions.  We cannot guarantee that our forward-looking statements will turnout to be correct or that our beliefs, plans, expectations and assumptions willnot change.  Any forward-lookingstatements in this release are made pursuant to the “safe harbor” provisions ofthe private securities litigation act of 1995. Investors are cautioned that actual results may differ substantiallyfrom such forward-looking statements. Forward-looking statements involve risks and uncertainties including,but not limited to, the successful completion of proposed funding raises, whichmay be necessary for us to implement our plans to develop new marketopportunities, continued acceptance of our products and services in themarketplace, competitive factors, new products and technological changes, oursuccessful entry into new markets, our ability to increase our customer base,as well as general political and other uncertainties related to customerpurchases, instability in market rates in the telecommunication industries, ourability to sustain adequate cash flow from operations, and other risksdescribed in “risk factors,” “management’s discussion and analysis of financialcondition and results of operations” and elsewhere in this report.*

 

Risk Factors

 

The following risk factors apply to the Company andits intended business operations.  Ifany of the following risks actually occurs, the Company’s business, financialcondition or results of operations could be materially adversely affected.

 

WE MAY EXPERIENCEFLUCTUATIONS IN OUR FINANCIAL RESULTS AND, AS A RESULT,OUR STOCK PRICE.

 

As a result of the sale of our core business in 2001,the Company intends to commence new business operations in 2002, which mayexperience significant fluctuations in financial results.  Since the Company had insignificant revenuefrom its non-lottery product lines in the last three years, there can be no certaintythat additional revenue can be generated from these or other new product linesin the future.

 

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OUR CURRENTBUSINESS PLANS WILL DEPEND UPON CONTINUED MARKET ACCEPTANCE OFDCRs AND PREPAID PHONE CARDS.

 

Our ability to generate additional revenues andearnings from our intended new business operations will depend upon thesuccessful sale and deployment of DCRs and the sale of prepaid phone cards aswell as other revenue generating opportunities as pursued by the Company.  We cannot assure you that demand for DCRsand prepaid phone cards will continue. Any significant decline in the market for these products will affect ourability to market these products.

 

WE MAY NOT BE ABLETO ADAPT TO CHANGES IN TECHNOLOGY, PRODUCTS

AND INDUSTRYSTANDARDS.

 

The markets in which we compete are characterized byrapidly changing technology and evolving industry practices.  Competitors may introduce other types ofprepaid telephone calling card products or technologies.  If we are unable to develop or obtain therights to developing technologies and use such technologies to enhance ourpresent products and develop new products in a timely manner, we may be unableto retain our present customers or attract new customers.

 

THE DCR ANDPREPAID PHONE CARD MARKETS ARE VERY COMPETITIVE.

 

The DCR and prepaid phone card markets are relativelynew markets that have grown rapidly during the mid to late 1990s.  We may not be able to compete successfullyagainst current or future competitors, many of whom may have greater resourcesand experience than us.  The longdistance market and prepaid phone cards may face competition from other typesof communications products, including cellular phones, facsimile, e-mail andother on-line products.  Furthermore, itmay be necessary for us to expand our presence internationally or risk acompetitive disadvantage relative to our competitors.  We may incur substantial costs in such expansion with noassurance that we will recover those costs through increased business.  In addition, increased competition couldcause us to increase our selling and marketing expenses and research anddevelopment costs.  We may not be ableto offset the effects of any such increased costs through contracts and higher revenuefrom sales and leases of DCRs, and we may not have the resources to competesuccessfully.  These developments couldhave a material adverse effect on our business, financial condition and resultsof operation.

 

THE SUCCESS OF OURINTERNATIONAL ACTIVITIES IS SUBJECT TO MANY UNCERTAINTIES.

 

In 2001 and 2000, our sales and leases of DCRs outsidethe United States represented a small portion of our total revenues.  However, we may attempt to increase ourmarketing activities in international jurisdictions, including expansion intoseveral countries.  Further, we haveentered into an international service agreement for VoIP in a country inSoutheast Asia.  Our ability to expandour business into international markets and be successful in those markets maybe adversely affected by the following:

 

•     Customizing our products for use ininternational countries;

•     Longer accounts receivable paymentcycles;

•     Difficulties in managing internationaloperations;

•     Availability of trained personnel toinstall and implement our systems;

•     Exchange rate fluctuations;

•     Political instability;

•     Tariffs and other trade barriers;

•     Potentially adverse tax obligations;

•     Restrictions on the repatriation ofearnings; and

•     The burdens of complying with a widevariety of international laws and regulations.

 

In addition, the laws of some countries do not protectour intellectual property rights to as great an extent as the laws of theUnited States.  Such factors could havea material adverse effect on our international revenues and earnings and ouroverall financial performance.

 

WE MAY NOT BESUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR AVOIDINGCLAIMS THAT WE INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.

 

In the past, we have principally relied upon patent,copyright, trademark and trade secret laws, license agreements and employeenondisclosure agreements to protect our proprietary rights and technology.  These laws and contractual provisionsprovide only limited protection. Although we currently have no critical proprietary rights or patents, wecould incur

 

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substantial costs and diversion of managementresources in the defense of any claims relating to the proprietary rights ofothers, which could have a material adverse effect on our business, financialcondition and results of operations.

 

FUTURE SALES OFOUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELYAFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.

 

The market price of our common stock could drop as aresult of sales of large numbers of shares in the market, or the perceptionthat such sales could occur.  This isparticularly true due to our relatively small number of stockholders and theresulting low trading volume of our common stock in the public market.  These factors, together with the low priceof our common stock, also could make it more difficult for us to raise fundsthrough future offerings or maintain our listing on the Nasdaq National MarketSystem.

 

FUTUREACQUISITIONS AND/OR MERGERS MAY USE SIGNIFICANT RESOURCES,MAY BE UNSUCCESSFUL AND COULD EXPOSE US TO UNFORESEEN LIABILITIES.

 

As part of our strategic plans, we intend toselectively pursue acquisitions and/or merger candidates to accelerate ourentry into new markets.  Thesetransactions may involve significant cash expenditures, debt occurrence,additional operating losses, amortization of certain intangible assets,dilutive issuances of equity securities and expenses that could have a materialadverse effect on our financial condition and results of operations.

 

Agreement with Interlott

 

On February 23, 2001, we entered into the assetpurchase agreement with Interlott.  Theasset purchase agreement was filed as an exhibit to our Form 8-K, with an eventdate of February 23, 2001.  Thefollowing is a summary of the asset purchase agreement, but this summary isqualified in its entirety by reference to the full text of the asset purchaseagreement.

 

***Terms Of The Asset Purchase Agreement*** Pursuant to the asset purchase agreement, we sold to Interlott all ofour lottery assets.  These assetsincluded:

 

•                  Our agreements with the lotteries in four states and two foreigncountries pursuant to which we leased and serviced high-security automatedpoint of sale transaction vending terminals for the sale of instant-winnerlottery tickets.

•                  Our contractual rights under our agreements with our distributors.

•                  Our inventory and equipment relating to the lottery business.

•                  Our accounts receivables relating to the lottery business.

•                  Our intellectual property rights relating to the lottery business,including our patents, our trademarks and the name “On-Point TechnologySystems”

•                  Our leases for our facilities relating to the lottery business, but notthe lease for our corporate headquarters.

 

In consideration for the transfer of the lotteryassets, Interlott paid us approximately $12.8 million at closing ($13.5 millionless $.7 million of closing adjustments).

 

In addition, Interlott is to pay us, subject to anumber of conditions:

 

•                  A deferred payment of up to $9.0 million, based on gross profits fromnew sales and leases under existing contracts, payable over a five-year period.

•                  An earnout of up to $6.0 million, based on Interlott’s revenue from thesale of our lottery products.

 

Interlott agreed to assume our obligations that ariseafter the closing under the contracts that it assumed, but only to the extentthat the obligations do not arise from a condition which existed on the closingdate.  We will continue to beresponsible for those liabilities that existed on the closing date.

 

***Deferred Payment and Earnout***  * *Interlott has agreed to pay us upto $9.0 million as a deferred payment and up to $6.0 million as anearnout.  The deferred payment ispayable at the rate of $150,000 per month during the five-year periodcommencing with the first full month following the closing.  However, the amount of each payment to us issubject to adjustment.  The asset purchaseagreement sets forth benchmark gross profit levels from revenue derived from acombination of contract extensions and new orders from our existing lotteryclients.  These gross profit levels arecumulative from the beginning of the five-year period.  We will receive the full $150,000 paymentmonthly payment only as long as Interlott’s cumulative gross profit from thesecontract extensions or new contracts equals or exceeds the cumulative benchmarkgross profit level.  If the cumulativegross profit is less than the benchmark cumulative gross profit, the $150,000is subject to reduction in accordance with the formula.  If, during the five-year period when thedeferred payment is being made, Interlott’s

 

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gross profit from these sales subsequently reaches orexceeds the benchmark cumulative gross profit level, we will recover anyprevious reductions taken from the monthly payments.  We cannot assure you that we will collect all or any significantportion of the $9.0 million deferred payment. For the six months reported by Interlott to the Company through December31, 2001, Interlott paid us $29,395.

 

The earnout is payable in two stages during the fiveyears following the closing date.  Inthe first stage, for which the maximum earnout is $3.0 million, we receive 10%of Interlott’s gross revenue from new sales and leases of PlayPoint,CounterPoint and other of our lottery equipment.  The second stage begins after we have received $3 million fromInterlott’s gross revenue from these products. In the second stage, we are entitled to receive 10% of Interlott’s grossrevenue only from new sales and leases of CounterPoint products during theremainder of the five-year period.  IfInterlott generates revenue from these products and the revenue is used in thecalculation of the deferred payment, which is described in the previousparagraph, we are not entitled to a payment under the earnout from thatrevenue.  No amounts under thisprovision have been paid to us through December 31, 2001.

 

***On-Line Technology Agreement***  Pursuant to the asset purchase agreement, we transferred to Interlottour patents and technology relating to our on-line technology.  At the closing, we entered into an on-linetechnology agreement, pursuant to which:

 

•                  We retained the nonexclusive perpetual royalty-free right to sell,license, market, distribute or otherwise deal with, but not manufacture, ouron-line technology which is based on claims included in the patents for on-linetechnology which are transferred to Interlott. This technology relates to the enhancement of instant ticket dispensingin order to enable the point of sale automated on-line activation andvalidation of instant winner lottery tickets.

•                  Interlott also has the right to market the on-line technology and willbe the exclusive manufacturer of products incorporating the on-line technology.

•                  Interlott is to pay us a royalty based on Interlott’s gross profitgenerated from the sale or lease of products that utilize the on-linetechnology.  The percentage royaltypayable by Interlott ranges from 2.0% to 7.0% depending on Interlott’s grossmargins from those products.

•                  Interlott agreed not to activate the technology on any products unlessthe end users agree to pay us a royalty equal to one-half of one percent ofrevenue derived from the use of the on-line technology.

 

***Noncompetition Agreement*****  At the closing, we and Mr. FrederickSandvick entered into an agreement not to compete with Interlott during thefive-year period following the closing. The noncompetition agreement does not, however, prohibit us or Mr.Sandvick from owning or operating lotteries.

 

***Indemnification Provisions*****  Pursuant to the asset purchase agreement, wemade representations and warranties concerning our financial statements, theoperation of our business, the property, including intellectual property, ownedby us, our compliance with applicable law and agreement to which we are a partyand other matters relating to our business. With certain exceptions, our maximum liability to Interlott in the eventthat Interlott incurs any damage as a result of our breach of therepresentations and warranties is limited to $2 million from the payment madeat closing.  There is no limit to thepotential amount that can be offset against the deferred payment or earnout.

 

Commercial Products

 

Currently the only commercial product manufactured andmarketed by the Company consists of card vending machines (“DCRs”), which aremarketed principally for the resale of prepaid phone cards.  As a result of our primary focus in the lastseveral years into the development of our next generation lottery products, wehave not aggressively pursued the development or sale of these products.  However, we are now moving forward withplans that would commence the sale of our DCRs as well as commence thedistribution of prepaid phone cards in 2002.

 

***The Phone Card Industry**** * Prepaid phone cards are sold by telephone companiesworldwide.  Outside the United States,these cards generally contain a pre-programmed amount of credit and can beinserted into certain pay telephones. The customer can use all or a portion of the credit on the card to maketelephone calls.  These card-receptivepay telephones do not hold cash, thus eliminating security or internal theftconcerns for the owners of the telephones. The cards are either disposable or reusable and are sold in varyingdenominations.  In the United Statescard reader telephones are not in abundance. Therefore, most of the prepaid calling cards in use in the United Statesuse an “800” number that is called for verification of the card by entering aPIN number located on the card.

 

Prepaid telephone cards generally allow cardpurchasers to buy blocks of calling time at a discount.  The cards are more convenient, and the useof prepaid cards eliminates the need to maintain cash on hand to feed the paytelephone when making

 

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a call. Prepaid telephone cards also reduce the risk of credit card fraud ortheft, since a theft of a prepaid phone card results only in the loss of theface value of the card less any time already used.

 

It is our understanding that public awareness ofprepaid phone cards was minimal in the early 1990’s, but increased dramaticallythereafter.  We believe dispensingmachines became an important element of the distribution network of prepaidphone cards by the mid-1990s, providing visual recognition and 24-hourconvenient access to the product.  Animportant aspect of the vending machine is that its design must promote productawareness to effectively sell cards, not merely dispense them.  In 1997 we repackaged our DCR technologyinto a new cabinet styling.  In 1998 weexpanded our DCR product line to include 3 and 8 card terminals in response tothe specific application needs of our customers.  However, because of the diminishing demand for these types of newhigh-security vending terminals in 1998, partly due to the entry into themarket of lower-cost and lower-featured vending machines from competitors, theCompany redirected its efforts beginning in 1998 away from any significantfurther development or marketing in this area. However, the Company now believes that, because its DCRs have proven tobe robust and reliable, and because a continuing need exists in the market fora more organized and wide-spread deployment of card dispensing machines andprepaid phone cards, we can effectively redeploy our inventory of DCRs under aunique program that will include the distribution of prepaid phone cards.

 

Although the Company intends to focus its efforts onthe United States market, will continue to review opportunities in foreigncountries.  In many foreign countries,especially those less developed than the United States, the majority ofresidents do not own telephones and rely on public pay telephones.  Management estimates that commercial andgovernment entities in over 100 countries now use or are in the process ofevaluating the purchase of telephones equipped to accept prepaid phone cards.  We believe many of these entities arelooking to dispensing machines capable of handling prepaid phone cards to widenthe acceptance and availability of the prepaid phone cards.  The foreign market for prepaid phone cardvending machines is in its infancy, however, and there can be no assurancesthat we will be successful in developing this market.

