SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from ________________________ to ___________________

Commission file number                   001-12739                        

                   ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                 (Name of small business issuer in its charter)
<TABLE>

                               FLORIDA                         59-2327381                   
<S>                                                  <C>
(State or other jurisdiction of incorporation or     (I.R.S. Employer Identification No.)
   organization)
</TABLE>

1810 N.E. 144TH STREET, NORTH MIAMI, FLORIDA                           33181
(Address of principal executive offices)                            (Zip Code)



Securities registered under Section 12(b) of the Exchange Act:

                                                        Name of each exchange
        Title of each class                              on which registered

               NONE


         Securities registered under Section 12(g) of the Exchange Act:

                                  COMMON STOCK
                    REDEEMABLE COMMON STOCK PURCHASE WARRANTS
                                (Title of class)

<PAGE>

Check whether the Company (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

The Company's revenue for the fiscal year ended December 31, 1998 were
$21,968,955.

The aggregate market value of the voting stock held by non-affiliates of the
Company, based upon the closing bid price of the Company's common stock, $.001
par value per share (the "Common Stock") as of April 12, 1999 of $1 5/8 per
share, was approximately $2,388,000. There is no non-voting stock.

The number of shares of the Company's Common Stock which were outstanding as of
March 31, 1999 was 3,167,921.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders, scheduled to be held in May 1999, are incorporated by reference
into Part III hereof. Certain exhibits listed in Part III of this Annual Report
on Form 10-KSB are incorporated by reference from prior filings made by the
Company under the Securities Act of 1933, as amended (the "Securities Act") and
the Securities Exchange Act of 1934 (the "Exchange Act").

Transitional Small Business Disclosure Format  (Check one):

                            Yes       No  X

                                       ii

<PAGE>
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                   ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                AND SUBSIDIARIES

                                      INDEX

                                     PART I
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                              <C>
Item 1.  Description of Business..................................................................................1

Item 2.  Description of Property.................................................................................10

Item 3.  Legal Proceedings.......................................................................................10

Item 4.  Submission of Matters to a Vote of Security Holders.....................................................10

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters................................................11

Item 6.  Management's Discussion and Analysis or Plan of Operation...............................................12

Item 7.  Financial Statements and Supplementary Data.............................................................17

Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure................................................................................17

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Central Persons;
         Compliance with Section 16(a) of the Exchange Act.......................................................18

Item 10. Executive Compensation..................................................................................18

Item 11. Security Ownership of Certain Beneficial Owners and Management..........................................18

Item 12. Certain Relationships and Related Transactions..........................................................18

Item 13. Exhibits and Reports on Form 8-K........................................................................18

FINANCIAL STATEMENTS
                           Report of Independent Certified Public Accountants...................................F-2
                           Consolidated Balance Sheet at December 31, 1998......................................F-3
                           Consolidated Statements of Operations for the Years Ended
                                    December 31, 1998 and 1997..................................................F-4
                           Consolidated Statements of Shareholders' Equity for the Years Ended
                                    December 31, 1998 and 1997..................................................F-5
                           Consolidated Statements of Cash Flows for the Years Ended
                                    December 31, 1998 and 1997..................................................F-6
                           Summary of Significant Accounting Policies...........................................F-7
                           Notes to Consolidated Financial Statements..........................................F-12
</TABLE>

                                      iii

<PAGE>

                                     PART I

         EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-KSB CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH ARE INTENDED TO BE
COVERED BY THE SAFE HARBORS CREATED THEREBY. THESE FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
COMPETITION FROM OTHER MANUFACTURERS AND DISTRIBUTORS OF CONNECTIVITY AND
NETWORKING PRODUCTS BOTH NATIONALLY AND INTERNATIONALLY; THE BALANCE OF THE MIX
BETWEEN ORIGINAL EQUIPMENT MANUFACTURER SALES (WHICH HAVE COMPARATIVELY LOWER
GROSS PROFIT MARGINS WITH LOWER EXPENSES) AND RETAIL SALES (WHICH HAVE
COMPARATIVELY HIGHER GROSS PROFIT MARGINS WITH HIGHER EXPENSES) FROM PERIOD TO
PERIOD; AND THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING AND
ASSEMBLY OF PRODUCTS AND THE ABSENCE OF SUPPLY AGREEMENTS. THESE AND ADDITIONAL
FACTORS ARE DISCUSSED HEREIN. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN
INVOLVE AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL
OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING), ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENT. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.


ITEM 1. DESCRIPTION OF BUSINESS

(A) OVERVIEW

         The Company designs, manufactures, markets and distributes networking
and computer connectivity products in the United States and internationally. The
Company offers its customers a broad range of networking products, including
network interface cards, hubs, transceivers, routers and repeaters, and computer
connectivity products, including cables, connectors, installation products, data
sharing devices, fiber optic cables and multimedia input and output devices. The
Company sells its products to a broad range of customers, including original
equipment manufacturers ("OEM") and retail customers (such as computer
superstores and dealers, mail order customers and other distributors) in North
America, Latin America, and Eastern and Western Europe.

         The Company works with several manufacturers that manufacture and
assemble the Company's products using designs and manufacturing specifications
(including quality control) provided by the Company. For these designs and
manufacturing specifications, the Company uses its own designs, as well as
standard industry designs. The Company's manufacturers are located primarily in
the Far East, allowing the Company to maintain competitive pricing for its
products due to comparatively lower labor-related costs of production in the Far
East. The Company also assembles a very small percentage of its products at the
Company's North Miami facility and expects to produce connectivity products in
the future at its newly acquired CCCI manufacturing operation.

                                       1
<PAGE>

         In February 1997, the Company completed its initial public offering
("IPO"). The Company used the net proceeds of the IPO to repay indebtedness, for
product development and design, to increase its inventory to support customer
requirements, to increase its sales force, to implement the "ISO 9000" standard,
for advertising and marketing, for acquisitions and for working capital. Since
the IPO, the Company has completed four acquisitions.

         In September, 1997, the Company acquired the assets of the networking
division of Focus Enhancements, Inc. ("Focus"). The Company now sells its
networking products under the "Focus Networking" tradename to retail customers,
primarily in the United States and Europe. The Company also has a supply
agreement with Focus pursuant to which Focus purchases certain OEM connectivity
components from the Company. In November, 1997, the Company acquired Dataholding
AS (now called Jotec/AESP AS), a distributor of connectivity and computer
products headquartered in Oslo, Norway. During the fourth quarter of 1998, the
Company acquired AESP Ukraine, an independent but affiliated distributor of the
Company's products located in the Ukraine. In March 1999, the Company
completed the acquisition of the assets of Communications Components Company,
Inc. ("CCCI"), which manufactures a line of network connectivity products and
systems.

(B) BUSINESS OF ISSUER

         NETWORKING AND COMPUTER CONNECTIVITY INDUSTRY-OVERVIEW

         Information is proliferating worldwide, and demand for that
information, by businesses, governments, universities and individuals, is
likewise exploding, driven primarily by the exponential increase in use of the
Internet for communications, information gathering and electronic commerce.
Furthermore, as business becomes more complex and geographically diverse, the
demand for information on which to base decision making, delivered to the
"transaction point", wherever in the world that point might be, has fueled the
proliferation of networks and computer connectivity systems.

         These trends have created an ever-increasing demand for bandwidth, to
accommodate both the Internet and network traffic. However, the growth and
technological advancement of the hardware backbone for networking and computer
connectivity has simply not kept pace with that demand. The worldwide struggle
to bring networking and computer connectivity hardware up to the level of demand
represents a business opportunity for the Company, and the Company's strategic
objective is to become a leading distributor in the networking and computer
connectivity equipment industry.

         The networking and computer connectivity market consists of two
wholesale categories: manufacturers of computers and peripherals and
distributors, and three retail categories, including retail stores, catalog
companies and, most recently, web-based selling organizations. The Company's
strategy is to market to all five of these potential customer groups.

         Manufacturers and distributors of networking and computer connectivity
products range in size from channel dominant companies with annual sales of over
$250 million to independent or

                                       2
<PAGE>

specialized distributors with annual sales of $1-3 million. Small distributors
predominate the channel, reflecting both the specialized nature of technology
and the variety of OEM and end-user customers for connectivity hardware.

         The networking and computer connectivity industry is characterized by
extremely rapid technological change. To maintain and enhance its competitive
position, the Company must adapt to technological change, constantly upgrade and
expand its product line, and eliminate obsolete products within that line. Thus,
purchasing and inventory management are important determinants of the Company's
operating success.

