Global ePoint, Inc. Announces Financial Results For The Third Quarter Of 2004

• Revenues for three months up 29.5%; Revenues for nine months up 69.3%
• Continuead integration of recent acquisitions
• Continued R&D investment yields new product introductions
• Board of Directors strengthened with four appointees

CITY OF INDUSTRY, Calif. – November 22, 2004 – Global ePoint, Inc. (Nasdaq: GEPT), a leading provider of digital video surveillance systems, today announced financial results for the third quarter and nine month period ended September 30, 2004.

For the quarter, revenues increased 29.5 percent to $5.0 million from the $3.9 million reported for the third quarter of 2003. Revenues for the third quarter of 2003 did not include sales from either AirWorks or Perpetual, the assets of which were acquired in April 2004. The combined sales figure included $447,000 in sales from the Digital Technology product lines, compared to $42,000 in similar sales for the third quarter of 2003. Aviation products contributed $946,000 in sales for the quarter, compared to no sales for these products in the third quarter of 2003. Contract Manufacturing contributed revenue of $3.6 million for the quarter, compared to revenue of $3.8 million for the third quarter of 2003.

Cost of sales for the quarter was $3.9 million, an increase of 27.6 percent from the $3.0 million for the third quarter of last year. The increase in the cost of sales was primarily due to the recent acquisitions. The acquisitions increased cost of sales by $820,000 compared to the three months ended September 30, 2003.

Gross profit was $1.1 million, or 22.7 percent of sales, compared to gross profit of $829,000, or 21.5 percent of sales, for the third quarter of 2003. The slight increase in gross profit was due to the contribution of higher margin products and services from products related to the recent acquisitions, including proprietary products related to the digital aviation business. For the quarter, AirWorks contributed gross margins from core ongoing operations of 34.6 percent and Perpetual contributed gross margins of 37.4 percent.

Selling expenses increased 80.8 percent for the quarter to $669,000 from $370,000 for the same period of the prior year. The increase is the result of additional sales personnel for the Digital Technology division, as well as travel and trade show expenses to promote the Company’s digital and aviation products. The Company also expensed product development costs of $275,000 for the quarter compared to costs of $196,000 for the third quarter of 2003. The increase is the result of the division’s continued investment in research and development as part of the Company’s overall commitment to be a leader in the digital video surveillance market.

The net loss for the quarter was $1.2 million. With a one time $616,000 non–cash accounting charge for the warrants issued related to the recent equity raised and 42,000 preferred stock dividend, the total net loss applicable to common stockholders for this quarter was $1.9 million or $(0.17) per basic and diluted share, compared to net income of $2,000, or $0.00 per basic and diluted share for the third quarter of 2003. Weighted average shares outstanding for the quarter were 10.9 million compared to 8.2 million for the third quarter of 2003.

For the nine–month period, revenues increased 69.3 percent to $13.9 million compared to $8.3 million from the first nine months of 2003. This increase was the result of contributions from the Company’s acquisitions in April of Perpetual and AirWorks and an increase in contract manufacturing sales to the consumer PC market. Cost of sales was $10.8 million, an 83.0 percent increase from $5.9 million reported for the first nine months of 2003. Gross profit for the nine months of 2004 was $3.2 million, or 22.7 percent of sales, compared to gross profit of $2.4 million, or 28.5 percent of sales. The decrease in gross profit as a percent of sales was due to the increase in contract manufacturing sales of lower margin consumer PCs offset by the relatively limited contribution of higher margin business from the Perpetual and AirWorks acquisitions, as they were acquired in April of 2004.

Selling and marketing expenses increased 24.4 percent to $1.8 million compared to $1.4 million for the first nine months of 2003. General and administrative expenses increased 233.4 percent to $3.7 million, compared to $1.1 million for the first nine months of 2003 due to expenses related to the recent acquisitions totaled $922,000. The Company also incurred approximately $592,000 in professional fees and expenses associated with being a public company. Research and development expenses were $781,000, a 61.7 percent increase compared to expenses of $483,000 last year.

The net loss applicable to common stockholders for the first nine months of 2004 was $3.7 million, or $(0.34) per basic and diluted share, compared to a net loss applicable to common stockholders of $558,000, or $(0.09) per basic and diluted share for the first nine months of 2003. Weighted average shares outstanding for the period were 10.9 million compared to 6.0 million for the same period last year.

The Company completed the quarter with $19.3 million in total assets and shareholders’ equity of $10.6 million as of September 30, 2004.

"Our goal of rapidly integrating the key acquisitions we made in April and exploiting synergies between the new operations and our existing contract manufacturing operations is well underway," commentedToresa Lou, Global ePoint’s chief executive officer. "We have also continued to strengthen and deepen our management team, while expanding our marketing and brand management efforts within the marketplace. In addition, we continue to invest in our future, leveraging on our technological advantages, through a robust research and development program. We have made considerable progress in executing our strategy, but there is much work to do as we position ourselves for long–term success in emerging markets with state–of–the–art technology. We have been focused on increasing our distribution and sales channel, approving our product offerings and rolling out product installations with national customers."