 

In addition to prepaid phone cards, there are manyother debit cards, which can be dispensed using the DCR terminal, including busand subway passes.  Several countrieshave begun using a multi-purpose debit card to provide easy access to paytelephones, gasoline pumps, subway passes and bus passes.  Global ePoint has provided terminals to bothHong Kong and Brazil that dispense such multi-purpose cards, or different typesof cards or passes, including “smart cards”.

 

***Debit Card Retailer****  *In 1993 Global ePoint recognized thepotential to utilize its lottery technology in the evolving prepaid phone cardindustry and developed its DCR-2000 debit card vending machine.  We later developed other DCR models.  Most of the Company’s revenues in thismarket were generated from the sale or lease of DCR machines between 1993 and1998.  To date, these terminals havebeen placed in many different types of establishments where there is a market forprepaid phone or debit cards.  However,as additional companies have deployed similar machines, management did notfocus significant attention on the sale or lease of new machines from 1998 to2001.  As a result, Company’s sales ofDCR products and services totaled only $32,000 and $37,000 for the years endedDecember 31, 2001 and 2000 respectively. Those sales were primarily to foreign customers in each year.

 

***The DCR Machine****  *The DCR is designed to provide high security and highvisibility using a minimum of floor or counter-top space.  The machines are available in severalmodels, which house either one, two or more bins and are able to accept variousdenominations of foreign and domestic currency.  Although the DCRs currently undergoing refurbishment by thecompany accommodate only bill currencies, they can be manufactured toaccommodate coins.  The customer insertsa bill or coin into the DCR, receives credit, and then selects the denominationof prepaid phone card or other card/pass by pressing the button locatedimmediately under the appropriate card display.  The DCR dispenses a single card to the buyer.

 

Each card dispenser in a DCR stores approximately 400cards, depending on the thickness of the cards, thus providing a maximumcapacity of about 1,600 cards in our 4-card machine.  The DCR includes a display that shows instructional andpromotional messages and can also be equipped with the “Grabber”, a multi-colorLED sign, which is mounted on top of the machine and includes a built inmemory.  A customized message typicallyis input prior to installation of the machines.  These messages can be changed on site using a hand-held remotecontrol or loaded from a remote site with our optional “Shadow” communicationprogram.

 

Management believes that the DCR market has becomeextremely competitive.  In addition,technological advances may modify the market over the next few years.  During 1999 and 2000 management underwent areevaluation process for the potential of the DCR market both domestically andinternationally.  As a result of ourfocus primarily on our next generation lottery products, no significantdevelopments were made to the DCR products in 1999 or 2000.  However, as a result of a DCR customerliquidating in 2000 as a result of a bankruptcy, the Company has re-acquiredapproximately 2,000 of its DCR machines previously under lease with thatcustomer.  Subsequent to the sale of ourlottery business on June 1, 2001, we have begun to develop a new strategicinitiative to refurbish, redeploy and sell the 2,000 DCRs as well as establisha new line of business for distributing prepaid phone cards.

 

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**LEASE AGREEMENTS**

 

Although currently the Company has no significantlease agreements with customers, in the past, the Company has offered in-housefinancing for commercial customers under two types of contractual arrangements:Sales-type Lease Agreements and Operating Lease Agreements.

 

***Sales-Type Lease Agreements****  *Under the typical Sales-type LeaseAgreement, we deliver DCR machines and provide ancillary support services tocustomers.  These contracts generallyprovide for scaled payments, based upon the type of machine purchased and thetotal number of machines sold under the agreement.  Sometimes the Sales Agreements provide for the payment of monthlyservice fees for product repair, routine maintenance and customer serviceactivities (based upon the number of machines installed).

 

***Operating Lease Agreements****  *While the Operating Lease Agreements aresimilar to the Sales-type Lease Agreements with respect to our installation,maintenance and service obligations, they are for shorter terms and ownershipof the machines remains with the Company after the lease term.  The lease amount may or may not include amonthly maintenance fee.  Typically, thelessee is given the option to extend the leases in one-year increments.

 

**SERVICE AGREEMENTS**

 

Although currently the Company has no significantservice agreements with customers, in the past, the Company had providedservices in the states of: Illinois, Missouri, New York, and Virginia, whichwere provided through service facilities at its San Marcos, Californiaheadquarters and in each of those states. These facilities provided installation and relocation services,performed repairs and responded to service calls.  We maintained toll-free telephone lines staffed by servicepersonnel to assist retailers and, where possible, resolve minor serviceproblems over the telephone.  If theproblem could not be resolved easily, a field technician was immediately pagedand a service call scheduled.  Eachagreement provided for a specified response or service time.  A function of the field service operationwas to provide installation and retailer training on the operation and use ofthe machine.  We generally provided awarranty period of one year on our terminals and provided an option for anextended warranty period if purchased by the customer.  Warranty costs were generally includedwithin our service agreements and not separately provided in productsales.  In connection with the sale ofthe lottery business, the Company transferred substantially all of its serviceoperations to Interlott.

 

The Company is currently evaluating plans regardingthe servicing of its DCRs once they are redeployed and sold.  Although no decisions have been made, wecurrently intend to subcontract most field service functions.

 

The modular designs of the DCRs promotecost-effective, timely repair.  Allthree of the major modular components (the currency acceptor, card dispenserand electronics module) are easily removed from the DCR.  Service technicians are instructed toreplace malfunctioning components if they are unable to repair a machine within30 minutes.  Any replaced parts can besent to a service center, where they can be examined and repaired in-house orreturned to the manufacturer.

 

Support

 

***Marketing And Sales****  *We intend to market the Company’s DCRsand distribute prepaid phone cards, domestically, through a combination ofin-house and outside contracted marketing and sales efforts and,internationally, if pursued, primarily through distributorships and jointventures.  The Company is currentlymoving forward domestically with an arrangement whereby a marketing group wouldsell substantially all of the Company’s DCRs and a vending company wouldredeploy the DCRs in strategically located retail establishments.  Under the arrangements, the Company wouldmaintain, under one-year automatically renewed contracts, the right todistribute prepaid phone cards to all of the locations in which DCRs areplaced.  We also intend to solicitinterest in the machines through direct contact with customers.  The initial marketing package is anticipatedto consist of product brochures and other supportive documentation.  References from other customers using theCompany’s machines will be routinely supplied, along with an offer todemonstrate and test the machines.  Wewill also provide comprehensive product information on our Web-site atwww.globalepoint.com.

 

***International Marketing****  *Internationally, foreign telephonecompanies do not typically use a formal bidding process, but rather negotiateproposals with one or more potential vendors. In 2001 and 2000 we delivered machines and parts to various telecommunicationservice providers.  Nonetheless, ourforeign operations remained relatively small, and no assurance can be providedthat a meaningful international market for our machines will develop.

 

Research and Development

 

General research and development expenditures totaled$137 thousand and $1.0 million in 2001 and 2000, respectively.  The 2001 and 2000 expenditures wereprimarily directed towards the development of lottery related products,PlayPoint and

 

8

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CounterPoint. PlayPoint features advanced electronic, software, communication anddispensing capabilities.  We believethat our developed dispensing system, which was incorporated into PlayPoint andCounterPoint, is the most advanced, space efficient and cost effectivedispenser of instant tickets in the world. In addition, the PlayPoint cabinet has been ergonomically designed tonot only generate increased impulse purchasing desires, but to fully complywith all ADA established guidelines.

 

Patents were filed and/or received for PlayPoint’s andCounterPoint’s proprietary features. These include:

 

PlayPoint Enclosure Design, 3345-2230 - awarded July11, 2000, D-428,060

On-Line Instant Ticket, Patent 5,772,510 - awardedJune 1998

 

Other patents filed through December 2000 but stillpending:

 

•                  Ticket Dispenser and Vending Machine, 3345-2130

•                  Ticket Distribution System and Method, 3345-2140

•                  Ticket Dispensing Module and Method, 3345-2170

•                  Gaming Device and Method, 3345-2180

•                  Ticket Dispensing Device, Installation and Displays, 3345-2210

•                  CheckWriter Design, 3345-2212

 

These products and patents were transferred toInterlott as a result of the sale of the Company’s lottery business in 2001.

 

None of the Company’s general research anddevelopments costs was borne directly by our customers.  Prior to the sale of the lottery business,the Company’s research and development department, augmented by contractemployees, designed hardware and software for new products, and maintainedhardware and software support for existing products.  Software was continually enhanced to satisfy customerrequests.  Many new features, which wereevolved from the sales, process (e.g., access code requirements, securityfeatures such as alarm and theft detection, report capabilities, and displayfeatures).  Once developed, thosefeatures generally were incorporated as standard items in the productline.  Software upgrades have includeddiagnostics for field service and memory management and configuration control.  Hardware enhancements included features toprovide local control, remote control, field upgrade expansion and memoryupgrades for software and data storage. Other hardware developments have focused on the physical size, look andergonomics of the machines, and conformance with the requirements of the AmericanDisabilities Act.  Subsequent to thesale of the Company’s lottery business, the Company has maintained only thosedevelopment costs necessary to refurbish the Company’s existing DCRs.

 

Manufacturing and Supply

 

The Company’s DCRs are designed in a modular form tofacilitate manufacturing assembly and serviceability.  We use vendors to manufacture and supply some components andsub-assemblies, including the bill acceptor and electronic modules.  Final assembly and quality control of theterminals is performed by Company personnel at its San Marcos facility.  Currently, the Company is not manufacturingnew DCRs, but rather is focused on refurbishing existing DCRs.  Therefore, the Company has no critical keyvendors at this time.

 

Employees

 

As of March 5, 2002, the Company had 10 full-timeemployees, of whom 5 were in executive or administrative positions and 5 inquality control and production.

 

Facilities

 

The Company occupies approximately 32,000 square feetof space in San Marcos, California.  Thepremises include office, manufacturing and warehouse space.  We currently pay monthly rent of $18,833 forthis space.  This lease terminatesDecember 31, 2008.  We believe thatcurrent facilities are adequate to meet our anticipated needs through the termof the lease.  However, once we begin toredeploy and sale our DCRs that are currently located at this facility, we planto down size our space needs and sublease part or all of this facility.

 

9

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**OTHERBUSINESS INFORMATION**

 

Competition

 

In the United States, the prepaid phone card and, moregenerally, the debit card market involve a number of machines for many small tomid-sized privately held companies. Consequently, it is difficult to identify all the competitors in thismarket.  Although we believe we havedeveloped a product with some of the best features in the market, there aremany lower-cost, lower featured products that have had more recent success inselling to the industry.  At present,our principal competitors are ILI, VendTek and Opal, in addition to a number ofsmaller vending machine companies. There is also a substantial risk of additional market entry by domesticand foreign competitors, especially if the United States customer’s response tothe use of debit cards and pre-paid phone cards is favorable.  The prepaid phone card and debit card marketmay also face competition from other types of products, such as low costprepaid cellular phones.

 

We believe our new strategic plan for the sale anddeployment of card dispensing machines and the distribution of prepaid phonecards has not yet been attempted in a similar manner by any other company.  However, there are numerous privatecompanies that deploy card-dispensing machines and sell prepaid phonecards.  There can be no assurance thatthe Company’s strategic plan will be successful.

 

Government Regulation

 

It remains unclear what telecommunication regulations,if any, relate to the sale of prepaid phone cards or to the dispensing of thosecards using vending machines.  Thereappears to be a strong movement towards requiring certification as a resellerin states where entities sell prepaid phone cards.  In addition, some states subject DCR terminals and machines touse or similar taxes.

 

ITEM 2. DESCRIPTION OF PROPERTIES

 

The Company leases a 32,000 sq. ft facility at 1370West San Marcos Blvd., San Marcos, California, where its executive offices,manufacturing and primary warehouse facilities are located, pursuant to a leasethat expires in 2008.  The currentannual rent for this facility is approximately $226,000, which is subject toannual increases.  The Company believesthat its present facilities are adequate for its present requirements.  However, the Company intends to downsizeinto smaller facilities if its existing 2,000 DCR machines can be redeployed.

 

ITEM 3. LEGAL PROCEEDINGS

 

Global ePoint is a party to legal proceedings in theordinary course of its business; the most significant of which are describedbelow.

 

In October of 2001, Loeb & Loeb, LLP, a law firm,instituted arbitration proceedings in Los Angeles, California against GlobalePoint alleging in excess of $200,000 in legal fees and costs were owed inconnection with a proposed merger transaction. The Company has filed counter-claims against Loeb & Loeb in thearbitration proceedings for malpractice and breach of contract.  The arbitrator was recently selected and thematter is pending.  The Company intendsto vigorously litigate the matter and maintains that Loeb & Loeb’s claimsare without merit.

 

On April 20, 2000, a shareholder class action wasfiled against the Company and certain officers and directors in the U.S.District Court, Southern District of California.  The action, which requested an unspecified amount of damages onbehalf of all similarly situated shareholders, alleged that the Companyviolated federal securities laws by the dissemination of materially false andmisleading financial statements. Subsequent cases alleging substantially the same claims, and also filedin the same court, were consolidated before the same judge.  The defendants entered into an amendedsettlement agreement with the class for all matters, and the court approved theamended settlement agreement in 2001. The Company and other defendants denied the liability claims as part ofthe amended settlement, but believed that settling the cases quickly was in thebest interests of the Company in order for management to more effectivelyproceed with its strategic business plans. Under the amended settlement agreement, the Company paid $50,000 in cashand is permitted to issue shares equal to $950 thousand in value over a periodof time, which is estimated to extend for 12 months.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSTOCKHOLDERS

 

The Company’s Annual Meeting of Stockholders was heldon December 14, 2001.  All of themembers slated for election were elected to the Company’s Board of Directorsfor the ensuing year (Frederick Sandvick, John H. Olbrich, Keith Cannon andGordon T. Graves).  In addition, thefollowing matters were acted upon:

 
| **Matter**            |   | **Votes For** |   | **Votes  Against** |   | **Abstain** |   |
|-----------------------|--------|---------------|--------|--------------------|--------|-------------|--------|
| Approval of  Auditors |   | 3,239,958     |   | 49,602             |   | 1,165       |   |

 

10

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PART II

 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERMATTERS

 

Global ePoint’s common stock is traded on the NasdaqNational Market under the symbol: GEPT. The following table sets forth the high and low bid prices for GlobalePoint’s common stock, as reported on NASDAQ, for the quarters presented.  The bid prices represent inter-dealerquotations, without adjustments for retail mark-ups, markdowns or commissionsand may not necessarily represent actual transactions.  All share and per share information reflectsthe one-for-three reverse split which became effective in November 2000.

 
|           |   | **2001** |   | **2000** |   |
|----------------|--------|----------|--------|----------|--------|
|           |   | **High** |   | **Low**  |   | **High** |   | **Low** |   |
| First Quarter  |   | $        | 1.938  |     | $      | 1.031 |   | $ | 8.625 |   | $ | 5.063 |   |
| Second Quarter |   | 1.480    |   | 1.100    |   | 5.438 |   | 1.593 |   |
| Third Quarter  |   | 1.690    |   | 1.280    |   | 3.000 |   | 0.843 |   |
| Fourth Quarter |   | 1.880    |   | 1.400    |   | 2.906 |   | 1.314 |   |
|                |        |          |        |          |        |  |  |  |  |  |  |  |  |

 

The number of stockholders of record of GlobalePoint’s common stock, par value $.03 per share, as of March 5, 2002, was298.  The approximate number ofbeneficial shareholders was 1,515.