         The networking and computer connectivity industry is also characterized
by inevitable price erosion across the life cycle of products and technologies.
To maintain its profitability in the face of constantly shrinking gross margins,
the Company's strategy is to seek out low cost producers without sacrificing
quality and to seek to develop and maintain efficient internal operations
allowing the Company to control its internal costs and expenses.

         While the market for networking and computer connectivity hardware is
one of the fastest growing segments of the technology industry, the technology
industry has historically experienced cyclical downturns. Any such downturns,
unexpected changes in technology or shifts in the distribution channel for
networking and computer connectivity equipment could have a materially adverse
effect on the Company.

         PRODUCTS AND SERVICES

         The Company's product line consists of four categories: networking,
connectivity, audio/video and accessories.

         Networking products are products which connect a computer to another
computer, a network server, the Internet, the public switched telephone network
or another enterprise. Networking products are divided into two sub-categories:
active and passive. Active networking products include interface cards,
transceivers, hubs, routers and repeaters. Passive networking products include
patch panels, patch cables and wallplates.

         Connectivity products are products which connect a computer to
peripheral equipment, such as printers, external storage devices, scanners,
facsimiles or communications devices. Connectivity products include cables,
plugs and interface devices. Within the computer industry, the trend in
connectivity equipment is toward the development of so-called universal
interfaces, using USB, Finewire and SCSI standards. These universal interfaces
allow many different devices, such as monitors, keyboards, printers and modems,
to be connected using one universal interface per connection. Universal
interfaces have the potential to replace a number of connectivity products
currently marketed by the Company. However, while there can be no assurance, the
Company believes that future sales of universal interfaces have the potential to
be equal to or greater than sales of the connectivity devices replaced by such
interfaces.

                                       3
<PAGE>

         Audio/video products are products that provide audio and video input
and output to computers, networks, homes and offices. These products include
connectivity devices for multimedia applications. Accessories are component
products used in conjunction with networking, connectivity and audio/video
products, and include such products as tools, testers, power backups and surge
suppressors.

         The Company has also recently added several new product lines, via the
addition of the Plugged-In(TM) line of ultra high quality computer cables and
the acquisition in 1999 of the CCCI "Signamax"(TM) product line of passive 
networking products.

         The Company is constantly expanding and changing its product line
within the aforementioned categories to expand the total number of products it
can offer customers, to attract new customers, to penetrate new geographic and
vertical markets and to increase gross sales. For example, in countries outside
the United States, electrical power is of different voltages and frequencies,
and power connections are of different configurations. By expanding its product
line to include products for different voltages, frequencies and connection
configurations, and warehousing these products near potential customers, the
Company has successfully expanded its sales activities into a number of Western
and Eastern European countries.

         In order to provide assistance to its customers and to be competitive
with other companies in its industry, the Company offers certain of its
customers several services. These services include: stock rotation (where the
customer can return unsold products of a type which the Company currently sells
for credit towards purchases of new products); price protection (where the
customer is entitled to receive a lower price if the Company publishes a lower
price to a similarly situated customer for the same product on its next
semiannual pricing list); enhanced packaging; custom packaging; technical and
design support (where the customer receives advice from the Company on which
product or design specification is appropriate for a particular situation);
assembly support (where customers rely on the Company to assemble the component
parts the customer traditionally had done itself); training (where the customer
receives training from the Company on the different capabilities and
applications of the Company's products); extended warranties;
merchandising/display programs and quality control.

         MANUFACTURING AND SUPPLIERS

         All of the products purchased by the Company from its suppliers have
been manufactured to the Company's specifications. Those specifications are
derived either from specifications provided to the Company by its OEM customers
or from industry standard specifications. Products sold by the Company to its
OEM customers are typically manufactured to the customer's unique
specifications. Products sold by the Company to its retail customers are
typically manufactured to industry standard specifications. The Company
contracts with manufacturers using two methodologies.

         Under the first methodology, typically used for the manufacture of
custom designed products, the Company contracts with a primary manufacturer
(a/k/a an "assembler") and then directs that manufacturer to various component
manufacturers with whom the Company also has contracted. The component
manufacturers then supply components to the assembler, who is responsible for
final

                                       4
<PAGE>

manufacturing of the finished product. The value of this methodology to the
manufacturing of custom designed products is that the Company can enforce its
specifications at every step of the component manufacturing and final assembly
process. Under the second methodology, typically used for the manufacture of
industry standard specification products, the Company contracts only with the
primary manufacturer, which makes its own arrangements with component suppliers.
The Company enforces its specifications on the primary manufacturer, which is
responsible for the enforcement of the Company's specifications on the component
suppliers with whom it has contracted.

         Due to the high volume and labor intensive nature of manufacturing
computer connectivity products, most of the products sold by the Company are
manufactured outside the United States in such countries as Taiwan, the Peoples'
Republic of China and Hong Kong. The Company also assembles a small percentage
of its products at the Company's North Miami, Florida facility. Additionally, as
a result of its recent acquisition of CCCI, the Company now manufactures
connectivity products at its Broomall, Pennsylvania manufacturing facility.

         For the production of each specific type of retail product, the Company
usually maintains an on-going relationship with several suppliers to insure
against the possibility of problems with one supplier adversely impacting the
Company's business. For the production of OEM products, the Company usually uses
a single supplier for each product, with other factories providing competitive
price quotes and being available to supply the same product if a primary
supplier fails to produce for reasons outside the Company's control. However,
while the Company believes that it could easily replace a sole source of supply
if required, there can be no assurance of this fact. In an effort to produce
defect-free products and maintain good working relationships with its suppliers,
the Company keeps in contact with its suppliers, regularly inspecting the
manufacturing facilities of the suppliers and implementing quality assurance
programs in the supplier's factories.

         Over the last five years, the Company has progressively expanded its
supplier base. Presently, the Company works with approximately 40 suppliers. The
Company has one supplier (located in China), which supplied approximately 10
percent of the Company's purchases during 1998 and 1997. No other source of
supply accounted for more than 10 percent of the Company's purchases during 1998
or 1997, and other than purchase orders, the Company does not enter into supply
or requirements contracts with its suppliers. The Company believes that purchase
orders, as opposed to supply or requirement agreements, provide the Company with
more flexibility in responding quickly to customer demand. Nevertheless, the
loss of one or more suppliers could have an adverse impact on the Company.

         QUALITY CONTROL

         The Company's goal is to provide its customers with defect-free
products. Working with its primary manufacturers and often with the
manufacturers of the component parts, the Company has instituted quality control
measures at five stages throughout the manufacturing process. At the first
stage, the Company works with its primary manufacturers to institute a general
quality control check upon the entry of the various component parts into the
primary manufacturers' factory (a.k.a. the incoming inspection). At the second
stage, the primary manufacturer checks to ensure that the contacts which are
being fitted with connectors function properly. The third and fourth stages of
quality control occur after each molding process, with the final product being
subject to quality

                                       5
<PAGE>

control upon shipment to the Company. The fifth and final stage of quality
control occurs at one of the Company's distribution warehouses (North Miami,
Pleasanton, Germany, Sweden and Norway). At this final stage of quality control,
the Company tests a certain percentage of each shipment of the products it
receives to ensure the products meet the Company's quality standards.

         In 1998, the Company was certified as being in compliance with the"ISO
9000" standard. The ISO 9000 standard is an international manufacturing standard
which is becoming more prevalent across numerous industries. Almost all of the
Company's current suppliers are either ISO 9000 compliant or in the process of
implementing ISO 9000 procedures.

         CUSTOMER BASE

         The Company's customer base is divided into two categories: OEM and
retail. OEM customers are generally manufacturers of computer-related
audio-video equipment which use the Company's products as part of their finished
products. Retail customers are local and regional resellers, value-added
resellers and distributors, educational institutions and catalog houses. Catalog
houses constitute a large share of the Company's U.S. retail sales. The retail
mass merchandising market also represent a significant growth area for the
Company. The Company does not sell its products directly to end-users.

         Substantially all of the Company's revenues are derived from the sale
of its products through third parties. Domestically, the Company's products are
sold to end users primarily through OEM customers, wholesale distributors, value
added resellers ("VARs"), mail order companies, computer superstores and
dealers. In Europe, the Company's products are sold through wholesale
distributors and mail order companies, dealers and VARs. Accordingly, the
Company is dependent on the continued viability and financial stability of its
resellers. The Company's resellers often offer products of several different
companies, including, in many cases, products that are competitive with the
Company's products. There can be no assurance that the Company's resellers will
continue to purchase the Company's products or provide them with adequate levels
of support. The loss of, or a significant reduction in sales volume to, a
significant number of the Company's resellers could have a material adverse
effect on its results of operations.