Highlights of events during and subsequent to the quarter

  • On September 13, Air Berlin, a major European airline, and a major Middle Eastern international airline, each ordered Global AirWorks’ Cockpit Door Surveillance System (CDSS). Air Berlin ordered the CDSS for 48 Boeing 737 next–generation aircraft with options that include installation kits and installation services. The Middle East carrier purchased 19 Global AirWorks’ CDSS systems thru Lufthansa Technik, who recently entered into a Marketing Agreement with Global Airworks. The aircraft involved include the Boeing 777, 747, and Airbus A340, A320, and A310.
  • Company’s Digital Technology Division. Mr. Cappelletti was a founder and also previously served as President of Ademco Distribution, Inc. (ADI), a Melville, New York based division of Honeywell, Inc. Mr. Cappelletti has recruited three regional sales managers, expanding the Company’s sales coverage to the continental U.S. and Canada.
  • The Company significantly strengthened its board of directors with four meaningful appointees. Daryl Gates, former Los Angeles Chief of Police, joined the board during the quarter. Mr. Gates had previously been a consultant for the Company. James Dennis Smith, a retired judge from the LA County Superior Court, as well as a Consumer Affairs Commissioner – Private Investigation Security Commission, also joined the board. Richard J. Bartol, a previous partner at Moore Stephens Frazer and Torbet, an accounting firm, also joined the board, as did Lawrence S. Leong, a former financial executive with several billion dollar companies.
  • On July 27, Global ePoint announced its Aviation division, also known as Global Airworks, has received FAA and European JAA (Joint Aviation Authorities) certification for Fire Detection and Fire Suppression kits and will immediately begin delivering kits to Air One airlines of Italy. The initial $257,400 order was placed through Autronics and is for 19 aircraft to be followed with a reorder for six additional aircraft.
  • During the quarter, Global ePoint announced its AirWorks division has entered into a purchase term agreement amendment with Lufthansa Technik AG, which will allow Lufthansa Technik to market and sell the Global AirWorks Cockpit Door Surveillance System (CDSS). Lufthansa Airlines was the original customer for the AirWorks CDSS, installing the system on their entire fleet of Narrow body and Wide Body Aircraft.
  • Within the Company’s Digital Technology division, a major United States Air Force Base purchased our Ranger Mobile Video Distribution System for use in their Emergency Response Vehicle, while ongoing pilot studies continue with the Jersey City (New Jersey), West Covina (California), Santa Ana (California) and Brea (California) police departments.
Ms. Lou concluded, "We are seeing traction within our digital technology division, with DVR sales to a major bank’s check processing center and confirmation from a bank to provide DVRs and cameras for 150 branches. Momentum continues to build for our Aviation division, as we have total orders shipped or shipping for the fourth quarter as of November 15 which exceed the division’s total sales for the entire third quarter. Our diversified business strategy is rapidly gaining acceptance in the various markets we serve, and our financial results will benefit from the many revenue streams, each of which are showing significant period–over–period improvements."

Management will hold a conference call to discuss the financial results at 4:15 p.m. EST (1:15 p.m. PST) on Tuesday, November 23, 2004. Interested parties may access the call by dialing 1–877–407–8289 domestically, or 1–201–689–8341 internationally. Management has asked that all questions be e-mailed prior to the conference call to [email protected] Management will address these after the formal presentation has concluded. Those unable to access the live teleconference may utilize a replay, available through November 30, 2004, by dialing 877–660–6853 (U.S.) and 201–612–7415 internationally, and entering account number 3055 and conference id number 125602.

Global ePoint’s growth catalyst, through its wholly-owned subsidiaries, is the design, manufacturing, sales and distribution of digital video surveillance systems for the law enforcement, military, aviation and homeland security markets. On the cutting edge of digital technology and seeking to expand its product line, Global ePoint is developing new compression technologies and next–generation, secure network digital video systems and servers for a wide range of new markets, concentrating primarily on security and homeland defense applications. As a solid recurring revenue stream, the Company also manufactures customized computing systems for industrial, business and consumer markets, as well as other specialized electronic products and systems. Complete vertical integration — from design and manufacturing to sales and distribution — allows the Company to capture efficiencies and maintain cost advantages in these growing markets, particularly homeland security. For more information, please visit www.globalepoint.com.

Cautionary Statement

This news release contains forward–looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward–looking statements are based on the company’s current expectations, estimates and projections, management’s beliefs and numerous assumptions, all of which are subject to change. These forward–looking statements are not guarantees of future results and are subject to numerous risks and uncertainties. Our actual results could differ materially and adversely from those expressed in any forward–looking statement. For example, deliveries may be delayed or installations canceled. Regulations may change and negatively affect demand for our products. There can be no assurance that the company’s subsidiaries and/or divisions will be able to achieve growth of sales or market share. The forward–looking statements in this release speak only as of the date of this release. We undertake no obligation to revise or update publicly any forward–looking statement for any reason. These and other risk factors are detailed in our periodic filings with the Securities and Exchange Commission.

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


GLOBAL EPOINT, INC. AND SUBSIDIARIES
(Formerly McDigit, Inc. and Best Logic, LLC)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF SEPTEMBER 30, 2004

(Thousands of dollars, except per share amounts)

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

Contact:
Global ePoint, Inc.
John Price, 909.839.1700
[email protected]