 

Global ePoint has never paid any cash dividends on itscommon stock and does not anticipate that it will do so in the foreseeablefuture.  The future payment ofdividends, if any, on the common stock is within the discretion of the Board ofDirectors and will depend on earnings, capital requirements, financialcondition and other relevant factors.

 

Global ePoint had the following unregistered sales ofsecurities during the last three years. These securities were issued pursuant to Section 4(2) of the SecuritiesAct of 1933, as amended.

 

•                  In July 2000, Finova Mezzanine Capital Inc. received warrants topurchase 116,667 shares of Global ePoint’s Common Stock at $3.75 per sharepursuant to a settlement agreement whereby Finova withdrew its claim to asecurity interest in the DCR machines leased by Global ePoint toSolutioneering, Inc.  The warrants areimmediately exercisable and expire 3 years from date of issuance.  No placement agent was engaged in connectionwith such issuances and no commissions or discounts were paid to any person.

 

•                  On October 31, 2000, the Company completed a private placement for thesale of 666,668 shares of the Company’s common stock at $1.50 per share.  Net proceeds of the transaction aggregated$1,000,000.  The placement was solely tono more than five foreign offerees, all of whom were accredited investors.  The principal purchaser was Investa AG, aEuropean money management fund, which also acted as placement agent.  The proceeds were used for working capitalpurposes.  Investa AG received five-yearwarrants to purchase 33,333 shares of Global ePoint’s Common Stock at $3.00 pershare pursuant to an agreement for the placement of the $1 million equityoffering.  Investa exercised thewarrants in December 2000 and purchased 33,333 shares for an aggregate amountof $100,000.  Questos Ltd., a consultingcompany used in connection with the placement of the $1 million equityoffering, received warrants to purchase 66,667 shares of Global ePoint’s CommonStock at $1.50 per share pursuant to an agreement for services rendered inconnection with the equity placement. The warrants are immediately exercisable and expire on October 31, 2005.

 

•                  In December 2000, Galt Asset Management, LLC, a money management fundand certain private investors received warrants to purchase 179,167 shares ofGlobal ePoint’s Common Stock at $1.80 per share in connection with theextension of certain debt due from Global ePoint.  No placement agent was engaged in connection with such issuancesand no commissions or discounts were paid to any person.

 

ITEM 6. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

***General****  *The Company is now in the process of a majortransition.  The Company is undergoing aseries of actions intended to transform the Company and to strategically move forwardwith new market opportunities that can better enhance shareholder value.  The Company has been engaged in the lotteryindustry over the past 10 years and was one of the largest providers of vendingmachines for the sale of instant-winner lottery tickets.

 

As part of this transformation process, on February23, 2001, the Company entered into an agreement to sell its lottery assets toInterlott.  This agreement is describedin Item 1 under the heading “Agreement with Interlott” .The transaction was closedon June 1, 2001, whereupon all of the Company’s lottery assets were transferredto Interlott.  Since our lotterybusiness

 

11

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accounted for substantially all of our businessthrough June 1, 2001, the discussions relating to the results of operationsshould be read in this context. Subsequent to finalization of the sale on June 1, 2001, we have nolonger been engaged in the business of manufacturing, selling, leasing andservicing of lottery vending machines and the discussion of our discontinuedoperations for 2001 and 2000 will not relate to our ongoing businessactivities.

 

The Company is now positioned to proceed with furtheractions designed to transform itself into a more diversified company.  In that regard, the Company has been movingforward with marketing plans for the redeployment and sale of its existingnon-lottery related products (primarily card dispensing machines).  The Company’s remaining manufacturing andquality control personnel have been focused on preparing approximately 2,000 ofthe Company’s existing card dispensing machines for redeployment into themarket and restructuring of the Company’s operations.

 

Management is also reviewing a variety of new marketopportunities that would provide the Company with the ability to accelerate theinitial development stage generally required of a new product.  In that respect, management is currentlyreviewing the possibilities of merging with an established business and/oracquiring a developed product line.  TheCompany’s goal with respect to securing a new market opportunity is to identifywhich opportunities best leverage its management expertise, technologicalproperty, international relationships and corporate value, while maximizing itsabilities to enhance shareholder value. The Company anticipates that if a new business opportunity is completed,a further restructuring of its operations would result.  The extent of the restructuring and theeffect on the Company’s financial statements would depend on the particularbusiness opportunity.

 

Results of Operations -2001 Compared To 2000

 

***Continuing Operations***   The Companyhad no significant revenue from continuing operations in 2000 as well as priorto the sale of its lottery business on June 1, 2001.  Although the Company has non-lottery products, substantially allof its focus in those periods had been on its lottery-related business.  Subsequent to the sale of the lottery assetson June 1, 2001, the Company has been reviewing and moving forward withstrategies to maximize value from its non-lottery related assets.

 

During the 2001 year, the Company generated revenuefrom continuing operations of $435 thousand versus revenue of $71 thousand inthe 2000 year.  The increase in revenuewas primarily from interest and investment income resulting from the Company’scash reserves and investments subsequent to June 1, 2001.  The Company plans to redeploy and sell itscard dispensing equipment beginning in 2002 as part of its plan to generateadditional cash flow from its existing assets and to begin a new businessactivity.  However, no assurances can begiven as to the success of these new strategies.

 

Total operating expenses decreased in the 2001 periodsprimarily as the result of lower selling, general and administrative costs andlower interest expense.  Selling,general and administrative costs and expenses for 2001 decreased by $742thousand primarily due to reduced personnel and related expenses subsequent tothe sale of the lottery business.  Interest expense decreased by $447 thousand due to the effect ofdecreased borrowings.  The reduced costsand expenses were offset by $477 thousand of restructuring costs that includedpayroll, facilities costs, refurbishment costs and certain other chargesincremental to restructuring operations and preparing for new businessactivities.  Such charges are expectedto be completed by the 2002 Fall.

 

Continuing operations in 2000 were also affected by$406 thousand of income from the termination of a prior merger and by $1million of costs for the settlement of a shareholder class action.

 

As a net result of the above, the Company reported anet loss from continuing operations of $1.9 million in 2001 versus a net lossof $3.6 million from continuing operations in 2000.

 

***Discontinued Operations***   Prior to theCompany’s change in business strategy, the Company had been primarily engagedin the lottery industry. *** ***The company’scustomer base in the lottery business remained relatively constant between the2001 year and the 2000 year, although income in the comparative periodsdecreased in 2001, primarily as a result of decreases in sales and sales-typeleases of its existing lottery product line and a shorter period of operationsin 2001.  As previously discussed, theCompany was in the process of marketing its new next generation lotteryproducts and the decreases in sales partly relate to the transitioning requiredin the introduction of the new products. Further, because the lottery business was sold on June 1, 2001, revenuewas for only five months, whereas, sales in 2000 were for the full year.  The overall decrease in sales was due to thecombination of the above factors.

 

The disposal of assets of the lottery operations isbeing accounted for as discontinued operations.  The results of operations are summarized as follows:

 

12

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| **Results of  Operations:** |   | **2001** |   | **2000** |   |
|-----------------------------|--------|----------|--------|----------|--------|
| Net sales                   |   | $        | 2,944  |     | $      | 10,256 |   |
| Gross profit                |   | 610      |   | 2,037    |   |
| Operating  expenses         |   | 212      |   | 1,277    |   |
| Net Income                  |   | $        | 398    |     | $      | 760 |   |

 

Gross profit, operating expenses and net income wereall lower in the 2001 periods as the result of lower sales during 2001 and forthe shorter reporting period in 2001. On June 1, 2001, the Company completed the sale of its lottery businessand, as a result, recognized a gain from the sale of approximately $2.7million.

 

As a net result of both continuing and discontinuedoperations, the Company reported net income of approximately $1.2 million for2001, versus a net loss in 2000 of approximately $2.8 million.

 

Liquidity and CapitalResources

 

As a result of the proceeds generated by the sale oflottery assets, the Company had working capital of approximately $4.5 millionand cash and cash equivalents of approximately $5.4 million as of December 31,2001.  Management believes the Companyhas sufficient liquidity to fund its existing operations, redeploy and sell itscard dispensing machines, begin its planned new business activities and providea basis for new business opportunities.

 

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

 

The Consolidated Financial Statements are filed aspart of this Annual Report on Form 10-KSB.

 

13

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INDEPENDENT AUDITORS’REPORT

 

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To the Board of Directors and Shareholders of GlobalePoint, Inc. and Subsidiaries:

 

We have audited the accompanying consolidated balancesheet of Global ePoint, Inc. and Subsidiaries as of December 31, 2001, and therelated consolidated statements of operations, shareholders’ equity and cashflows for the years ended December 31, 2001 and 2000.  These consolidated financial statements are the responsibility ofGlobal ePoint Inc.’s management.  Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

We conducted our audits in accordance with auditingstandards generally accepted in the United States of America.  Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financial statementsare free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements, referred to above, present fairly, in all material respects, theconsolidated financial position of Global ePoint, Inc. and Subsidiaries as ofDecember 31, 2001, and the consolidated results of their operations and theirconsolidated cash flows for the years ended December 31, 2001 and 2000 inconformity with accounting principles generally accepted in the United Statesof America.

 

Rothstein, Kass & Company, PC

Roseland, New Jersey

March 5, 2002

 

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GLOBAL EPOINT, INC. ANDSUBSIDIARIES

CONSOLIDATED BALANCESHEET

AS OF DECEMBER 31, 2001

 
|                                                                                                     |   | **2001**                                         |   |
|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                                     |   | **(Thousands of dollars, except share amounts)** |   |
| Current Assets:                                                                                          |   |                                             |   |
| Cash and cash  equivalents                                                                               |   | $                                                | 5,389  |   |
| Accounts  receivable, net                                                                                |   | 26                                               |   |
| Other current  assets                                                                                    |   | 352                                              |   |
| Total current  assets                                                                                    |   | 5,767                                            |   |
| Plant, property  and equipment, net                                                                      |   | 122                                              |   |
| Property held  for operating leases, net                                                                 |   | 19                                               |   |
| Card dispensing  equipment                                                                               |   | 3,381                                            |   |
| Parts inventory,  net                                                                                    |   | 734                                              |   |
| Other assets,  net                                                                                       |   | 568                                              |   |
| Total assets                                                                                             |   | $                                                | 10,591 |   |
| Liabilities and  shareholders’ equity:                                                              |   |                                             |   |
| Current  liabilities:                                                                                    |   |                                             |   |
| Accounts payable                                                                                         |   | $                                                | 771    |   |
| Accrued expenses                                                                                         |   | 486                                              |   |
| Total current  liabilities                                                                               |   | 1,257                                            |   |
| Shareholders’  equity:                                                                              |   |                                             |   |
| Preferred stock,  no par value, 2,000,000 shares authorized, no shares issued or outstanding             |   |                                             |   |
| Common stock,  $.03 par value, 13,333,334 shares authorized and 4,305,584 shares issued and  outstanding |   | 129                                              |   |
| Amount for  shares to be issued                                                                          |   | 950                                              |   |
| Additional  paid-in capital                                                                              |   | 33,124                                           |   |
| Accumulated  deficit                                                                                     |   | (24,869                                          | )      |
| Total  shareholders’ equity                                                                         |   | 9,334                                            |   |
| Total  liabilities and shareholders’ equity                                                         |   | $                                                | 10,591 |   |

 

*Seeaccompanying notes to consolidated financial statements.*

 

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GLOBAL EPOINT, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTSOF OPERATIONS

FOR THE YEARS ENDEDDECEMBER 31, 2001 and 2000

 
|                                                       |   | **2001**                                                     |   | **2000** |   |
|------------------------------------------------------------|--------|--------------------------------------------------------------|--------|----------|--------|
|                                                       |   | **(Thousands of dollars/shares,  except per share amounts)** |   |
| Revenues:                                                  |   |                                                         |   |     |   |
| Sales                                                      |   | $                                                            | 32     |     | $      | 37 |   |
| Interest income                                            |   | 152                                                          |   | 0        |   |
| Other income                                               |   | 251                                                          |   | 39       |   |
| Total revenues                                             |   | 435                                                          |   | 76       |   |
| Operating  expenses:                                       |   |                                                         |   |     |   |
| Cost of sales                                              |   | 11                                                           |   | 15       |   |
| Selling general  and administrative                        |   | 1,570                                                        |   | 2,312    |   |
| Interest expense                                           |   | 292                                                          |   | 739      |   |
| Restructuring  costs                                       |   | 477                                                          |   | 0        |   |
| Total operating  expenses                                  |   | 2,350                                                        |   | 3,066    |   |
| Operating loss                                             |   | (1,915                                                       | )      | (2,990   | )      |
| Other income –  Merger termination fee net of costs   |   |                                                         |   | 406      |   |
| Other expenses –  Shareholder class action settlement |   |                                                         |   | (1,000   | )      |
| Loss from  continuing operations                           |   | (1,915                                                       | )      | (3,584   | )      |
| Discontinued  operations:                                  |   |                                                         |   |     |   |
| Income                                                     |   | 398                                                          |   | 760      |   |
| Gain on sale                                               |   | 2,744                                                        |   |     |   |
| Income from  discontinued operations                       |   | 3,142                                                        |   | 760      |   |
| Net income  (loss)                                         |   | $                                                            | 1,227  |     | $      | (2,824 | ) |
| Earnings per  share – Basic and Diluted:              |   |                                                         |   |     |   |
| Loss from  continuing operations                           |   | $                                                            | (.42   | )        | $      | (.99 | ) |
| Income from  discontinued operations                       |   | .69                                                          |   | .21      |   |
| Net income  (loss)                                         |   | $                                                            | .27    |     | $      | (.78 | ) |
| Weighted average  shares                                   |   | 4,543                                                        |   | 3,623    |   |