         Sales to the Company's exclusive distributor in Russia, AESP-Russia,
amounted to 15.1% of the Company's net sales for 1997 and 9.2% of the Company's
net sales for 1998. However, in August, 1998, due to deteriorating economic
conditions in Russia, AESP Russia experienced a cessation of business volume. As
a consequence, the Company elected, during its third fiscal quarter of 1998, to
take a one-time charge of approximately $2.1 million, representing the write-off
of inventory and accounts receivable relating to AESP-Russia. See Item 6.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION." The Company is
currently selling products to its Russian distributor on a paid-in-advance
basis.

         The Company's top 10 customers (including AESP-Russia) accounted for
approximately 40% of the Company's net sales for the year ended December 31,
1997 and for approximately 31% of the Company's net sales for the year ended
December 31, 1998. No one customer accounted for more than 10% of net sales in
1998.

                                       6
<PAGE>

         The Company believes that due to the vagaries of the computer industry,
it is likely that some customers who are significant customers in one period may
become insignificant customers in future periods. The reduction in net sales
attributable to the Company's top ten customers from period to period reflects
the Company's attempts to diversify its customer base and reduce its dependence
on any one set of customers. However, the loss of one or more significant
customers could have a material adverse impact on the Company's business and
results of operations.

         MARKETING AND SALES

         The Company's marketing and sales efforts are directed by its Sales and
Marketing Department. The Marketing Department is responsible for, among other
things, publishing the Company's catalogs for each product line as well as the
general Company catalog, assisting the sales group (described below) in
preparing for sales shows, advertising the Company's products in industry
publications, working with mail-order catalogs to prepare advertising space in
such catalogs, and providing designs for packaging the Company's products. The
Sales Department is responsible for, among other things, contacting potential
customers with information and prices for the Company's products, following
leads from trade shows, providing customer support and visiting customers on a
regular basis. The Marketing Department is responsible for worldwide marketing
while the Sales Department is divided in responsibility by geographic location.

         OEM sales are handled by salespersons located in the Company's
headquarters in North Miami, Florida. All OEM customers receive their shipments
from the Company's North Miami warehouse. Retail sales are generally handled
from the Company's headquarters in North Miami, Florida and from the German,
Swedish, Ukrainian and Norwegian offices and warehouses.

         COMPETITION.

         The Company competes with many companies that manufacture, distribute
and sell computer connectivity and networking products. While these companies
are largely fragmented throughout different sectors of the computer connectivity
industry, a number of these companies have greater assets and possess greater
financial and personnel resources than those of the Company. Some of these
competitors also carry product lines which the Company does not carry and
provide services which the Company does not provide. There can be no assurance
that competitive pressure from these companies will not materially adversely
affect the Company's business and financial condition in the future. In the
event that more competitors begin to carry products which the Company carries
and price competition with respect to the Company's products significantly
increases, competitive pressures could force the Company to reduce the prices of
its products, which would result in reduced profit margins and prolonged price
competition and would have a material adverse effect on the Company's operating
results and financial condition. A variety of other potential actions by the
Company's competitors, including increased promotion and accelerated
introduction of new or enhanced products, could also have a material adverse
effect on the Company's results of operations. There can be no assurance that
the Company will be able to compete successfully in the future.

                                       7
<PAGE>

         GROWTH STRATEGY

         The Company's strategic objective is to become a leader in the computer
and network connectivity equipment market, and to make the name "AESP"
synonymous with state-of-the-art hardware in this segment.

         RETAIL & OEM CUSTOMER BASE

         The Company intends to increase its revenues and income in the retail
and OEM markets by continuing to broaden its customer base in existing markets
and by expanding into new markets. In order to increase national and
international customer base, the Company intends to continue to market to large
catalog companies, to increase both its product line and inventory and to expand
its sales reach in the US, Eastern and Western Europe and in the future into
Latin America. To expand its OEM customer base, the company intends to expand
its business with computer product and networking hardware manufacturers, and to
solicit manufacturers in other fast-growing vertical markets, such as
networking, telecommunications, medical instrumentation and cable TV.

         STRATEGIC ACQUISITIONS

         The other element of the Company's growth strategy is to acquire other
companies, assets and/or product lines that will compliment or expand the
Company's business. The Company is seeking companies which market to the
networking, telecommunications, cable audio/video and computer industries. The
Company believes that acquisitions, mergers, asset purchases or other strategic
alliances in these categories should enable it to achieve operating leverage on
its existing resource base.

         The Company's ability to expand by acquisition has been, and will
continue to be limited by the availability of suitable acquisition candidates,
in both the United States and internationally, and by the Company's financial
condition and the price of its Common Stock. The Company's ability to complete
acquisitions may also be limited by certain restrictive covenants contained in
the Company's credit agreement. See Item 6. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION-FINANCIAL CONDITION, LIQUIDITY AND CAPITAL
RESOURCES." In addition, acquisitions involve risks that could adversely affect
the Company's operating results, including but not limited to the assimilation
of personnel, inventory, product lines, customers and liabilities of the
acquiree company; the effect of amortization of intangible assets, such as
goodwill, on the earnings of the Company and the retention of key executives of
the acquiree company. There can be no assurance that the Company will be
successful in consummating acquisitions on acceptable terms.

         Other than as required by the Company's Articles of Incorporation,
By-Laws, and applicable law, shareholders of the Company are not entitled to
vote on acquisitions, mergers or other business combinations.

                                       8
<PAGE>

         CORPORATE ORGANIZATION

         The Company's operations are divided into five departments: (1) the
Sales and Marketing Department, (2) the International Sales Department
(including sales offices in Sweden, Germany and Norway), (3) the Purchasing
Department, (4) the Operations Department (including the MIS, shipping,
warehouse and quality control and production groups), and (5) the
Finance/Accounting Department. The Sales and Marketing Department covers sales
in Latin America, the United States and Canada. Account Managers and Customer
Service Representatives service this department from the Company's North Miami,
Florida headquarters. The International Sales Department covers sales in Eastern
and Western Europe, with offices in Sweden, Germany, the Ukraine and Norway, and
an exclusive distributor in Russia.

         EMPLOYEES

         As of December 31, 1998, the Company had 112 employees worldwide, as
follows: 71 employees in Miami, 11 of whom were in administration and
Finance/Accounting, 4 of whom were in purchasing, 20 of whom were in sales,
marketing and customer service and 36 of whom were in operations; 7 employees in
Sweden; 10 employees in Germany, 14 employees in Norway and 10 employees in
the Ukraine. None of the Company's employees are covered by collective
bargaining agreements. The Company believes that its relationship with its
employees is good.

                                       9
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

         The table set forth below identifies the principal properties 
currently being utilized by the Company. All properties are leased, are in good
condition and are maintained on a regular basis [and are adequate for the
Company's present requirements]. RSB Holdings, Inc., a related party, owns the
corporate headquarters, product assembly and central warehouse, and leases such
properties to the Company. Under the terms of the Company's credit agreement,
RSB Holdings has executed landlord waivers, permitting the lender the priority
right to enter the Company's premises and seize collateral in the event of a
default under the credit agreement (see "Liquidity and Capital Resources"
below). See Note 10 to Notes to Consolidated Financial Statements for
information regarding the financial terms of the Company's leases.

<TABLE>
<CAPTION>
                                                                                                    APPROXIMATE
                                                                                                      SQUARE   
FACILITY DESCRIPTION                                            LOCATION                              FOOTAGE
--------------------                                            --------                            -----------
<S>                                                             <C>                                   <C>   
Corporate Headquarters, Product Assembly and                    North Miami, FL                       10,000
Central Warehouse

Warehouse                                                       North Miami, FL                       20,000

Sales Office and Warehouse                                      Tierp, Sweden                          5,000

Sales Office and Warehouse                                      Oslo, Norway                          14,000

Sales Office and Warehouse                                      Sulzemoos, Germany                     5,000

Bonded Warehouse                                                Vinnitsa, Ukraine                     10,000

Sales Office                                                    Vinnitsa, Ukraine                     18,500

Sales Office and Manufacturing                                  Broomall, Pennsylvania                 5,085
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

         As of April 13, 1999, the Company was not a party to any material legal
proceedings.


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

         No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1998.

                                       10
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock and redeemable stock purchase warrants are
traded on the NASDAQ Small Cap Market under the symbols "AESP" and "AESPW,"
respectively. The high and low bid prices of the common stock and the warrants
for each quarter during the Company's two most recent fiscal years, as reported
by NASDAQ, are set forth below:

<TABLE>
<CAPTION>
                                             COMMON STOCK                 WARRANTS
                                           HIGH         LOW           HIGH         LOW
1997
----
<S>                                     <C>          <C>                 <C>         <C>    
First Quarter                           7 7/8        6 1/8               2 3/4       1 1/2
Second Quarter                          9            4 1/4               2 3/4      1 3/16
Third Quarter                           5 3/4        2 15/16           1 23/32         3/4
Fourth Quarter                          5            3 1/8               1 1/4         1/2

1998
----

First Quarter                           3 3/4        2 1/2                 7/8        9/32
Second Quarter                          4 11/16      3 1/16              1 1/4       11/32
Third Quarter                           4 5/32       1 3/4                 5/8         1/8
Fourth Quarter                          2 7/16       1 7/32               7/32        1/16
</TABLE>

         At March 22, 1999, the number of holders of record of the Company's
Common Stock was approximately 20. However, the Company's transfer agent
estimates that there are approximately 610 beneficial holders of the Company's
common stock.

         Effective December 31, 1998, the Company's principal shareholders
converted $1,439,125 of convertible notes due to them from the Company into
799,514 shares of Common Stock. The conversion price was $1.80 per share. The
conversion price was determined by the Board, after negotiation with the
principal shareholders, and represented a 31% premium over the price of the
Company's common stock on the conversion date. The conversion, which amended the
terms of such instruments to lower the conversion price, was effected in order
to save the Company interest on the convertible debt and to increase the net
worth of the Company. The Company incurred a one-time charge of approximately
$852,000 representing the value of the additional shares of the Company's common
stock issued in conjunction with conversion of this debt. See Item 6.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION-RESULTS OF
OPERATIONS."

         The Company does not intend to pay any cash dividends on its Common
Stock for the foreseeable future. The Company intends to reinvest its earnings,
if any, in the growth and expansion of its business. Additionally, the Company's
future ability to declare or pay dividends on its Common Stock will be
restricted by the covenants contained in its credit agreement and by the terms
of the Underwriting Agreement which it entered into in connection with its IPO.

                                       11
<PAGE>

        MANAGEMENT'S DISCUSSION AND ANALYSIS OR
ITEM 6. PLAN OF OPERATION                                                      


OVERVIEW

         Since its incorporation in 1983, the Company has designed,
manufactured, marketed and distributed computer connectivity and networking
products nationally and internationally. On February 19, 1997, the Company
completed its IPO. Subsequent to the completion of the IPO, the Company has
completed several acquisitions.

         Effective September 30, 1997, the Company acquired the assets of the
networking division of Focus. The Company issued an aggregate of 189,701 shares
of its authorized but unissued Common Stock to Focus (valued at $700,000) in
connection with this acquisition. The Company also paid Focus $159,371 to
acquire Focus' inventory of networking products. This acquisition was accounted
for under the purchase method of accounting.

         On November 12, 1997, the Company acquired all of the outstanding
shares of Dataholding AS, a Norwegian company ("Dataholding," now called
Jotec/AESP AS), from the shareholders of Dataholding. Dataholding, based in
Oslo, Norway, is a distributor of connectivity and computer products primarily
in Norway. In connection with this acquisition, which was accounted for under
the pooling of interests business combination method of accounting, the Company
issued 360,000 shares of its authorized but unissued Common Stock in exchange
for all of the issued and outstanding capital stock of Dataholding.

         In October 1998 the Company acquired its Ukrainian distributor,
AESP-Ukraine, for forgiveness of a $490,000 receivable due to the Company. This
acquisition has been accounted for under the purchase method of accounting and
results of operations of the Ukrainian operation have been included from the
effective date of the acquisition. See Note 2 to Notes to Consolidated Financial
Statements.

         In March 1999, the Company acquired the assets of CCCI for $800,000,
payable $250,000 in cash at closing, $150,000 payable through the issue of
86,206 shares of the Company's common stock, and $400,000 payable, with interest
at the rate of 8% per annum, over a three year period. The acquisition has been
accounted for under the purchase method of accounting and results of operations
of CCCI will be included from the effective date of this acquisition.

RESULTS OF OPERATIONS

         GENERAL

         Net sales consist primarily of gross sales, net of allowances for
returns and other adjustments. Costs of sales consist primarily of product costs
(cost of manufacture or acquisition) and freight charges.

                                       12
<PAGE>

         Net sales and gross profits from period to period depend in part on the
volume and mix of OEM and retail sales, as well as the cost and mix of
components and finished products contained in the Company's inventory from time
to time to supply those sales. OEM sales generally have a comparably low gross
profit margin with a relatively high volume of sales per customer, while retail
sales generally have a comparably high gross profit margin with a relatively low
volume of sales per customer. Retail sales consequently require more time and
effort, as well as high operating expenses (including overhead), to achieve a
comparably higher gross profit margin. The overall mix of OEM and retail sales
will therefore impact from period to period the overall gross profit margin of
the Company's sales. A large portion of the Company's operating expenses are
relatively fixed. Since the Company typically does not obtain long-term purchase
orders from retail customers or commitments from its customers, it must
anticipate its future volume of orders based upon the historic purchasing
practices of its customers and upon discussions with its customers as to their
future requirements. Cancellations, reductions or delays in orders by a customer
or group of customers could have a material adverse effect on the Company's
business, financial condition and results of operation.

         The majority of the Company's suppliers of components, manufacturers,
and assemblers are foreign, and although all price quotations and payments with
those entities are made in U.S. dollars, fluctuations in exchange rates could
alter the price charged by these foreign suppliers, manufacturers and
assemblers, and depending on the level of such exchange rate fluctuations, such
price fluctuations could adversely affect the Company's performance. In that
regard, a majority of the Company's sales are made to customers outside of the
United States. Although many price quotations and payments from customers are
made in U.S. dollars, the same risks of adverse exchange rate fluctuations which
are present with suppliers, manufacturers and assemblers (as set forth above)
are also present in transactions with customers. The Company does not have a
formal exchange risk management program, nor does the Company engage in hedging
activities with respect to exchange rate fluctuations because all price
quotations and payments are made in U.S. dollars, which the Company believes
helps reduce (but does not eliminate) the risk attendant to fluctuations in
exchange rates.

         Although the Company monitors its inventory on a regular basis, the
Company needs to maintain a significant inventory in order to ensure prompt
response to orders and to avoid backlogs. The Company may need to hold inventory
during periods of low sales activity. The capital necessary to hold inventory
restricts the funds available for other corporate purposes. The Company does not
provide allowances for anticipated product returns. Although the Company
endeavors to reduce product returns through its quality control program, and
although historically product returns have been relatively insubstantial, there
can be no assurance that product returns will not increase in the future.

         YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         Consolidated net sales for the fiscal year ended December 31, 1998 were
$21,968,955, an increase of approximately $783,000 or 3.7% compared to
consolidated net sales of $21,185,911 for the fiscal year ended December 31,
1997. The Company's sales mix changed slightly, to approximately 89% Retail and
11% OEM in 1998 from 90% Retail and 10% OEM in 1997. The 1998 sales mix reflects
primarily the decrease in international Retail sales described below. Although

                                       13
<PAGE>

total OEM sales for 1998 were basically flat, approximately 50% of those sales
occurred during the fourth quarter of 1998, reflecting the fact that the
Company's protracted marketing efforts have recently produced a significant
order from one new OEM customer and the addition of another major OEM customer
from whom the Company expects significant recurring business in 1999. In
addition, in May, 1998, the Company received ISO 9000 certification, which was
an absolute necessity to the Company's efforts to increase its OEM business.

         Sales to customers outside the US increased by approximately 2.3% in
1998, to approximately $13.2 million from approximately $12.9 million. An
overall increase in foreign business was offset by the cessation of sales by the
Company's exclusive distributor in Russia. This distributor was the Company's
largest single customer at the time of cessation, accounting for more than 9% of
the Company's year to date 1998 sales.

         The Company incurred the write down of its Russian related inventory
and receivables (approximately $2,100,000) due to the serious problems which
arose in Russia during the third quarter of 1998, which made the Company's
products very expensive to sell in Russia and made it, due to the currency
devaluation which occurred in Russia during this period, impossible for the
Company's Russian distributor to make payments to the Company of the amounts
which they owed. The Company also incurred a writeoff of approximately $530,000
during the fourth quarter of 1998 relating to the writeoff of receivables due
from the Company's Ukrainian distributor (prior to its acquisition by the
Company). The writedown was required due to the devaluation of the assets of
that subsidiary arising as a result of the economic conditions which are
currently being experienced in the Ukraine, which are similar to the economic
conditions which are currently being encountered in Russia.