 

*Seeaccompanying notes to consolidated financial statements.*

 

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GLOBAL EPOINT, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTSOF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDEDDECEMBER 31, 2001 and 2000

 
|                                                            |   |                              |       |       |       | **Amount for  Shares to  be Issued** |       | **Additional  Paid-in  Capital** |       | **Accumulated  Deficit** |       | **Total**  |       |
|-----------------------------------------------------------------|--------|-----------------------------------|------------|------------|------------|--------------------------------------|------------|----------------------------------|------------|--------------------------|------------|------------|------------|
|                                                            |   |                              |       |       |       |                                 |       |                             |       |
|                                                            |   | **Common  Stock**                 |       |       |       |                                 |       |
|                                                            |   | **Shares**                        |       | **Amount** |       |                                 |       |                             |       |
|                                                            |   | **(Thousands of shares/dollars)** |       |
| **Balances, December 31, 1999**                                 |   | **3,422**                         | ** ** | **$**      | **103**    | ** **                           | **$**      | **—**                       | ** ** | **$**                    | **31,590** | ** ** | **$**      | **(23,272** | **)** | **$** | **8,421** | ** ** |
| Exercise of  stock warrants                                     |   | 183                               |       | 5          |       |                                 |       | 365                              |       |                     |       | 370        |       |
| Issuance of  common stock, net of issuance cost of $208         |   | 700                               |       | 21         |       |                                 |       | 944                              |       |                     |       | 965        |       |
| Issuance of  stock options and warrants for services provided   |   |                              |       |       |       |                                 |       | 28                               |       |                     |       | 28         |       |
| Issuance of  stock warrants for acquisition of equipment        |   |                              |       |       |       |                                 |       | 52                               |       |                     |       | 52         |       |
| Issuance of  stock warrants for financing costs                 |   |                              |       |       |       |                                 |       | 145                              |       |                     |       | 145        |       |
| Shares to be  issued in connection with class action settlement |   |                              |       |       |       |                                 | 950        |                             |       |                     |       |       | 950        |   |
| Net loss                                                        |   |                              |       |       |       |                                 |       |                             |       | (2,824                   | )          | (2,824     | )          |
| **Balances, December 31, 2000**                                 |   | **4,305**                         | ** ** | **129**    | ** ** | **950**                              | ** ** | **33,124**                       | ** ** | **(26,096**              | **)**      | **8,107**  | ** ** |
| Net Income                                                      |   |                              |       |       |       |                                 |       |                             |       | 1,227                    |       | 1,227      |       |
| **Balances, December 31, 2001**                                 |   | **4,305**                         | ** ** | **$**      | **129**    | ** **                           | **$**      | **950**                          | ** ** | **$**                    | **33,124** | ** ** | **$**      | **(24,869** | **)** | **$** | **9,334** | ** ** |

 

*See accompanying notes toconsolidated financial statements.*

 

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GLOBAL EPOINT, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTSOF CASH FLOWS

FOR THE YEARS ENDEDDECEMBER 31, 2001 and 2000

 
|                                                                               |   | **2001**                   |   | **2000** |   |
|------------------------------------------------------------------------------------|--------|----------------------------|--------|----------|--------|
|                                                                               |   | **(Thousands of dollars)** |   |
| Cash flows from  operating activities:                                             |   |                       |   |     |   |
| Loss from  continuing operations                                                   |   | $                          | (1,915 | )        | $      | (3,584 | ) |
| Income from  discontinued operations                                               |   | 3,142                      |   | 760      |   |
| Adjustments to  reconcile income (loss) to net cash used for operating activities: |   |                       |   |     |   |
| Gain on sale of  discontinued operations                                           |   | (2,744                     | )      |     |   |
| Depreciation and  amortization                                                     |   | 389                        |   | 1,015    |   |
| Expense related  to options and warrants for services provided                     |   | 145                        |   | 28       |   |
| Stockholder  class action settlement                                               |   |                       |   | 950      |   |
| Changes in  assets and liabilities:                                                |   |                       |   |     |   |
| Accounts  receivable                                                               |   | 81                         |   | (521     | )      |
| Parts  inventories                                                                 |   | 359                        |   | 882      |   |
| Other assets                                                                       |   | 63                         |   | (187     | )      |
| Accounts payable                                                                   |   | (782                       | )      | (240     | )      |
| Accrued expenses  and other liabilities                                            |   | (819                       | )      | (189     | )      |
| Net cash used  for operating activities                                            |   | (2,081                     | )      | (1,086   | )      |
| Cash flows from  investing activities:                                             |   |                       |   |     |   |
| Purchases of  plant, property and equipment                                        |   | (27                        | )      | (37      | )      |
| Net investment  in sales-type leases                                               |   | 709                        |   | 68       |   |
| Investment in  property under operating leases                                     |   |                       |   | (332     | )      |
| Net proceeds  from sale of discontinued operations, including gain of $2,744       |   | 12,665                     |   |     |   |
| Investment in  short-term financial instruments                                    |   | (250                       | )      |     |   |
| Net cash  provided by (used for) investing activities                              |   | 13,097                     |   | (301     | )      |
| Cash flows from  financing activities:                                             |   |                       |   |     |   |
| Proceeds from  exercise of stock warrants and options                              |   |                       |   | 1,334    |   |
| Repayments of  line of credit, net                                                 |   | (3,786                     | )      | (945     | )      |
| Proceeds from  (repayments of) notes payable, net                                  |   | (1,980                     | )      | 980      |   |
| Net cash  provided by (used for) financing activities                              |   | (5,766                     | )      | 1,369    |   |
| Increase  (decrease) in cash and cash equivalents                                  |   | 5,250                      |   | (18      | )      |
| Cash and cash  equivalents at beginning of year                                    |   | 139                        |   | 157      |   |
| Cash and cash  equivalents at end of year                                          |   | $                          | 5,389  |     | $      | 139 |   |
| Supplemental  cash flow information, cash paid during the year for interest        |   | $                          | 292    |     | $      | 739 |   |

 

*See accompanying notes toconsolidated financial statements.*

 

18

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GLOBAL EPOINT, INC. ANDSUBSIDIARIES

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31,2001 and 2000

 

1.     Summary of Significant Accounting Policies

 

***Organization And Business**** *Global ePoint, Inc. and Subsidiaries,(collectively, the “Company” or “Global ePoint”) has designed, manufactured,and serviced vending terminals for retail sale and leasing over the past 10years.  The Company’s core businessthrough June 1, 2001 was with the Instant Ticket Retailer (ITR) product line,which sold or leased instant-winner lottery terminals to state and provincialgovernments in the United States and Canada and to foreign governments andtheir licensees.  Its Debit CardRetailer (DCR) product line sells or leases vending machines for prepaidtelephone cards and other specialty retail products generally to commercialcustomers in the United States and in foreign markets.  On February 23, 2001, the Company enteredinto a definitive agreement to sell all its assets relating to its lotterybusiness to Interlott Technologies, Inc. (Interlott).  The sale was consummated on June 1, 2001.

 

***Basis of Presentation**** *The accounting and reporting policies ofGlobal ePoint, Inc. (formerly On-Point Technology Systems, Inc.) andsubsidiaries (collectively referred to as the “Company”) conform to accountingprinciples generally accepted in the United States of America.

 

In December 1999, the Securities and ExchangeCommission issued Staff Accounting Bulletin 101, “Revenue Recognition inFinancial Statements” (“SAB 101”).  SAB101 provides guidance on the recognition, presentation and disclosure ofrevenues in financial statements and requires adoption no later than the fourthquarter of 2001.  The Company hasadopted SAB 101, which has not had a material impact on the consolidatedfinancial statements.

 

In June 2001, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standards ("SFAS")No.’s 141 and 142, “Business Combinations” and “Goodwill and OtherIntangibles”.  SFAS 141 requires allbusiness combinations initiated after June 30, 2001 to be accounted for usingthe purchase method.  Under SFAS 142,goodwill is no longer subject to amortization over its estimated usefullife.  Rather, goodwill is subject to atleast an annual assessment for impairment applying a fair-value basedtest.  Additionally, an acquired intangibleasset should be separately recognized if the benefit of the intangible asset isobtained through contractual or other legal rights, or if the intangible assetcan be sold, transferred, licensed, rented, or exchanged, regardless of theacquirer’s intent to do so.  The Companyis in the process of determining the impact of these pronouncements on itsfinancial position and results of operations.

 

In October 2001, the FASB issued SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets”.  This statement will be effective for fiscalyears beginning after December 15, 2001. This statement establishes a single accounting model, based upon theframework established in SFAS 121, “Accounting for the Impairment of Long-LivedAssets and for Long-Lived Assets to be Disposed of”, for long-lived assets tobe disposed of by sale and to address significant implementation issues.  The Company is in the process of assessingthe impact of the adoption of this statement on its consolidated financialposition, results of operations and cash flows.

 

***Principles of Consolidation**** *The consolidated financial statementsinclude the accounts of Global ePoint and all majority owned subsidiaries afterelimination of significant intercompany balances and transactions.

 

***Cash and Cash Equivalents**** *Cash equivalents consist of highly liquidinvestments purchased with original maturities of three months or less andwhich are readily convertible into cash.

 

***Inventories**** *Inventories include the cost of material, directlabor, manufacturing overhead, parts and supplies, and terminals assembled orin the process of assembly.  Inventoriesare stated at the lower of cost, on a first-in, first-out basis or market.

 

***Plant, Property and Equipment*** Plant, property and equipment are stated at cost less accumulateddepreciation and amortization. Accumulated depreciation and amortization are provided using thestraight-line method, over estimated useful lives of 2 to 10 years.  Maintenance and repairs are expensed asincurred.

 

***Patents**** *Patents are capitalized and amortized on astraight-line basis over 17 years.

 

***Leases**** *Property held under lease agreements are stated atcost.  Depreciation is provided usingthe straight-line method, over estimated useful lives of  2- 5 years.

 

19

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***Revenue Recognition***  Under provisionof SFAS No. 131, prior to the sale of the Company’s lottery business, GlobalePoint had three reportable business segments: Products, Financing and Service,as described in Note 3. Revenue recognition for each segment was as follows:

 

*Products*

Revenues from terminal sales are recognized uponshipment, except where contract terms require Global ePoint to provideinstallation prior to acceptance, in which case revenue is recognized when theproduct is installed.  Revenues fromsales-type leases are recognized at the present value of the future minimumpayments and are recorded as product sales.

 

*Financing*

Income from operating leases is recognized as rentalsare due according to provisions of the leases. Units under operating leases are treated as depreciable assets anddepreciated over their useful lives, with depreciation on such units charged tocost of sales.  Interest income isrecognized on sales-type leases as earned, based on amortization schedules.  The difference between the total futureminimum payments plus the residual value of the equipment and the present valueis recorded as unearned income and amortized over the term of the lease so asto produce a constant rate of return. Subsequent to June 1, 2001, the Company had no sales-type leases and aninsignificant amount of operating leases and, therefore, has discontinuedsegment reporting.

 

*Service*

Global ePoint employed a field service department toservice ITR terminals sold or leased to customers.  Most service agreements provided for a preventive maintenancevisit at regular intervals (e.g. every 60 to 120 days), covering all laborcosts, costs to repair and replace parts, and provided for emergency visits ifthe terminal was non-operational.  Incomewas recognized monthly, ratably over the lease term, for all ITR sales.  When a terminal was leased to a customer,the service fee was separately identified in the lease agreement or included asa component of a single lease payment. If service was included as a component of a single lease payment, aservice fee was estimated and classified as deferred executory costs.  All service revenue was recognized ratablyover the service agreement.  GlobalePoint provided for the estimated amount of future losses on any servicecontract.  Subsequent to June 1, 2001,this segment was discontinued.

 

All ITR and DCR sales include a warranty, ranging fromone to three years, which includes free repair or replacement of defectiveparts and may include associated labor costs. Future warranty costs are estimated and charged to income at time ofsale, unless the lease includes a service component, in which case theestimated costs reduces the minimum lease payment.  Global ePoint has no commitment under any lease to guaranteeperformance in a manner more extensive than the typical product warranty orwhich effectively protects the lessee from obsolescence.

 

***Restructuring Costs***  As a resultof the sale of the Company’s core business operations on June 1, 2001, theCompany is in the process of establishing new strategic initiatives andtransitioning the Company into new business activities.  During the seven months ended December 31,2001, the Company incurred approximately $477 thousand in restructuring costs.  The restructuring charges include payroll,facilities costs, refurbishment costs and certain other charges incremental torestructuring operations and preparing for new business activities.

 

***Research and Development**** *General research and development costsare expensed as incurred and were $137 thousand in 2001 and $1.0 million in2000.

 

***Significant Customers and Concentration Of Credit**** *Revenues from the state lotteries ofVirginia and Illinois individually accounted for 36% and 47% respectively, oftotal revenue of discontinued operations in 2001.  Revenues from the state lotteries of Virginia and Illinois,individually totaled 16% and 39%, respectively of total revenue fromdiscontinued operations in 2000. Foreign sales amounted to approximately $2.2 million of total revenuefrom discontinued operations in 2000 (22% of total revenues), substantially allof which were for shipments to the French Lottery.  In 2001 foreign sales were less than 1% of revenues fromdiscontinued operations.

 

***Income Taxes**** *Deferred income taxes are recorded to reflect the taxconsequences on future years of differences between the tax bases of assets andliabilities and their financial reporting amounts at each year-end.  If it is more likely than not that someportion or all of a deferred income tax asset will not be realized, a valuationallowance is recognized.

 

***Per Share Information*** SFAS No. 128 “Earnings per Share” requires dualpresentation of basic and diluted earnings per share for all periodspresented.  Basic EPS excludes dilutionand is computed using the weighted average shares of common stock outstandingplus contingently issuable shares. Diluted

 

20

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EPS is computed using the weighted average sharesoutstanding plus additional common shares that would have been outstanding ifdilutive potential common shares had been issued, using the treasury stockmethod.