         In spite of this cessation, for the full fiscal year ended December 31,
1998, the sales mix was 59.9% to customers outside the US and 40.1% to US
customers, virtually identical to the 1997 sales mix of 59.9% to customers
outside the US and 40.1% to domestic customers.

         Gross profits as a percentage of net sales decreased to 37.8% in 1998,
from 43.0% in 1997. The principal cause of this decrease was an increase in cost
of goods sold, reflecting the writedown of approximately $700,000 of inventory
which was held for sale to the Company's Russian distributor. Another cause of
the increase in cost of goods sold was the writedown at year-end of inventory
comprise of obsolete and/or slow turning SKUs. The Company constantly monitors
its SKUs in an effort to eliminate obsolete or slow turning SKUs. Such writeoffs
approximated $60,000 and $81,000, respectively, for 1997 and 1998.

         Selling, general and administrative expenses ("SG&A") were
approximately $11,696,753 for the fiscal year ended December 31, 1998, an
increase of $3,691,551 or 46.1% over SG&A of $8,005,202 for the fiscal year
ended December 31, 1997. As a percentage of net sales, SG&A increased to 53.2%
in 1998, from 37.8% in 1997. These increases reflect primarily increases in
marketing expenses attributable to the Company's retail and international sales
efforts, combined with expenses related to the Company's activities to improve
its computer and operations capabilities. The Company expects these efforts to
yield improved operating efficiencies in 1999 and subsequent years.

                                       14
<PAGE>

         As a result of the aforementioned factors, the Company incurred a loss
from operations of $3,374,254 for the fiscal year ended December 31, 1998,
compared to income from operations of $1,111,958 for the fiscal year ended
December 31, 1997.

         Other expenses, net was $1,163,607 for the fiscal year ended December
31, 1998, an increase of $961,169 or 475% over other expenses, net, of $202,438
for the fiscal year ended December 31, 1997. The principal cause of this
increase was a significant increase in interest expense, primarily as a result
of larger borrowings from period to period and also due to interest payable for
a full year on the Company's outstanding convertible notes due to related
parties. Additionally, the Company incurred a one time charge of $852,000
relating to the conversion of its convertible notes at December 31, 1998 into
799,514 shares of the Company's common stock. See Item 5. MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS. There was no similar charge in 1997.

         Foreign exchange gains were $143,000 in 1998, an increase of $210,000
or 300% from foreign exchange losses of approximately $67,000 in 1997. This
increase reflects primarily the combination of the increase in the Company's
international business volume and the extreme devaluation, during the second
half of 1998, of certain currencies in countries in which the Company did
business in 1998 (principally Russia and the Ukraine).

         As a result of the aforementioned factors, the Company incurred a net
loss of approximately $4,804,812 ($1.99 per share) for the fiscal year ended
December 31, 1998, compared to net income of $649,183 ($.30 per diluted share)
for the fiscal year ended December 31, 1997.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

         Historically, the Company has financed its operations primarily with
cash flow from operations and with borrowings under its available credit lines.
In addition, in 1997, the Company realized approximately $4 million from the net
proceeds of its IPO.

         For the fiscal year ended December 31, 1998, cash required for
operations was $1,058,519, compared to cash required for operation of $1,573,179
for the fiscal year ended December 31, 1997. The principal cause of the negative
cash flow in 1998 was the net loss of $4,804,812, which included non-cash
charges to income aggregating approximately $4,234,000. These non-cash charges
to income included approximately $1,952,000 in write-offs of accounts receivable
due from the Company's Russian and Ukrainian distributors, approximately
$852,000 representing the value of additional shares issued by the Company in
conjunction with the conversion of the Company's convertible notes and
approximately $659,000 in write-off of inventory held for sale to the Company's
Russian distributor. For 1998, cash was used primarily for increases of
approximately $691,000 in inventory and approximately $592,000 in accounts
receivable. Cash was generated primarily through increases of approximately
$436,000 in accounts payable and approximately $190,000 in income taxes payable,
plus a decrease of approximately $233,000 in prepaid expenses.

         Cash used for investing activities were approximately $300,000 for the
fiscal year ended December 31, 1998, compared to approximately $156,000 for the
fiscal year ended December 31, 1997. During 1998, cash for investing activities
was used almost exclusively for the acquisition of property and equipment, net
of disposals.

         Net cash provided by financing activities was approximately $2,379,000
for the fiscal year ended December 31, 1998, compared to approximately
$1,617,000 for the fiscal year ended December 31, 1997. Cash provided by
financing activities consisted primarily of borrowings under the Company's line
of credit with a financial institution.

         Working capital was approximately $4.5 million, as compared to working
capital of $8.1 million as of December 31, 1997. The primary reasons for the
decrease in working capital were the aforementioned write-offs of approximately
$2.5 million in receivables and inventory pertaining to Russia and the Ukraine.
Increases of approximately $400,000 and $190,000 to accounts payable and income
taxes payable, respectively, plus a decrease of approximately $233,000 in
prepaid expenses.


                                       15
<PAGE>

         During 1999, the Company renegotiated its revolving line of credit with
a financial institution, which decreased the Company's credit facility to $3.5
million from $4.5 million. Borrowings under the line of credit bear interest at
the rate of prime plus .75% over prime. The amount of the line available for
borrowing by the Company is based on specific percentages of the Company's US
based receivables and inventories. The line of credit is secured by a lien not
only on the Company's U.S. accounts receivable and inventories, but also on all
the Company's other assets. As of December 31, 1998, approximately $2,370,000
was outstanding under the line of credit and as of April 1, 1999, approximately
$2,374,000 was outstanding under the credit line and approximately $328,000 was
available for borrowing under the line of credit based on the applicable
borrowing base formulas.

         Subsequent to December 31, 1998, the Company negotiated an extension in
the maturity date of its line of credit with the financial institution, to June
1, 1999. Under the terms of this extension, borrowings by the Company became
secured not only by the accounts receivable, inventories and other assets of the
Company, but also by the personal guarantees of two officers of the Company who
are also the largest shareholders of the Company. Under the terms of its loan
agreement with the financial institution, the Company is required to comply with
certain affirmative and negative covenants, including but not limited to further
borrowings and the payment of dividends. The Company is also required to
maintain certain financial benchmarks and ratios, including but not limited to a
benchmark related to the Company's adjusted tangible net worth as defined in the
loan agreement, the ratio of the Company's senior liabilities to its
subordinated liabilities and adjusted tangible net worth and the ratio of the
Company's cash flow to debt service requirements.

         As of December 31, 1998, and reflecting primarily the impact of its
operating loss for 1998, the Company was not in compliance with any of the
aforementioned benchmark and ratios, and as such, was technically in default
under the terms of the loan agreement. In conjunction with the extension of the
maturity of the line of credit, the Company received a waiver of all the
requirements in which the Company was in default. However, in its waiver letter,
the financial institution indicated that it intended to enforce these
requirements going forward. There can be no assurance that the Company will be
able to comply with these requirements going forward.

         The Company believes that its current cash position, internally
operated cash flow and its line of credit will be sufficient to satisfy the
Company's anticipated operating needs for at least the ensuing twelve months.
However, as of December 31, 1998 the Company's current liabilities included
$2,370,000 under its line of credit, all of which is due and payable on June 1,
1999. At December 31, 1998, the Company did not have sufficient resources, and
currently does not have sufficient resources, to pay off the line of credit when
it matures, and it is likely that the Company cannot generate such cash from its
operations between now and the date the line of credit becomes due. Although the
Company is seeking to refinance or restructure the line of credit and believes
it will be able to do so prior to the maturity date, no assurance can be given
that it will be successful in these efforts. If the Company is unable to
refinance or restructure its line of credit, the Company's business may be
materially and adversely affected.

         The Company is actively seeking one or more additional financial
institutions, in an effort to secure new borrowing facilities to replace its
current credit facility and to finance its anticipated growth and expansion,
both in the US and abroad. While the Company has not yet received any firm
commitments from any new financial institution and there can be no assurance,
the Company believes that its efforts to locate one or more such institutions
will be successful.

         The Company believes that a timely return to operating profitability,
combined with the securing of new borrowing facilities, will be sufficient to
meet the Company's financing requirements

                                       16
<PAGE>

in 1999. However, any combination of continued operating losses and or the
inability of the company to either maintain its current borrowing facility or
secure new and replacement borrowing facilities could have a materially adverse
effect on the Company's ability to continue as a going concern.

         The Company does not believe that inflation has had a material effect
on its financial condition or operating results for the last several years, and
the Company has historically been able to pass along any increased costs in the
form of adjustments to the prices it charges to its customers.

         The Company has substantially completed its assessment of the potential
impact of year 2000 related problems on its operations, including its
information technology systems (such as its computer systems) and its
non-information technology systems ( such as its plant and equipment and its
manufacturing and assembly processes). With respect to its information
technology systems, the Company believes that its present computer systems are
presently year 2000 compliant. The Company is currently completing an update of
its computer system, in order to have computer systems capable of handling the
projected growth and diversification of the Company's present and acquired
businesses. The Company has been assured by its installation consultant that its
updated computer system is also year 2000 compliant. Beyond the above described
remediation effort by the Company in connection with its information technology
systems, the Company does not anticipate any material remediation programs with
respect to its non-information technology systems. The Company expects that the
costs of its new systems will be approximately $160,000. Consequently, the
Company, having substantially completed its assessment and remediation efforts,
has a reasonable belief that it no longer has any material exposure to the
so-called year 2000 problem.


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial information required by Item 7 is attached to this Report
following Part III.


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

         None.

                                       17
<PAGE>

                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CENTRAL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The information required by Item 9 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1999, under the caption, "Election of Directors", to
be filed by the Registrant.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1999, under the caption, "Executive Compensation",
to be filed by the Registrant.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 11 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1999, under the caption, "Security Ownership of
Management and Principal Stockholders", to be filed by the Registrant.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 12 is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the Annual Meeting
scheduled to be held in May 1999, under the caption "Certain Transactions", to
be filed by the Registrant.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) EXHIBITS

         3.1   Amended and Restated Articles of Incorporation of the Company(1)
         3.2   Bylaws of the Company(2)
         3.3   Articles of Amendment to Amended and Restated Articles of
               Incorporation(2)
         3.4   Second Amended and Restated Bylaws of the Company(2)
         4.1   Form of Common Stock Certificate(2)
         4.2   Warrant Agreement and Warrant Certificate(2)
        10.1   Lease Agreement between the Company and RSB Holdings, Inc.,
               dated July 15, 1996(2)
        10.2   Promissory Note between the Company and U.S. Advantage, dated 
               July 15, 1996(2)

                                       18
<PAGE>

        10.3   Form of 1996 Stock Option Plan(2)
        10.4   Form of Employment Agreement between the Company and Slav
               Stein(2)
        10.5   Form of Employment Agreement between the Company and Roman
               Briskin(2)
        10.6   Form of Convertible Subordinated Promissory Note from the
               Company to Messrs. Stein and Briskin(2)
        10.7   Form of Stock Option Agreements between the Company and Messrs.
               Stein and Briskin(2)
        10.8   Form of Mahoney Consulting Agreement(2)
        10.9   Form of Financial Advisory Agreement(2)
        10.10  Form of Contingent Stock Option Agreement between the Company
               and Messrs. Stein and Briskin(2)
        10.11  Form of Lock-Up Agreement(2)
        10.12  Loan Agreement between the Company and SunTrust Bank/Miami, N.A.,
               dated March 25, 1999*
        10.13  Master Purchase Agreement between the Company and Focus
               Enhancements, Inc., dated September 29, 1997(4)
        10.14  Amendment to Master Purchase Agreement between the Company and
               Focus*
        10.15  Asset Purchase Agreement between the Company and Focus
               Enhancements, Inc., dated September 30, 1997(4)
        10.16  Share Exchange  Agreement between the Company, Dataholding AS,
               and selling  shareholders of Dataholding AS, dated November 12,
               1997(5)
        10.17  Stock Purchase Agreement among the Company, CCCI and Donald Y.
               Daily, Jr.*
        21.1   List of Subsidiaries*
        27.1   Financial Data Schedule*
-----------------
         *        Filed herewith.

         (1) Incorporated by reference to the Company's Registration Statement
on Form 8-A (SEC File No. 000-21889) filed with the SEC on December 18, 1996.

         (2) Incorporated by reference to the Company's Registration Statement
on Form SB-2, and amendments thereto (SEC File No. 333-15967), declared
effective February 13, 1997.

         (3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1997.

         (4) Incorporated by reference to the Company's Current Reports on Form
8-K filed October 15, 1997.

         (5) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997.

                                       19
<PAGE>

         (b)      REPORTS ON FORM 8-K

         1. Form 8-K filed on October 19, 1998 under Item 5 reporting the
writedown of receivables and inventory relating to the Company's Russian
distributor.

         2. Form 8-K filed in January 22, 1999 under Item 5 reporting the
conversion of $1,439,135 in convertible notes into 799,514 shares of common
stock.

                                       20
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                         REGISTRANT:

                                         ADVANCED ELECTRONIC SUPPORT
                                         PRODUCTS, INC.


April 15, 1999                          By /s/ Slav Stein
                                            -----------------------------------
                                                Slav Stein, President and
                                                Chief Executive Officer


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

<TABLE>
<CAPTION>
SIGNATURE                           TITLE                                     DATE
---------                           -----                                     ----
<S>                                 <C>                                       <C> 
/s/ Slav Stein
--------------------------          President, Chief Executive                April 15, 1999
Slav Stein                          Officer and Director

/s/ Roman Briskin
--------------------------          Executive Vice President,                 April 15, 1999
Roman Briskin                       Secretary and Director

/s/ George Baldwin 
--------------------------          Vice President, Chief Financial           April 15, 1999
George Baldwin                      and Accounting Officer and Treasurer

                            
--------------------------          Director                                  April __, 1999
Terrence R. Daidone

/s/ William B. Coldrick
--------------------------          Director                                  April 15, 1999
William B. Coldrick

/s/ L. Phillips Reames
--------------------------          Director                                  April 15, 1999
L. Phillips Reames
</TABLE>

                                       21
<PAGE>

                               ADVANCED ELECTRONIC
                             SUPPORT PRODUCTS, INC.
                                AND SUBSIDIARIES

                                    CONTENTS

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                                                        CONTENTS

                                       
                                                                          PAGE

Report of Independent Certified Public Accountants                         F-2

Consolidated Balance Sheet at December 31, 1998                            F-3

Consolidated Statements of Operations for the Years Ended
    December 31, 1998 and 1997                                             F-4

Consolidated Statements of Shareholders' Equity for the Years
    Ended December 31, 1998 and 1997                                       F-5

Consolidated Statements of Cash Flows for the Years
    Ended December 31, 1998 and 1997                                       F-6

Summary of Significant Accounting Policies                                 F-7

Notes to Consolidated Financial Statements                                F-12

                                      F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Advanced Electronic Support Products, Inc.
North Miami, Florida

We have audited the accompanying consolidated balance sheet of Advanced
Electronic Support Products, Inc., and subsidiaries as of December 31, 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Electronic
Support Products, Inc., and subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for each of the two years in
the period then ended in conformity with generally accepted accounting
principles.

                                                            /s/ BDO Seidman, LLP

Miami, Florida
April 9, 1999


                                      F-2
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                                             1998
----------------------------------------------------------------------------------------------------
<S>                                                                            <C>
ASSETS (Note 4)

CURRENT ASSETS
   Cash                                                                        $        1,407,106
   Accounts receivable, net of $209,000 allowance for doubtful accounts                 3,037,807
   Inventories                                                                          6,157,889
   Income taxes receivable                                                                308,852
   Prepaid expenses and other current assets                                              115,312
----------------------------------------------------------------------------------------------------

Total current assets                                                                   11,026,966
Property and equipment, net (Note 3)                                                      635,667
Intangible assets                                                                         637,613
Deferred tax asset (Note 12)                                                               34,150
Other assets                                                                               80,508
----------------------------------------------------------------------------------------------------
                                                                               $       12,414,904
----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                              

CURRENT LIABILITIES
   Bank overdraft                                                              $           67,632
   Current portion long-term debt (Note 4)                                              2,405,263
   Accounts payable and accrued expenses                                                3,538,313
   Income taxes                                                                           425,461
   Other                                                                                   94,380
----------------------------------------------------------------------------------------------------
Total current liabilities                                                               6,531,049
Deferred tax liability (Note 12)                                                           84,939
Long-term debt (Note 4)                                                                   136,187
----------------------------------------------------------------------------------------------------
Total liabilities                                                                       6,752,175
----------------------------------------------------------------------------------------------------
Commitments (Notes 1, 10 and 11)
----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes 1, 13 and 14 ):
   Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued                   -
   Common stock, $ .001 par value; 20,000,000 shares authorized;
     3,081,715 shares issued and outstanding                                                3,082
   Additional paid-in capital                                                           9,363,902
   (Deficit)                                                                           (3,569,399)
   Cumulative foreign currency translation adjustment                                    (134,856)
----------------------------------------------------------------------------------------------------
Total shareholders' equity                                                              5,662,729
----------------------------------------------------------------------------------------------------
                                                                               $       12,414,904
----------------------------------------------------------------------------------------------------