 

Included in the computation for Basic and Diluted EPSfor the 2001 year are 237,500 shares, which is the weighted average of 316,666shares that are contingently issuable pursuant to the settlement agreements forthe class action cases (see Note 8 herein). For all the periods presented, options and warrants were not factoredinto the calculation because they were antidilutive or because the Company hada net loss.

 

***Fair Value Of Financial Instruments**** *The following disclosure of estimatedfair value was determined by available market information and appropriatevaluation methodologies; however, considerable judgment is necessary tointerpret market data and develop the related estimates of fair value.  Accordingly, the estimates presented hereinare not necessarily indicative of the amounts that could be realized upondisposition of the financial instruments. The use of market assumptions and or estimation methodologies may have amaterial effect on estimated fair value amounts.

 

Cash and cash equivalents, accounts receivable,accounts payable and accrued expenses carrying costs reasonably approximatestheir fair value because of the short maturities of these investments.

 

***Impairment of Long-Lived Assets***** Global ePoint periodically assesses itsability to recover the carrying value of its long-lived assets.  If management concludes that the carryingvalue will not be recovered, an impairment write down is recorded to reduce theasset to its estimated fair value.

 

***Predevelopment Contract Costs**** *Costs related to modifications ofexisting products for a specific contract are capitalized and amortized overthe life of the contract as revenues are recognized.

 

***Estimates**** *The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates.

 

***Reclassifications***** Certain balances in the 2000 financial statements have beenreclassified to conform to 2001 reporting.

 

2.     Discontinued Operations

 

***Discontinued Operations**** *On June 1,2001, the Company sold to Interlott Technologies, Inc. (“Interlott”) thoseassets used in its existing lottery business, relating to the manufacture,sale, lease and service of instant ticket vending machines, including theassignment of the Company’s existing lottery contracts pursuant to a definitiveagreement executed on February 23, 2001 (the “Agreement”).  Pursuant to the Agreement, the Companyreceived approximately $13.1 million at closing which, after sale related costsof approximately $400 thousand, generated net proceeds of approximately $12.7million.  In addition, the Company accruedapproximately $1.1 million for estimated residual costs of disposal andestimated subsequent purchase price adjustments.  The components of the gain on the sale were as follows:

** **
|                                        |   | **(In thousands)** |   |
|---------------------------------------------|--------|--------------------|--------|
| Proceeds, net of related costs and accruals |   | $                  | 11,600 |   |
| Net book value  of assets sold              |   | 8,856              |   |
| Gain on sale                                |   | $                  | 2,744  |   |

 

The Agreement also provides for up to $9 million ofdeferred payments (subject to the performance of certain contracts assigned toInterlott) over five years and earn-out payments of up to $6 million (subjectto certain conditions) over five years. These payments have not been accrued as a receivable but rather will berecorded as income when all the conditions for payment have been met.  For the period ended December 31, 2001,Interlott paid the Company $29,395 of deferred payments and no amounts forearn-out payments.  In addition, theCompany and Interlott entered into a separate on-line technology agreement tomarket a proprietary design for an on-line activated instant lottery ticket.

 

As a result of the sale, the operations related to thelottery assets have been reflected as discontinued operations in theaccompanying condensed consolidated financial statements.  The results of discontinued operations for2001 and 2000 were as follows:

 

21

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|                                     |   | **2001**            |   | **2000** |   |
|------------------------------------------|--------|---------------------|--------|----------|--------|
|                                     |   | **(in  thousands)** |   |
| Net sales                                |   | $                   | 2,944  |     | $      | 10,256 |   |
| Gross profit                             |   | 610                 |   | 2,037    |   |
| Operating  expenses                      |   | 212                 |   | 1,277    |   |
| Net income from  discontinued operations |   | $                   | 398    |     | $      | 760 |   |

 

Cash flows provided by discontinued operations were asfollows:

 
|                  |   | **For the  Years ended December 31** |   |
|-----------------------|--------|--------------------------------------|--------|
|                  |   | **2001**                             |   | **2000** |   |
|                  |   | **(in  thousands)**                  |   |
| Operating  activities |   | $                                    | 1,920  |   | $ | 1,282 |   |
| Investing  activities |   | 667                                  |   | (229 | ) |
| Net cash              |   | $                                    | 2,587  |   | $ | 1,053 |   |

 

The net assets of discontinued operations that weredisposed as of June 1, 2001 were as follows:

 
|                                   |   | **(In thousands)** |   |
|----------------------------------------|--------|--------------------|--------|
| Current assets                         |   | $                  | 4,391  |   |
| Plant, property  and equipment, net    |   | 112                |   |
| Net investment  in sales-type leases   |   | 2,652              |   |
| Property under  operating leases, net  |   | 518                |   |
| Other assets                           |   | 1,183              |   |
| Net assets of  discontinued operations |   | $                  | 8,856  |   |

 

3.     Segment Information

 

Global ePoint has adopted SFAS No. 131, “DisclosuresAbout Segments of an Enterprise and Related Information”, which changed the wayGlobal ePoint reported information about its previous operating segments.  Global ePoint had three reportable segmentsprior to June 1, 2001: product sales, financing and service.  The product segment included all productssold by Global ePoint, including ITR and DCR vending machines via product salesand sales-type lease agreements.  Thefinancing segment included revenues and expenses associated with (1) financingthe sale of units via sales-type leases and (2) operating leases.  The service segment included revenues andexpenses associated with its service and warranty contracts.  The Company discontinued segment reportingas of June 1, 2001 as a result of the sale of its lottery business.

 

4.     Other Financial Data

 

Details concerning certain balance sheet accounts asof December 31, 2001 follows (in thousands):

 
|                                            |   | **2001** |   |
|-------------------------------------------------|--------|----------|--------|
| Accounts  receivable:                           |   |     |   |
| Trade accounts  receivable                      |   | $        | 39     |   |
| Less allowance  for doubtful accounts           |   | (13      | )      |
| Total                                           |   | $        | 26     |   |
|                                            |   |     |   |
| Property, plant  and equipment:                 |   |     |   |
| Computers and  equipment                        |   | $        | 1,096  |   |
| Furniture and  fixtures                         |   | 317      |   |
| Tooling                                         |   | 8        |   |
| Building and  improvements                      |   | 76       |   |
|                                            |   | 1,497    |   |
| Less accumulated  depreciation and amortization |   | (1,375   | )      |
| Total                                           |   | $        | 122    |   |
|                                            |   |     |   |
| Other assets:                                   |   |     |   |
| Patents                                         |   | $        | 263    |   |
| Deposits                                        |   | 29       |   |
| Investments, net  of reserves of $100           |   | 431      |   |
| Other                                           |   | 99       |   |
|                                            |   | 822      |   |
| Less accumulated  amortization                  |   | (254     | )      |
| Total                                           |   | $        | 568    |   |

 

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5.     Card Dispensing Equipment

 

The Company’s card dispensing equipment (known as DCRmachines) substantially consists of DCR machines that were previously underlease agreements with previous customers of the Company; the substantialmajority of which were previously under lease with a single customer,Solutioneering Inc. (“Solutioneering”), which filed for bankruptcy in 1999 andwas liquidated in 2000.  Before theCompany began the repossession of the DCR machines from Solutioneering, itsettled a dispute with Solutioneering’s financing lender, so that the Companywould have undisputed rights to the property. In exchange for the settlement and the grant to the Company of theundisputed rights to the DCR machines, in August 2000 the financing lenderreceived warrants to purchase 116,667 shares of the Company’s common stock at$3.75 per share exercisable over three years from the date of issuance.  The fair value of the warrants totaled $52thousand, which was added to the cost basis of the equipment.  Subsequent to August 2000, the Company hasbeen in the process of collecting the DCR machines.  As of December 31, 2001, the Company had collected approximately2,000 DCR machines, representing a substantial majority of the DCR machinespreviously under lease with Solutioneering and other customers.

 

Subsequent to the sale of the Company’s lotterybusiness on June 1, 2001, the Company began a program to refurbish all of therepossessed DCR machines to ready them for redeployment and sale.  The Company has initiated a marketing planand intends to begin the redeployment and sale of the DCR machines in2002.  Management believes that the fairvalue of the DCR machines exceeded the carrying amount of the machines, whichwas approximately $3.4 million as of December 31, 2001.

 

As of December 31, 2001, the Company had partsinventory of $734 thousand, net of $447 thousand of reserve forobsolescence.  Parts inventory consistsprimarily of materials that are used for the manufacture, refurbishment andrepair of DCR machines.

 

6.     Income Taxes

 

Following is a reconciliation of the income taxexpense (benefit) expected (based on the statutory federal income tax rate) tothe actual income tax provision recorded (in thousands):

 
|                                                                                 |   | **2001** |   | **2000** |   |
|--------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Tax benefit on  loss from continuing operations computed at statutory rate of 34%    |   | $        | (651)  |     | $      | (1,219 | ) |
| Tax expense on  income from discontinued operations compute at statutory rate of 34% |   | 1,068    |   | 258      |   |
| Expenses not  deductible for income tax purposes                                     |   | (40      | )      | 648      |   |
| Change in  valuation allowances for deferred income tax assets, net                  |   | (377     | )      | 312      |   |
| Provision for  income taxes – current                                           |   | $        | 0      |     | $      | 0 |   |

 

Deferred income tax assets and the related valuationallowance as of December 31, 2001, result from the following temporarydifferences:

 
|                              |   | **2001** |   |
|-----------------------------------|--------|----------|--------|
| Net operating  loss carryforwards |   | $        | 5,112  |   |
| Inventory and  other reserves     |   | 628      |   |
| Valuation  allowance              |   | (5,740   | )      |
| Net deferred  income tax assets   |   | $        | — |   |

 

Due to significant losses for income tax reportingpurposes prior to 2001, as well as the other issues currently being addressedby Global ePoint, management has concluded that it is more likely than not thatthe deferred tax assets will not be realized and that a valuation allowance isneeded to reduce the carrying value of deferred income tax assets to zero.

 

At December 31, 2001, Global ePoint has approximately$15.0 million of operating loss available to offset future federal taxableincome, which expires during the years 2011 through 2020.

 

7.     Shareholders’ Equity

 

***Common Stock**** *On December 8, 2000, the stockholders approved anamendment to Global ePoint’s Articles of Incorporation to increase theauthorized shares of Common Stock from 6,666,667 to 13,333,334.

 

23

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***Preferred Stock**** *Global ePoint is authorized to issue up to two millionshares of Preferred Stock without further shareholder approval; the rights,preferences and privileges of which would be determined at the time ofissuance.  No shares have ever beenissued.

 

***Private Placement of Common Stock**** *On October 31, 2000, Global ePointcompleted a private placement for the sale of 666,668 shares of Common Stock at$1.50 per share, the market value on the date of the agreement.  Net proceeds of the transaction aggregated$1,000,000 prior to legal fees of approximately $35,000.  In addition to the issuance of 666,668shares, Global ePoint issued 33,333 shares to Investa AG, the European fundmanager acting as placement agent, as a commission on the transaction.  Global ePoint also issued to Investawarrants to purchase 33,333 shares of Common Stock at a price of $3.00 pershare.  In addition, Global ePointissued warrants to purchase 66,667 shares of Common Stock at a price of $1.50per share to Questos Ltd., a consulting company used in connection with thetransaction.  The warrants issued toInvesta and Questos are immediately exercisable and expire on October 31, 2005.  In December 2000, Investa exercised all itswarrants to purchase 33,333 shares of Common Stock for an aggregate price of$100,000.

 

***Stock Option Plans****  *Global ePoint has two employee stock option planswhereby options to purchase 1,157,500 shares of Global ePoint’s common stockmay be granted to certain executives and employees, and an option plan fordirectors under which options for 175,000 shares of Global ePoint’s commonstock may be issued to directors of Global ePoint.  Information regarding these option plans, including optionsoutstanding for non-employees of 229,999 and 176,665 shares as of December 31,2001 and 2000, respectively, follows:

 
|                             |   | **2001**   |   | **2000**                               |   |
|----------------------------------|--------|------------|--------|----------------------------------------|--------|
|                             |   | **Shares** |   | **Weighted  Average  Exercise  Price** |   | **Shares** |   | **Weighted  Average  Exercise  Price** |   |
| Outstanding at  January 1        |   | 708,680    |   | $                                      | 4.44   |   | 733,510 |   | $ | 4.89 |   |
| Granted                          |   | 580,000    |   | 1.32                                   |   | 86,668 |   | 2.41 |   |
| Exercised                        |   | —     |   | —                                 |   | — |   | — |   |
| Forfeited                        |   | (184,346   | )      | (4.14                                  | )      | (111,498 | ) | (5.82 | ) |
| Outstanding at  December 31      |   | 1,104,334  |   | $                                      | 2.85   |   | 708,680 |   | $ | 4.44 |   |
|                             |   |       |   |                                   |   |   |   |   |   |
| Options  exercisable at year end |   | 1,053,916  |   | $                                      | 2.90   |   | 546,348 |   | $ | 4.50 |   |

 

The following table summarizes information aboutfixed-price stock options outstanding at December 31, 2001:

 
|                        |   | **Options  Outstanding**           |   | **Options  Exercisable**                     |   |
|-----------------------------|--------|------------------------------------|--------|----------------------------------------------|--------|
| **Range ofExercise Prices** |   | **Number  Outstanding at12/31/01** |   | **Weighted  Avg  RemainingContractual Life** |   | **Weighted  AverageExercise Price** |   | **Number  Outstanding at12/31/01** |   | **Weighted  AverageExercise Price** |   |
| $1.12 – $3.09          |   | 890,000                            |   | 3.51                                         |   | $ | 1.73 |   | 840,000 |   | $ | 1.74 |   |
| 4.23 – 5.43            |   | 163,335                            |   | 2.26                                         |   | 4.57 |   | 163,335 |   | 4.57 |   |
| 5.91 – 6.27            |   | 14,333                             |   | .69                                          |   | 5.92 |   | 13,915 |   | 5.92 |   |
| 6.75 – 8.64            |   | 3,333                              |   | .50                                          |   | 6.93 |   | 3,333 |   | 6.93 |   |
| 22.35                       |   | 33,333                             |   | 2.75                                         |   | 22.35 |   | 33,333 |   | 22.35 |   |
| $1.12 – $22.35         |   | 1,104,334                          |   | 3.25                                         |   | $ | 2.85 |   | 1,053,916 |   | $ | 2.90 |   |

 

Global ePoint has adopted the disclosure-only provisionsof SFAS No. 123, “Accounting for Stock-Based Compensation” for employee stockoptions.  Accordingly, no compensationcost has been recognized for the stock option plans.  Had compensation for Global ePoint’s three stock option plansbeen determined based on the fair value at the grant date for awards in 1999consistent with the provisions of SFAS No. 123, Global ePoint’s net income(loss) and income (loss) per share would have been decreased (increased) to thepro forma amounts indicated below:

 
|        |   | **2001**        |      | **2000**      |        |
|-------------|--------|-----------------|-----------|---------------|-------------|
|        |   | **Net  Income** |      | **Per Share** |        | **Net  Loss** |   | **Per Share** |   |
|        |   |            | **Basic** |          | **Diluted** |   |   | **Basic** |   | **Diluted** |   |
| As Reported |   | $               | 1,227     |          | $           | .27 |   | $ | .27 |   | $ | (2,824 | ) | $ | (0.78 | ) | $ | (0.78 | ) |
|        |   |            |      |          |        |   |   |   |   |   |   |   |   |
| Pro Forma   |   | $               | 935       |          | $           | .21 |   | $ | .21 |   | $ | (2,964 | ) | $ | (0.82 | ) | $ | (0.82 | ) |

 

24

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In 2001, the fair value of options granted toemployees is estimated at approximately $2.90 per share on the date of grantusing the Black-Scholes option-pricing model with the following weighted averageassumptions used for the grants: dividend yield of 0%; expected volatility of41%; risk free interest rate of 4.20%; and expected life of 5 years.

 

In 2000, the fair value of options granted toemployees is estimated at approximately $2.41 per share on the date of grantusing the Black-Scholes option-pricing model with the following weightedaverage assumptions used for the grants; dividend yield of 0%; expectedvolatility of 72%; risk free interest rate of 5.80%; and expected life of 5years.

 

In July 1999, two advisory board members of GlobalePoint each received three-year options to purchase 6,667 shares and 3,333shares, respectively, of Global ePoint’s common stock at $5.91 per share.  These options vest in July 2000 and October1999, respectively.  The fair value ofthe options at the date of grant totaled $27,000; $19 thousand of which wasexpensed to selling, general and administrative expense in 2000 and theremainder was expensed in prior years.

 

In September 1998, a consultant received an option topurchase 1,667 shares of Global ePoint’s Common Stock at $4.98 per sharepursuant to a consulting agreement entered into with Global ePoint.  The option vests over 2 1/2 years.  The fair value of the option at December 31,1999 totaled $8 thousand; of which $2 thousand was expensed to selling, generaland administrative expense in 2000 and the remainder was expensed in the prioryears.

 

***Stock Warrants****  *Global ePoint has, on occasion, granted warrants topurchase common stock to consultants, lenders and creditors.  Information regarding these warrantsfollows:

 
|                        |   | **2001**   |   | **2000**                               |   |
|-----------------------------|--------|------------|--------|----------------------------------------|--------|
|                        |   | **Shares** |   | **Weighted  Average  Exercise  Price** |   | **Shares** |   | **Weighted  Average  Exercise  Price** |   |
| Outstanding at  January 1   |   | 715,835    |   | $                                      | 2.30   |   | 526,667 |   | $ | 2.34 |   |
| Granted                     |   | —     |   | —                                 |   | 395,834 |   | 2.43 |   |
| Exercised                   |   | —     |   | —                                 |   | (183,333 | ) | 2.02 |   |
| Expired                     |   | (83,333    | )      | 2.07                                   |   | (23,333 | ) | 2.51 |   |
| Outstanding at  December 31 |   | 632,502    |   | $                                      | 2.33   |   | 715,835 |   | $ | 2.30 |   |

 

All of the warrants outstanding at December 31, 2001and 2000 were fully exercisable.

 

In July 1998, Coast Business Credit received a warrantto purchase 3,333 shares of Global ePoint’s Common Stock at $4.89 per sharepursuant to a financing agreement entered into with Global ePoint.  The warrant has a two-year term and becameexercisable in July 1998.  Thesewarrants were extended through July 2003 upon the extension of the line ofcredit through that date.  The fairvalue of the warrant totaled $5 thousand at the date of grant, which has beenamortized over the term of the agreement.

 

In May 1997, Coast Business Credit and a consultantreceived warrants to purchase 16,667 shares and 15,000 shares, respectively, ofGlobal ePoint’s common stock at $6.00 per share and $7.56 per share,respectively, in consideration for the debt financing.  The warrants each had a three-year term andbecame exercisable in May 1997.  Thewarrants to purchase 16,667 shares to Coast Business Credit were extendedthrough July 2003.  The fair value of thewarrants totaled $79 thousand, which has been amortized to expense over the termof the loan.  Global ePoint expensed $26thousand to financing costs in 2000 and the remainder was expensed in prioryears.

 

8.     Commitments and Contingencies

 

***Lease Commitments**** *Global ePoint leases facilities under operating leasesexpiring at various dates through December 2008.  Rent expense for such facilities totaled $278 thousand and $323thousand for the years ended December 31, 2001 and 2000, respectively.  Future minimum rentals under non-cancellableoperating leases as of December 31, 2001 are as follows (in thousands):

 
| 2002       |   | $   | 226    |   |
|------------|--------|-----|--------|--------|
| 2003       |   | 234 |   |
| 2004       |   | 242 |   |
| 2005       |   | 251 |   |
| 2006       |   | 259 |   |
| Thereafter |   | 546 |   |
|       |   | $   | 1,758  |   |

 

25

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***Joint Venture Commitment***  In December2001, Global ePoint entered into an international service agreement with FusionTelecommunications International, Inc. (“Fusion”) pursuant to which GlobalePoint and Fusion commenced a strategic partnership to provide Voice overInternet Protocol (“VoIP”) services into a country in Southeast Asia.  Global ePoint’s obligations under theagreement relate primarily to financial matters, while Fusion’s obligationsrelate primarily to providing the telecommunication services required for thecountry.  Both companies will share netprofits, if any, equally from the venture.

 

Under the agreement, Global ePoint is committed tofund up to a maximum of $500 thousand for deposits, license fees, connectionsfees, network costs, equipment costs and other related venture costs.  In addition, Global ePoint is committed toprovide a letter of credit of approximately $300 thousand as a deposit fortermination charges.  Operations of thejoint venture are expected to commence during 2002.  As of December 31, 2001, Global ePoint had funded approximately$132 thousand on behalf of the joint venture, which has been capitalized andshown in Other Assets in the accompanying Balance Sheet.

 

***Legal Proceedings**** *Global ePoint is a party to legal proceedings in theordinary course of its business; the most significant of which are describedbelow.

 

In October of 2001, Loeb & Loeb, LLP, a law firm,instituted arbitration proceedings in Los Angeles, California against GlobalePoint alleging in excess of $200,000 in legal fees and costs were owed inconnection with a proposed merger transaction. The Company has filed counter-claims against Loeb & Loeb in thearbitration proceedings for malpractice and breach of contract.  The arbitrator was recently selected and thematter is pending.  The Company intendsto vigorously litigate the matter and maintains that Loeb & Loeb’s claimsare without merit.

 

On April 20, 2000, a shareholder class action wasfiled against On-Point Technology Systems and certain officers and directors inthe U.S. District Court, Southern District of California.  The action, which requested an unspecifiedamount of damages on behalf of all similarly situated shareholders, allegedthat the Company violated federal securities laws by the dissemination ofmaterially false and misleading financial statements.  Subsequent cases alleging substantially the same claims, and alsofiled in the same court, were consolidated before the same judge.  The defendants entered into an amendedsettlement agreement with the class for all matters, and the court approved theamended settlement agreement in 2001. The Company and other defendants denied the liability claims as part ofthe amended settlement, but believed that settling the cases quickly was in thebest interests of the Company in order for management to more effectivelyproceed with its strategic business plans. Under the amended settlement agreement, the Company paid $50,000 in cashand is permitted to issue shares equal to $950 thousand in value over a periodof time, which is estimated to extend for 12 months.

 

***Executive Compensation Agreement**** *Global ePoint has an employment agreementwith its Chief Executive Officer (the “CEO”) for a three-year term thatcommenced January 9, 1996, and that automatically extends annually for anadditional year unless notice has otherwise been given by Global ePoint.  As of December 31, 2001, the term expires onDecember 31, 2003.  While Global ePointis committed under the agreement to provide for an annual base salary of atleast $300 thousand, plus a bonus equal to 5% of the first million dollars ofGlobal ePoint’s pre-tax income and 7% thereafter, only $65 thousand and $7thousand were paid to the CEO in salary in 2001 and 2000, respectively, and nobonuses were paid to the CEO in either year. The CEO waived all accrued bonuses and unpaid wages for those timeperiods.  The amount of accrued wageswaived amounted to $331 thousand in 2001 and $283 thousand in 2000.  During 2001, the CEO voluntarily amended hisemployment agreement to provide for a reduced annual salary of $120,000 for theperiod July 1, 2001 through June 1, 2002 and $180,000 for the period July 1,2002 through June 30, 2003.  The reducedsalary would be effective only during the time period prior to the commencementof a new business activity.  Uponcommencement of a new business activity the CEO’s base salary will revert tothat under his original agreement.  TheCEO is also entitled to a bonus of $300,000 upon the commencement of a newbusiness activity approved by the Board of Directors.

 

The employment agreement with the CEO also providesfor severance upon termination by Global ePoint without cause or termination bythe CEO for “good reason,” as defined, in the amount equal to the base salarythe CEO would have earned during the 36 month period commencing on the date oftermination plus three times the CEO’s average annual bonus received over theprior three fiscal years.  The CEO wouldalso have the right to receive all other benefits that would have been receivedunder his employment arrangement for that 36-month period.  Further, all shares underlying outstandingstock options granted to the CEO would become fully exercisable for a period of18 months after termination.

 

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ITEM 8. CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

N/A

 

PART III.

 

ITEM 9. DIRECTORS,EXECUTIVE OFFICERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THEEXCHANGE ACT

 

Executive Officers andDirectors

 

The names, ages and positions of the director’s (1),executive officers and key employees of Global ePoint are as follows:

 
| **Name**                 |   | **Age** |   | **Position**                                      |
|--------------------------|--------|---------|--------|---------------------------------------------------|
| Frederick Sandvick       |   | 44      |   | Chief Executive Officer and Chairman of the Board |
| John H. Olbrich (2) (3)  |   | 39      |   | Director and Secretary                            |
| Gordon T. Graves (2) (3) |   | 65      |   | Director                                          |
| Keith Cannon (2) (3)     |   | 61      |   | Director                                          |
| Charles R. Broz          |   | 52      |   | Director of Finance and Treasurer                 |

 

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(1)          Each director of Global ePoint holds office until thenext annual meeting of shareholders and until a successor has been elected andqualified, or until his earlier resignation or removal.

(2)          Audit Committee Member

(3)          Compensation Committee Member

 

Frederick Sandvick has been the Chief ExecutiveOfficer and Chairman of the Board of Global ePoint since January 1996.  Mr. Sandvick is President and the principalstockholder of Vanguard Strategies, Inc., a privately held strategic planningcompany he founded in 1995.  From 1990to 1995, Mr. Sandvick was Executive Vice President and Chief Financial Officerof JNet Enterprises (formerly Jackpot Enterprises, Inc.), a company listed onthe NYSE and formerly engaged in the gaming/entertainment industry.

 

John H. Olbrich has been the owner and President ofU.S. Mortgage Bankers Corporation, a residential mortgage brokerage firm since1991.  Mr. Olbrich has been in the realestate mortgage business for approximately 12 years.  Mr. Olbrich is Mr. Sandvick’s half brother.  See “Certain Relationships and RelatedTransactions”, herein.

 

Keith Cannon has been a securities branch manager atWilson-Davis and Co. since 1993 where he has supervised trading with a varietyof domestic and international clients. Mr. Cannon has served as a financial and corporate financial consultantfor various publicly held companies for over 25 years.  Mr. Cannon was appointed to the Board inAugust 2000.

 

Gordon T. Graves has been Chairman of the Board anddirector of Multimedia Games, Inc. since 1991, and has been Chief ExecutiveOfficer since September 1994.  SinceDecember 1993 and from 1989 to 1990, Mr. Grave has been the President of GravesManagement, Inc., a management consultant and investment company.  From 1992 through December 1993, Mr. Graveswas president and Chief Executive Officer of Arrowsmith Technologies, Inc.(“Arrowsmith”), a computer systems company. From 1991 to 1993, Mr. Graves was employed by KDT Industries, Inc., ahigh-tech manufacturing and services company and an affiliate of Arrowsmith,as, successively, Vice President of Corporate Development and President.  From 1987 to 1989, Mr. Graves was theChairman of the Board of Directors of Gamma International Ltd. (currentlyAmerican Gaming and Entertainment, Ltd., a company co-founded by him).

 

Charles Broz became the Director of Finance at GlobalePoint in October 2000.  Mr. Broz hasspent the last twenty years as controller or chief financial officer for avariety of companies, to include serving as the chief financial officer for thelargest fresh herb producer in the United States for eight years.

 

ITEM 10. MANAGEMENTREMUNERATION AND TRANSACTIONS

 

Executive Compensation

 

The following information relates to compensation ofGlobal ePoint’s Chief Executive Officer for Global ePoint’s fiscal years endedDecember 31, 2001, 2000 and 1999.  Noother executive officer of Global ePoint received total annual salary andbonuses in excess of $100,000 during those fiscal years.

 

27

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The Compensation Committee did not have a substantialrole in setting compensation in 2001, 2000 and 1999 because the Chief ExecutiveOfficer was engaged pursuant to an employment agreement, which fixedcompensation.  The role of theCompensation Committee and its policies will continue to increase as employmentagreements expire and compensation packages are negotiated with key executives.