</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

                                      F-3
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,                                                             1998                1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>
NET SALES (Notes 6 and 8)                                                $     21,968,955    $     21,185,911

OPERATING EXPENSES:
  Cost of sales (Notes 5)                                                      13,646,496          12,068,751

  Selling, general and administrative (Notes 5, 10, and 11)                    11,696,753           8,005,202
----------------------------------------------------------------------------------------------------------------
Total operating expenses                                                       25,343,249          20,073,953
----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS                                                  (3,374,294)          1,111,958

OTHER EXPENSES:
  Interest, net                                                                  (150,675)            (49,113)
  Interest - shareholders (Note 1)                                               (988,902)           (102,600)
  Other                                                                           (23,990)            (50,725)
----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                              (4,537,861)            909,520

Provision for income taxes (Note 12)                                              266,951             260,337
----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                        $     (4,804,812)   $        649,183
----------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share                                         $          (1.99)   $            .32
Earnings (loss) per common share - assuming dilution                                (1.99)                .30
----------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

                                      F-4
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                  ACCUMULATED
                                                                                        OTHER                            TOTAL
                                                 ADDITIONAL        RETAINED        COMPREHEN-       COMPREHEN-          SHARE-
                                      COMMON        PAID-IN        EARNINGS              SIVE             SIVE        HOLDERS'
                                       STOCK        CAPITAL        (DEFICIT)           INCOME           INCOME          EQUITY
--------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>            <C>             <C>                <C>             <C>
Balance at December 31, 1996     $     1,173   $    427,813   $   4,418,471   $        (4,891)               -   $   4,842,566

Distributions                              -        107,855      (2,798,321)                -                -      (2,690,466)

Net proceeds from issuance of
   common stock and warrants             920      4,373,976               -                 -                -       4,374,896

Reclassification of cumulative
   undistributed earnings
   applicable to the Company's S
   corporation status                      -      1,033,920      (1,033,920)                -                -               -

Issuance of common stock for
   acquisition of net assets             190        699,810               -                 -                -         700,000

Options issued in connection with
   consulting services                     -        200,000               -                 -                -         200,000

Net income                                 -              -         649,183                 -          649,183         649,183

Other comprehensive income
   Foreign currency translation
   adjustment                              -              -               -           (92,188)         (92,188)        (92,188)
                                                                                                  -------------
                                                                                                       556,995
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997           2,283      6,843,374       1,235,413           (97,079)               -       7,983,991

Conversion of convertible debt
   (Note 1)                              799      2,290,528               -                 -                -       2,291,327

Options issued in connection with
   consulting services                     -        230,000               -                 -                -         230,000

Net loss                                   -              -      (4,804,812)                -       (4,804,812)     (4,804,812)

Other comprehensive income

   Foreign currency translation
     adjustment                            -              -               -           (37,777)         (37,777)        (37,777)
                                                                                                  -------------
                                                                                                    (4,842,589)
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998     $     3,082   $  9,363,902   $  (3,569,399)         (134,856)                   $   5,662,729
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

                                      F-5
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                                   1998               1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                       <C>    
OPERATING ACTIVITIES:
   Net income (loss)                                                             $   (4,804,812)        $  649,183
   Adjustments to reconcile net income to net cash (used) in operating
     activities, net of effect of acquisition:
       Provision for losses on accounts receivable                                      185,441            144,434
       Depreciation and amortization                                                    166,348            152,094
       Write-off of Russian and Ukraine receivable                                    1,952,389                  -
       Write-off of Russian inventory                                                   659,085                  -
       Amortization of goodwill                                                         126,804             27,526
       Options granted in lieu of consulting fees                                       230,000            200,000
       Charge related to conversion of convertible debt                                 852,202                  -
       Deferred income taxes                                                            247,798           (193,723)
       (Increase) decrease in:
         Accounts receivable                                                           (592,201)        (1,687,967)
         Inventories                                                                   (691,020)          (457,395)
         Prepaid expenses and other current assets                                      233,050            (27,394)
         Other assets                                                                    (8,926)           212,824
         Income tax receivable                                                         (308,852) 
       Increase (decrease) in:
         Accounts payable and accrued expenses                                          436,205           (657,980)
         Income taxes payable                                                           189,936             65,219
         Other                                                                           68,034                  -
---------------------------------------------------------------------------------------------------------------------
Net cash (used) in operating activities                                              (1,058,519)        (1,573,179)
---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
   Cash from acquisition                                                                 18,701            (88,729)
   Reduction in investments                                                                   -            102,072
   Additions to property and equipment                                                 (318,323)          (169,069)
---------------------------------------------------------------------------------------------------------------------
Net cash (used) in investing activities                                                (299,622)         (155,726)
---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
   Overdraft                                                                             67,632                  -
   Net proceeds from (payments on) borrowings                                         2,311,356         (1,648,750)
   Payment of notes payable to shareholders                                                   -           (300,000)
   Net proceeds from issuance of common stock and warrants                                    -          4,637,085
   Repayment of loan from affiliate                                                           -           (120,000)
   Shareholder distributions                                                                  -           (951,341)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                                   2,378,988          1,616,994
---------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH                                                       1,020,847           (111,911)

Effect of exchange rate changes on cash                                                 (37,777)           (92,188)
Cash, at beginning of year                                                              424,036            628,135
---------------------------------------------------------------------------------------------------------------------
CASH, AT END OF YEAR                                                             $    1,407,106    $       424,036
---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
   Cash paid for:
     Interest                                                                    $       280,078   $        70,688
     Taxes                                                                                77,016           330,361
---------------------------------------------------------------------------------------------------------------------
   Non-cash distribution to shareholders in  the form of a convertible
     subordinated promissory note                                                $             -   $     1,739,125
   Non-cash distribution credited to paid-in capital                             $             -   $       719,560
   Non-cash reclassification of cumulative undistributed earnings applicable
     to the Company's S corporation status                                       $             -   $     1,033,920
   Deferred offering costs charged against paid-in capital in connection
     with initial public offering                                                $             -   $       262,189
   Issuance of common stock for acquisition of net assets                        $             -   $       700,000
   Acquisition of Ukraine                                                        $       489,831   $             -
   Conversion of convertible debt into common stock                              $     1,439,125   $             -
   Non-cash charge associated with the conversion of convertible debt            $       852,202   $             -
   Options granted in lieu of consulting fees                                    $       230,000   $       200,000
</TABLE>


SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

                                      F-6

<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Advanced Electronic Support Products, Inc., (AESP) is primarily a wholesaler of
computer cables and accessories whose customers are computer dealers and
retailers located in the U.S. and foreign markets. The Company grants credit to
customers without collateral.

SUBSIDIARIES AND BASIS OF PRESENTATION

The subsidiaries, Advanced Electronic Support Products Computertillbehor i
Sweden AB ("AESP Sweden"), AESP Computerzubehor GmbH ("AESP Germany"),
Jotec/AESP AS ("Jotec/AESP"), formerly known as Dataholding AS, and AESP-Ukraine
are based and operating in Sweden, Germany, Norway and Ukraine, respectively.
The functional and reporting currency for statutory purposes is the Swedish
Krona, German Mark, Norway Krone and Ukraine Hryvna, respectively. These
financial statements have been translated to United States Dollars (U.S. $)
using a methodology consistent with Statement of Financial Accounting Standards
No. 52, Foreign Currency Translation. Assets and liabilities are translated to
U.S. $ at the rate prevailing on the balance sheet dates and the income
statements have been translated from the functional currency to U.S. $ using an
average exchange rate for the applicable period. Results of this translation
process are accumulated as a separate component of shareholders' equity.
Exchange gains (losses) approximately $143,000 and ($67,000) for the years ended
December 31, 1998 and 1997, respectively are included in other income in the
accompanying consolidated statements of income.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of AESP
and the subsidiaries (collectively, the "Company"). Intercompany transactions
and balances have been eliminated in consolidation.

INVENTORIES

Inventories are stated at the lower of cost or market using the first in,
first-out method.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation and amortization is
computed by the straight line and accelerated methods based on the estimated
useful lives of the related assets. Leasehold improvements and capital leases
are amortized over the shorter of the life of the asset or the lease.

                                      F-7
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenues are recognized at the time of shipment of the respective merchandise.