 

**SUMMARY COMPENSATION TABLE**

 
|                                |   | **Annual  Compensation** |   | **Long-Term  Compensation Awards** |          |
|-------------------------------------|--------|--------------------------|--------|------------------------------------|---------------|
| **Name and Principal Position**     |   | **Year**                 |   | **Salary  ($)**                    |          | **Bonus  ($)** |   | **Other  Annual  Compensation  ($ )(1)** |   | **Restricted  Stock  Awards  ($)** |   | **Securities  Underlying  Options/  SARs (#)** |   | **Long-Term  Incentive Plan  Payouts ($)** |   | **All  Other  Compensation ($)** |   |
|   Frederick Sandvick  CEO |   | 2001  2000  1999         |   | 64,615  6,923  138,461             | (2)  (2)  (2) | 0  0 |   | 238,000  0  59,000 |   | 0  0 |   | 400,000  0  83,333 |   | 0  0 |   | 0  0 |   |
|                                     |        |                          |        |                                    |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Includes options to purchase 83,333 shares at ofcommon stock granted in 1999 and options to purchase 400,000 shares of commonstock granted in 2001.  The calculatedfair value of the options described above included in “Other AnnualCompensation” was $238,000 in 2001 and $59,000 in 1999.

(2)          While the terms of the employment contract called foran annual salary of $330,000, $300,000 and $300,000 respectively, only $64,615,$6,923 and $138,461 were paid to Mr. Sandvick in 2001, 2000 and 1999respectively.  Mr. Sandvick waived allother salary and bonuses through December 31, 2001.

 

Employment Agreements

 

Mr. Sandvick serves as Chairman of the Board and ChiefExecutive Officer of Global ePoint pursuant to a three-year employmentagreement that commenced on January 9, 1996. The agreement has been extended and will terminate unless furtherextended or sooner terminated, on December 31, 2003.  The term of the agreement is automatically extended annually foran additional year unless notice is given by either party that such party doesnot wish to extend the agreement term. The agreement commenced with an annual base salary of $180,000 throughJune 30, 1996 with $30,000 annual increases thereafter.  The agreement provides for an increase in theannual base salary to at least $300,000 per year if Global ePoint’s pre tax incomeas defined, for any calendar year equals or exceeds $2 million.  Mr. Sandvick is entitled to an annual bonusequal to 5% of the first $10 million of Global ePoint’s pre tax income and 7%of Global ePoint’s pre tax income in excess of $10 million.  Pursuant to the agreement, on thecommencement of employment Mr. Sandvick was granted a ten-year option toacquire 290,000 shares of Global ePoint’s common stock at a price of $2.40 pershare, such price representing the greater of (1) the closing price on the dateof stock holder approval of the First Amendment to Global ePoint’s 1994 StockOption Plan or (2) the average of the closing sales price for the 20 tradingdays preceding the effective date of the agreement.  All of the options are now fully exercisable.  Mr. Sandvick is also entitled to participatein other employee benefit plans and Global ePoint is obligated to reimburse Mr.Sandvick for, or pay directly, the costs of a personal plan of disabilityproviding for $15,000 per month disability benefits.

 

During 2000, due to the financial condition of theCompany, Mr. Sandvick agreed to waive substantially all of his compensation forthat year and reduce his compensation for 2001 and 2002.  The amount of accrued wages and bonuseswaived amounted to $331 thousand in 2001 and $283 in 2000.  During 2001, as a result of the sale of theCompany’s lottery business, Mr. Sandvick’s employment agreement was amended toprovide for a reduced salary until the Company commenced a new businessactivity.  Under the amendment, Mr.Sandvick will be paid an annual base salary of $120,000 commencing July 1, 2001through June 30, 2002 and an annual base salary of $180,000 from July 1, 2002through June 30, 2003, and for annual periods thereafter such salary willincrease by 10%.  Mr. Sandvick alsowaived all bonuses payable to him for the periods through December 31,2001.  Under the amendment, the terms ofMr. Sandvick’s compensation arrangement would revert back to the terms of hisoriginal agreement upon the commencement of a new business activity by theCompany.  In addition, within 30 days ofcommencement of such new business activity, a one-time bonus in the amount of$300,000 will be paid to Mr. Sandvick, provided such new activity is acceptableto the Compensation Committee.

 

The employment agreement with Mr. Sandvick alsoprovides for severance upon termination by Global ePoint without cause ortermination by Mr. Sandvick for “good reason” in the amount equal to the basesalary Mr. Sandvick would have earned during the 36 month period commencing onthe date of termination plus three times Mr. Sandvick’s average annual bonusreceived over the prior three fiscal years. Mr. Sandvick would also have the right to receive all other benefitsthat would have been received under his employment arrangement for that36-month period.  Further, all sharesunderlying outstanding stock options granted to Mr. Sandvick would become fullyexercisable for a period of 18 months after termination.  Mr. Sandvick shall have “good reason” to terminatehis employment if, among other events, (i) Global ePoint fails to comply withany material provision of the employment agreement; (ii) Global ePoint givesMr. Sandvick notice of nonrenewable; or (iii) for any reason within one yearfollowing the occurrence of a change in control, as defined.  Change in control occurs if (i)

 

28

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any person, excluding existing relationships, becomesthe beneficial owner of securities representing 20% or more of the combinedvoting power of Global ePoint’s then outstanding voting securities; (ii) achange occurs in the majority of the Board of Directors; (iii) the stockholdersapprove a merger in which at least 51% of Global ePoint’s combined voting poweris given to a new entity not in Global ePoint’s control or the effect of suchmerger is that any person acquires 20% or more of the combined voting power ofGlobal ePoint.

 

Option Exercises InFiscal 2001 And Fiscal Year-End Option Values

 

The following table presents certain informationregarding stock option exercises during fiscal 2001.

 
| **Name**           |   | **Shares  Acquired  on Exercise  (#)** |   | **Value  Realized  ($)** |   | **Number of  Securities  Underlying Unexercised  Option/SARs  at FY-End** |   | **Value of  Unexercised  In-the-Money Options/SARs  at FY-End** |   |
|--------------------|--------|----------------------------------------|--------|--------------------------|--------|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
|               |   |                                   |   |                     |
|               |   |                                   |   |                     |   | **Exercisable**                                                           |   | **Unexercisable**                                               |   | **Exercisable** |   | **Unexercisable** |   |
| Frederick Sandvick |   | 0                                      |   | 0                        |   | 1,103,334                                                                 |   | 0                                                               |   | 0 |   | 0 |   |

 

----

(1)          Includes options to purchase 290,000 shares of commonstock which vested pursuant to Mr. Sandvick’s employment agreement, warrants topurchase 166,667 shares of common stock in connection with a guarantee of aperformance bond, options to purchase 563,333 shares of common stock pursuantto annual employee grants, and warrants to purchase 83,334 shares of commonstock granted to Vanguard Strategies, Inc. (see “Certain Relationships andRelated Transactions” herein).

 

Compensation of Directors

 

During 2000, 1999 and 1998 each outside director wasautomatically granted options to purchase 3,334 shares of Global ePoint’scommon stock pursuant to the July 26, 1996 amendment to the 1994 Stock OptionPlan for Directors which provided a formula for granting options to outsidedirectors.  During 1999 and 1998,outside directors received additional options for 3,334 shares each in lieu ofcash compensation as a director pursuant to amendments to the Directors Planadopted on August 27, 1998 and July 29, 1999. During 2000, certain outside directors received additional options of6,666 shares and all outside directors received additional options for 10,000shares each in lieu of cash compensation as a director pursuant to an amendmentto the Directors’ Plan adopted on December 8, 2000.  During 2001, each outside director was automatically grantedoptions to purchase 10,000 share of common stock pursuant to the December 8,2000 amendment.  On June 30, 2001 eachoutside director was granted options to purchase 20,000 shares of common stockas a special bonus outside of any designated plan.  On December 14, 2001, each outside director was granted optionsto purchase 10,000 shares of common stock in lieu of cash compensation as adirector pursuant to an amendment to the Directors Plan adopted on December 14,2001.

 

1993 Stock Option Plan

 

On March 1, 1993, Global ePoint adopted the 1993 StockOption Plan (the “Plan”) under which 157,500 shares of common stock may beissued to officers and other key employees who have substantial responsibilityfor the direction and management of Global ePoint.  Options issued under the Plan are either incentive stock optionsunder Section 422 of the Internal Revenue Code of 1986, as amended (the“Code”), or non-qualified stock options, as determined in the discretion of theCompensation Committee of the Board of Directors of Global ePoint at the timethe options are granted.  In addition,the Compensation Committee, subject to the provisions of the Plan, hasauthority to determine the employees to whom options will be granted, the timeor times at which options will issue, the exercise price of granted options andany conditions for their exercise.  ThePlan requires that the exercise price of stock options be not less than thefair market value on the date of grant and that stock options expire not laterthan ten years from the date of grant. In addition, the Plan provides that no incentive stock options may begranted to any employee who owns more that 10% of Global ePoint’s votingsecurities unless the exercise price is a least 110% of the fair market valueof the underlying common stock and the option expires on/before five years fromthe date of grant.  The Plan contains ananti-dilution provision whereby the shares of common stock, which underlieoutstanding options, are increased proportionately in the event of a stock splitor dividend.  As of December 31, 2001, 21,999options have been granted under this Plan.

 

1994 Stock Option Plan

 

On April 21, 1994, Global ePoint adopted the 1994Stock Option Plan (the “Plan”) under which 175,000 shares of common stock maybe issued to officers and other key employees who have substantialresponsibility for the direction and management of Global ePoint.  On January 8, 1996 the plan was amended toincrease the shares available for issuance to 500,000.  Such amendment was approved by thestockholders on July 26, 1996.  OnDecember 8, 2000, an amendment was

 

29

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approved by the stockholders to increase the sharesavailable for issuance to 1,000,000. Options issued under the Plan are either incentive stock options underSection 422 of the Internal Revenue Code of 1986, as amended (the “Code”), ornon-qualified stock options, as determined in the discretion of theCompensation Committee of the Board of Directors of Global ePoint at the timethe options are granted.  In addition,the Compensation Committee, subject to the provisions of the Plan, hasauthority to determine the employees to whom options will be granted, the timeor times at which options will issue, the exercise price of granted options andany conditions for their exercise.  ThePlan requires that the exercise price of stock options be not less than thefair market value on the date of grant and that stock options expire not laterthan ten years from the date of grant. In addition, the Plan provides that no incentive stock options may begranted to any employee who owns more than 10% of Global ePoint’s votingsecurities unless the exercise price is at least 110% of the fair market valueof the underlying common stock and the option expires on or before five yearsfrom the date of grant.  The Plancontains an anti-dilution provision five years from the date of grant.  The Plan contains an anti-dilution provisionwhereby the shares of common stock, which underlie outstanding options, areincreased proportionately in the event of a stock split or dividend.  As of December 31, 2001, 852,000 optionshave been granted under this plan.

 

1994 Stock Option Planfor Directors

 

On April 21, 1994, Global ePoint adopted the 1994Stock Option Plan for Directors (the “Directors’ Plan”) under which 175,000shares of common stock may be issued to Directors of Global ePoint.  Options issued under the Directors’ Plan arenon-qualified stock options.  The Boardof Directors, excluding outside Directors who are eligible for the Directors’Plan, subject to the provisions of the Directors’ Plan, has authority todetermine the outside Directors to whom Options will be granted, the time ortimes at which options will issue, the exercise price of granted options andany conditions for their exercise.  TheDirectors’ Plan requires that the exercise price of stock options be not lessthan the fair market value on the date of grant and that stock options expirenot later than ten years from the date of grant.  The Directors’ Plan contains an anti-dilution provision wherebythe shares of common stock, which underlie outstanding options, are increasedproportionately in the event of a stock split or dividend.  As of December 31, 2001, 126,666 optionshave been granted under this plan.

 

On July 26, 1996, the Board amended the Directors’Plan to provide for the automatic issuance of options in order to satisfy therequirements of Securities and Exchange Commission Rule 16b-3.  The Amendment provided for the automatic issuanceof stock options for 10,000 shares to each outside director on July 26, 1996and as of each June 30 thereafter. Also, each new outside director is automatically granted stock optionsfor 3,334 shares as of the date of becoming a member of the Board, unless thatdate falls between April 1 and June 30 of any year.  These options become exercisable six months after grant andexpire three-year after date of grant. The exercise price is equal to the fair market value at date of grant,but not less than one dollar.

 

On July 29, 1999, August 28, 1998 and August 27, 1997,the Board amended the Directors’ Plan by modifying the formula for grantingoptions to outside directors by providing for the annual grant of a stockoptions for an additional 3,334 shares in lieu of regular cash compensation forserving as director.  These optionsbecome exercisable on the date of the next annual meeting of shareholders andhave a three-year life.  The one-dollarminimum purchase price was eliminated by an amendment dated May 31, 2000.

 

On December 8, 2000, the Board amended the Directors’Plan by modifying the formula for granting options to outside directors asfollows: (a) the number of stock options automatically issued as of each June30 or as of the date of becoming a member of the Board as described above waskept at 10,000 shares even after the reverse stock split, (b) certain outsidedirectors who had been on the Board for at least 3 months received a one-timeadditional grant of stock options for 6,666 shares, (c) similar to prioramendments, outside directors were issued stock options for 10,000 shares inlieu of regular cash compensation for serving from December 8, 2000 to the 2001annual meeting of shareholders, and (d) provide for an exercise period of 5years instead of 3 years for all options issued on December 8, 2000.

 

On December 14, 2001, the Board amended the Directors’Plan by modifying the formula for granting options to outside directors byproviding for the annual grant of a stock option for an additional 10,000shares of common stock in lieu of regular cash compensation for serving as adirector.  These options becomeexercisable on the date of the next annual meeting of shareholders and have afive-year life.

 

Other Stock Options forOutside Directors

 

Additional options were grantedoutside the plan after the sale of the lottery business to Interlott as anadditional incentive for outside Directors to remain on the Board while the Company formulated and implemented its future business plans.  Options issued are non-qualifiedstock options outside of a designated plan. Each outside Director received options to purchase 20,000 shares ofcommon stock on June 30, 2001 and all of these stock options vested on December30, 2001 and expire on

 

30

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June 30, 2004. The stock options contain an anti-dilution provision whereby the sharesof common stock, which underlie outstanding options, are increasedproportionately in the event of a stock split or dividend.

 

Bonus Policy

 

While Global ePoint has no established policy, otherthan as provided in the Chief Executive Officer’s employment agreement, toaward cash or stock bonuses to its officers, it may elect to pay bonuses toreward the performance of its officers. Global ePoint awarded no cash bonuses in 2000 or 2001.

 

ITEM 11. SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of March 5, 2002,the shares of Global ePoint’s Capital Stock beneficially owned by each 5%beneficial owner, by each Director or nominee, by each named executive officerindividually, and by all Directors and executive officers as a group:

 
| **Name and  Address of Beneficial Owner**                         |   | **Number of  Shares  Beneficially  Owned (1)** |   | **Percentage  Of Class** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------|--------|--------------------------|--------|
| Frederick Sandvick (2)  108 Ivy Street  San Diego, CA  92101 |   | 1,016,667                                      |   | 19.7                     | %      |
|                                                              |   |                                           |   |                     |   |
| John H. Olbrich (3)  2928 Via Asoleado  Alpine, CA  91901    |   | 123,888                                        |   | 2.8                      | %      |
|                                                              |   |                                           |   |                     |   |
| Keith Cannon (4)  2300 Shawn Court  Carlsbad, CA  92008      |   | 138,467                                        |   | 3.2                      | %      |
|                                                              |   |                                           |   |                     |   |
| Gordon Graves  1704 Crested Butte Avenue  Austin, TX  78757  |   | 50,000                                         |   | 1.2                      | %      |
|                                                              |   |                                           |   |                     |   |
| All directors  and executive officers as a group (5 persons)      |   | 1,331,522                                      |   | 25.0                     | %      |

 

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(1)          Unless otherwise indicated, all shares are ownedbeneficially and of record.

(2)          Of the shares of common stock reflected in the tableabove, 163,334 are registered in Mr. Sandvick’s name.  The table also includes 853,333 shares of common stock issuableupon exercise of options.

(3)          Of the shares of common stock reflected in the tableabove, 67,222 are registered in Mr. Olbrich’s name.  The table includes options to purchase 56,666 shares of commonstock.

(4)          Of the shares of common stock reflected in the tableabove, 88,467 are registered in Mr. Cannon’s name.  The table includes options to purchase 50,000 shares of commonstock.

 

ITEM 12. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

 

N/A

 

ITEM 13. EXHIBITS ANDREPORTS ON FORM 8-K

 

A)  EXHIBITS

 
| **Exhibit  Numbers** |   | **Description of Documents**                                                    |
|----------------------|--------|---------------------------------------------------------------------------------|
| 3.1                  |   | Amended and Restated Articles of Incorporation of  Registrant (B)               |
|                 |   |                                                                            |
| 3.1.1                |   | Amended and Restated Articles of Incorporation dated  March 1, 1993 (D)         |
|                 |   |                                                                            |
| 3.1.2                |   | Certificate of Amendment to Articles of  Incorporation dated August 6, 1996 (H) |

 

 

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| 3.1.3   |   | Certificate of Amendment to Amended and Restated  Articles of Incorporation dated December 22, 2000 (R)                                                                          |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                             |
| 3.2     |   | Restated By-Laws of Registrant (C)                                                                                                                                               |
|    |   |                                                                                                                                                                             |
| 3.2.1   |   | Restated By-Laws dated March 1, 1993 and Amendment  thereto dated May 27, 1993 (D)                                                                                               |
|    |   |                                                                                                                                                                             |
| 3.3     |   | Certificate of corporate status dated August 3, 1993  (D)                                                                                                                        |
|    |   |                                                                                                                                                                             |
| 4.1     |   | Specimen Stock Certificate (C)                                                                                                                                                   |
|    |   |                                                                                                                                                                             |
| 4.1.1   |   | Specimen Stock Certificate (R)                                                                                                                                                   |
|    |   |                                                                                                                                                                             |
| 4.2     |   | Form of Representative’s Warrant (C)                                                                                                                                        |
|    |   |                                                                                                                                                                             |
| 10.3    |   | ITR Sale and Lease Agreement, dated as of January  12, 1993, between Registrant and the State of Missouri (C)                                                                    |
|    |   |                                                                                                                                                                             |
| 10.3.1  |   | ITR Sale and Lease Agreement, dated as of April 19,  1994, between Registrant and the State of Missouri (P)                                                                      |
|    |   |                                                                                                                                                                             |
| 10.3.2  |   | Amendment No. 1 to ITR Sale and Lease Agreement  between Registrant and the State of Missouri (P)                                                                                |
|    |   |                                                                                                                                                                             |
| 10.3.3  |   | Amendment No. 2 to ITR Sale and Lease Agreement  between Registrant and the State of Missouri (P)                                                                                |
|    |   |                                                                                                                                                                             |
| 10.3.4  |   | Amendment No. 3 to ITR Sale and Lease Agreement  between Registrant and the State of Missouri (P)                                                                                |
|    |   |                                                                                                                                                                             |
| 10.3.5  |   | Amendment No. 4 to ITR Sale and Lease Agreement between  Registrant and the State of Missouri (P)                                                                                |
|    |   |                                                                                                                                                                             |
| 10.3.6  |   | Amendment No. 5 to ITR Sale and Lease Agreement  between Registrant and the State of Missouri (P)                                                                                |
|    |   |                                                                                                                                                                             |
| 10.3.7  |   | Amendment No. 6 to ITR Sale and Lease Agreement  between Registrant and the State of Missouri (P)                                                                                |
|    |   |                                                                                                                                                                             |
| 10.4.1  |   | ITR Sales and Service Agreement dated October 1,  1998 between Registrant and the Commonwealth Virginia (P)                                                                      |
|    |   |                                                                                                                                                                             |
| 10.4.2  |   | Amendment No. 1 to ITR Sales and Lease Agreement  between Registrant and the Commonwealth of Virginia (P)                                                                        |
|    |   |                                                                                                                                                                             |
| 10.4.3  |   | Amendment No. 2 to ITR Sales and Lease Agreement  between Registrant and the Commonwealth of Virginia (P)                                                                        |
|    |   |                                                                                                                                                                             |
| 10.7    |   | Form of Indemnification Agreement between Registrant  and its officers and directors (C)                                                                                         |
|    |   |                                                                                                                                                                             |
| 10.8    |   | 1993 Stock Option Plan (A)                                                                                                                                                       |
|    |   |                                                                                                                                                                             |
| 10.8.1  |   | First Amendment to 1993 Stock Option Plan (C)                                                                                                                                    |
|    |   |                                                                                                                                                                             |
| 10.10   |   | Technology Transfer Agreement, dated as of April 9,  1993, between the Registrant and certain of its shareholders (confidential  treatment requested as to certain portions) (B) |
|    |   |                                                                                                                                                                             |
| 10.15   |   | 1993 Stock Option Plan (D)                                                                                                                                                       |
|    |   |                                                                                                                                                                             |
| 10.16   |   | 1994 Stock Option Plan (E)                                                                                                                                                       |
|    |   |                                                                                                                                                                             |
| 10.16.1 |   | Third Amendment to 1994 Stock Option Plan (R)                                                                                                                                    |
|    |   |                                                                                                                                                                             |
| 10.17   |   | 1994 Stock Option Plan for Directors (E)                                                                                                                                         |
|    |   |                                                                                                                                                                             |
| 10.17.1 |   | Fifth Amendment to the 1994 Stock Option Plan for  Directors (R)                                                                                                                 |

 

 

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| 10.17.2 |   | Sixth Amendment to the 1994 Stock Option Plan for  Directors (R)                                                                                                             |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                         |
| 10.17.3 |   | Seventh Amendment to the 1994 Stock Option Plan for  Directors (S)                                                                                                           |
|    |   |                                                                                                                                                                         |
| 10.21   |   | Employment agreement with Frederick Sandvick (G)                                                                                                                             |
|    |   |                                                                                                                                                                         |
| 10.21.1 |   | Amendment to Employment Agreement with Frederick  Sandvick (S)                                                                                                               |
|    |   |                                                                                                                                                                         |
| 10.24   |   | Loan and Security Agreement between Registrant and  Coast Business Credit (J)                                                                                                |
|    |   |                                                                                                                                                                         |
| 10.25   |   | Termination of Agreement between Registrant and  Vanguard Strategies, Inc. (K)                                                                                               |
|    |   |                                                                                                                                                                         |
| 10.26   |   | Amendment Nos. 1, 2 and 3 to Loan and Security  Agreement between Registrant and Coast Business Credit (L)                                                                   |
|    |   |                                                                                                                                                                         |
| 10.26.1 |   | Amendment No. 4 to Loan and Security Agreement  between Registrant and Coast Business Credit dated April 20, 2000.  (P)                                                 |
|    |   |                                                                                                                                                                         |
| 10.27   |   | Master Lease Agreement dated March 1, 1995 between  the Registrant and Solutioneering, Inc. (M)                                                                              |
|    |   |                                                                                                                                                                         |
| 10.27.1 |   | Amendment No. 1 to Master Lease Agreement dated  December 24, 1996 (M)                                                                                                       |
|    |   |                                                                                                                                                                         |
| 10.27.2 |   | Amendment No. 2 to Master Lease Agreement dated  December 24, 1997 (M)                                                                                                       |
|    |   |                                                                                                                                                                         |
| 10.28   |   | Distributor Agreement between the Registrant and  Editec, dated December 30, 1997 (M)                                                                                        |
|    |   |                                                                                                                                                                         |
| 10.28.1 |   | Agreement for the French Lottery Contract dated  February 24, 1998 between the Registrant and Editec (M)                                                                     |
|    |   |                                                                                                                                                                         |
| 10.28.2 |   | English Translation of Contract with La Francaise  Des Jeux, dated January 27, 1999 (P)                                                                                      |
|    |   |                                                                                                                                                                         |
| 10.30   |   | Service Agreement for the Illinois Lottery between  the Registrant and IGOR, dated July 15, 1994 (M)                                                                         |
|    |   |                                                                                                                                                                         |
| 10.30.1 |   | ITR Sale and Lease Agreement between the Registrant  and Illinois State Lottery, dated July 1, 1994 (M)                                                                      |
|    |   |                                                                                                                                                                         |
| 10.31   |   | Agreement and Plan of Merger, dated as of January 7,  2000 with GTECH Corp. (N)                                                                                              |
|    |   |                                                                                                                                                                         |
| 10.31.1 |   | Voting Agreement, dated as of January 7, 2000  between Robert L. Burr, John Olbrich, Brian J. Roberts, Frederick Sandvick  and Vanguard Strategies, Inc. and GTECH Corp. (N) |
|    |   |                                                                                                                                                                         |
| 10.31.2 |   | Option Agreement, dated as of January 7, 2000 with  GTECH Corp. (N)                                                                                                          |
|    |   |                                                                                                                                                                         |
| 10.31.3 |   | Note Amendment and mutual release agreement with  Gtech Corporation dated August 23, 2000 (O)                                                                                |
|    |   |                                                                                                                                                                         |
| 10.32   |   | Stipulated judgment against US Telecard, Inc., dated  November 12, 1999. (P)                                                                                                 |
|    |   |                                                                                                                                                                         |
| 10.33   |   | Asset Purchase Agreement, dated as of February 23,  2001 between Global ePoint and Interlott Technologies, Inc. (Q)                                                          |
|    |   |                                                                                                                                                                         |
| 10.34   |   | 10% Convertible Note Due 2/15/02 between Registrant  and Galt Asset Management LLC (R)                                                                                       |
|    |   |                                                                                                                                                                         |
| 10.35   |   | International VoIP Agreement between Registrant and  Fusion Telecommunications International, Inc. (S)                                                                       |

 

 

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Codes for documentsincluded by reference to previous filings

 

(A) Incorporated byreference to Registrant’s Registration Statement on Form S-2 dated April23,1993 (Registration No.   33-61442)

 

 

33

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(B) Incorporated byreference to Registrant’s Amendment No. 1 to the Registration Statement on FormS 2 filed on June 1, 1993.

 

(C) Incorporated byreference to Registrant’s Amendment No. 2 to the Registration Statement on FormS- 2 filed on June 21, 1993.

 

(D) Incorporated by reference to Registrant’s AnnualReport on Form 10-KSB for the year ended December 31, 1993.

 

(E) Incorporated by reference to Registrant’s AnnualReport on Form 10-KSB for the year ended December 31, 1994.

 

(F) Incorporated by reference to Registrant’sQuarterly Report on Form 10-QSB for the quarter ended June 30, 1995.

 

(G) Incorporated by reference to Registrant’sQuarterly Report on Form 10-QSB for the quarter ended March 31, 1996

 

(H) Incorporated by reference to Registrant’sQuarterly Report on Form 10-QSB for the quarter ended Sep 30, 1996

 

(I) Incorporated by reference to Registrant’s AnnualReport on Form 10-KSB for the year ended December 31, 1996.

 

(J) Incorporated by reference to Registrant’sQuarterly Report on Form 10-QSB for the quarter ended June 30, 1997.

 

(K) Incorporated by reference to Registrant’s AnnualReport on Form 10-KSB for the year ended December 31, 1997.

 

(L) Incorporated by reference to Registrant’sQuarterly Report on Form 10-QSB for the quarter ended June 30, 1998

 

(M) Incorporated byreference to Registrant’s Annual Report on Form 10-KSBA, as restated on March31, 2000 for the year ended December 31, 1998.

 

(N) Incorporated by reference to SC 13D, filed byGTECH Corp on January 18, 2000

 

(O) Incorporated byreference to Registrant’s Quarterly Report on Form 10-QSB for the quarter endedSeptember 30, 2000

 

(P) Incorporated by reference to Registrant’s AnnualReport on Form 10-KSB for the year ended December 31, 1999

 

(Q) Incorporated by reference to Registrant’s Form8-K, dated February 23, 2001

 

(R) Incorporated by reference to Registrant’s AnnualReport on Form 10-KSB for the year ended December 31, 2000.

 

(S) Included herein.

 

B)  REPORTS ONFORM 8-K

 

N/A

 

33

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the Registrant has duly caused this amendment to annualreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

GLOBAL EPOINT, INC.

 
| Dated: March 29, 2002 | By:  /s/  Frederick Sandvick                               |   |
|-----------------------|-----------------------------------------------------------------|--------|
|                  | Frederick Sandvick                                              |
|                  | Chief Executive Officer and  Chairman of the Board of Directors |
|                  |                                                            |
| Dated: March 29, 2002 | By:  /s/  Charles R. Broz                                  |   |
|                  | Charles R. Broz                                                 |
|                  | Principal Financial Officer                                     |
|                       |                                                                 |        |  |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and dates indicated.

 
| Dated: March 29, 2002 | By:  /s/ John  H. Olbrich   |   |
|-----------------------|----------------------------------|--------|
|                  | John H. Olbrich, Director        |
|                  |                             |
| Dated: March 29, 2002 | By:  /s/  Keith A. Cannon   |   |
|                  | Keith A. Cannon, Director        |
|                  |                             |
| Dated: March 29, 2002 | Bry:  /s/  Gordon T. Graves |   |
|                  | Gordon T. Graves, Director       |
|                       |                                  |        |  |  |

 

34

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