INCOME TAXES

Through February 13, 1997, AESP with the consent of its shareholders, elected to
be taxed as an S Corporation. Shareholders of an S Corporation are taxed on
their proportionate share of the company's taxable income. Accordingly, no
provision for federal or state income tax is required for periods prior to
February 13, 1997.

Had the Company not been taxed as an S Corporation, the Company would have been
taxed approximately $11,000, additionally, during the year ended December 31,
1997. This additional amount of taxation has an insignificant effect on the 1997
earnings per share calculations.

AESP Germany, AESP Sweden, Jotec/AESP and AESP Ukraine are subject to taxation
in Germany, Sweden, Norway and Ukraine, respectively, and accordingly, calculate
and report the tax charges in accordance with applicable statutory regulations.

For the purpose of these financial statements the Company has adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," for all periods presented. Under the asset and
liability method of SFAS 109, deferred taxes are recognized for differences
between financial statement and income tax bases of assets and liabilities.

USE OF ESTIMATES

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

                                      F-8
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

EARNINGS PER SHARE

Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year. Diluted earnings per share
are computed on the basis of the weighted average number of common shares and
dilutive securities outstanding. Dilutive securities having an antidilutive
effect on diluted earnings per share are excluded from the calculation.

The weighted average number of common shares outstanding for all periods
presented retroactively reflects the effects of the Company's stock split (Note
1) and pooling combination with Jotec/AESP (Note 2).

PREFERRED STOCK

The Board of Directors of the Company is expressly authorized to provide for the
issuance of the shares of preferred stock in one or more series of such stock,
and by filing a certificate pursuant to applicable law of the State of Florida,
to establish or change from time to time the number of shares to be included in
each such series, and to fix the designations, powers, preferences and the
relative, participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereof.


                                      F-9
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FUTURE ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standard Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged assets or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginnings after June 15, 1999.

Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2000 to affect its
financial statements.

INTANGIBLE ASSETS

Intangible assets, representing the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses are stated at cost and are
amortized on a straight-line basis, over the estimated future periods to be
benefited (7 years). On an

                                      F-10
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

annual basis, the Company reviews the recoverability of intangible assets, based
primarily upon an analysis of undiscounted cash flows from the acquired
businesses.

In the event the expected future net cash flows would become less than the
carrying amount of the assets, an impairment loss would be recorded in the
period such determination is made based on the fair value of the related
businesses.

RECLASSIFICATIONS

Certain 1997 amounts have been reclassified to conform with the 1998
presentation.

                                      F-11
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. INITIAL PUBLIC OFFERING AND REORGANIZATION

The Company completed an initial public offering in February and March 1997 of
an aggregate of 920,000 shares of $.001 par value per share common stock of the
Company at $6.00 per share plus an aggregate of 920,000 redeemable common stock
purchase warrants of the Company at $.125 per warrant, including an
over-allotment option of 120,000 shares and warrants. In this connection, the
Company received net proceeds of approximately $4,862,000 (or $4,375,000 net of
certain capitalized expenses in connection with the Company's initial public
offering) of which $1,470,000 was utilized to repay its line of credit, and
$300,000 to make a principal payment on two subordinated promissory notes to the
Company's principal shareholders.

The accompanying financial statements give effect to the recapitalization,
effected on February 13, 1997, of the Company in connection with the public
offering of its common stock, the termination of AESP's federal income status as
an S Corporation and the contribution, to AESP, of the shares of stock in AESP
Sweden and AESP Germany, whose shares of common stock were owned by the
shareholders of AESP. The contribution of shares is accounted for under the
pooling of interest method as the transaction is a combination of companies
under common control.

In connection with the initial public offering, immediately prior to the
effectiveness of the registration statement, AESP issued a stock dividend in the
form of a stock split, whereby the 66 2/3 shares of stock then outstanding
(after cancellation of the shares held in treasury), were converted into 812,500
shares of common stock. AESP increased its authorized capital from 100 shares,
$1 par value to 20,000,000 shares of common stock, $.001 par value per share and
1,000,000 shares of preferred stock, $.001 par value per share.

Upon completion of the initial public offering, the Company entered into a
financial advisory agreement with the underwriters for a period of two years,
for an aggregate fee of $47,000.

                                      F-12
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the initial public offering, the Company (i) made a
distribution to its principal shareholders in the aggregate of $1,739,125, in
the form of two seven year, prime + 1%, convertible (at $4.00 per share)
subordinated promissory notes payable, (ii) entered into five year employment
agreements with its two principal shareholders which includes a minimum annual
compensation of $150,000 plus performance bonuses and (iii) issued options, to
each of its two principal shareholders, to purchase 180,250 shares of common
stock at the initial public offering price of $6.00 per share; such options are
considered contingent options which vest and are exercisable seven years after
the date of grant, with provision for earlier vesting based upon future earnings
per share, net income or trading prices of the Company's common stock (all as
defined). In connection with the favorable conversion price of the subordinated
promissory notes referred to above, the Company recorded a $719,560 distribution
to the principal shareholders, with a corresponding credit to paid-in capital.
Such amount is based upon the difference in the conversion price and the public
offering price times the number of shares issuable upon conversion of the notes.

On December 31, 1998, the Board of Directors negotiated a reduction in the
conversion price of the convertible debt from $4.00 to $1.80 per share in
exchange for which reduction the two principal shareholders converted the
convertible debt in the amount of $1,439,125 into 799,514 shares of common
stock.

In connection with the conversion of the debt the Company recorded interest
expense of approximately $852,000 related to the fair value of the shares
received in excess of the shares issuable pursuant to the original conversion
terms.

In April 1997, the Company made a distribution of approximately $260,000 to its
two principal shareholders, representing the income taxes due by them in
connection with the Company's S Corporation earnings through February 13, 1997.
Such amount has been charged to paid-in capital.

                                      F-13
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aforementioned employment agreements provide for annual increases, as
defined. In the event of a change in control of the Company (as defined) the
shareholders may terminate their employment with the Company for a lump sum
payment of $750,000 each. In addition, the Company will provide them with an
automobile allowance.

2. ACQUISITIONS

On October 31, 1998, the Company acquired all the outstanding common stock of
its distributor, AESP-Ukraine. The purchase price of this acquisition was valued
at approximately $490,000, the amount equal to the outstanding amount due from
the distributor to the Company. This acquisition was accounted for under the
purchase method, whereby the purchase price was allocated to the underlying
assets and liabilities based upon their estimated fair values.

Prior to October 31, 1998, the Company wrote-off approximately $530,000 due from
AESP-Ukraine.

The following unaudited pro forma information presents the results of operations
of the Company as if the acquisition had occurred on January 1, 1997:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                  1998              1997
----------------------------------------------------------------------------------
<S>                                          <C>               <C>
Net sales                                    $     22,295,017  $     21,305,107
Net income (loss)                                  (5,491,951)          500,771
Net income (loss) per
    common share                                        (2.40)              .25
Net income (loss) per common
    share - assuming dilution                $          (2.40) $            .21
</TABLE>

The unaudited pro forma information assumes the elimination of intercompany
sales of approximately $792,000 for the ten months ended October 31, 1998 and
approximately $1,221,000 for the year ended December 31, 1997.

In November 1997, the Company completed a merger with Jotec/AESP by exchanging
360,000 shares of its common stock for

                                      F-14
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

all of the common stock of Jotec/AESP.

The merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined balance sheet, statements of income and
cash flows of Jotec/AESP as though it had always been a part of the Company.

There were no transactions between Jotec/AESP and the Company prior to the
combination, and immaterial adjustments were recorded to conform Jotec/AESP's
accounting policies. Certain reclassifications were made to Jotec/AESP's
financial statements to conform to the Company's presentations.

The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow:

YEAR ENDED DECEMBER 31,                                                  1997
--------------------------------------------------------------------------------
Net Sales
    The Company                                                $   16,324,304
    Jotec/AESP                                                      4,861,607
--------------------------------------------------------------------------------
    Combined                                                       21,185,911
--------------------------------------------------------------------------------
Net Income
    The Company                                                       290,516
    Jotec/AESP                                                        358,667
--------------------------------------------------------------------------------
Combined                                                       $      649,183
--------------------------------------------------------------------------------

The results of operation of the previously separate companies for the period
before the combination were not readily available; therefore, the period for the
nine months ended September 30, 1997, prior to the combination being
consummated, is presented as follows:

                                      F-15
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30,                                         1997
-------------------------------------------------------------------------------
Net Sales
    The Company                                               $   11,146,954
    Jotec/AESP                                                     3,371,605
-------------------------------------------------------------------------------
    Combined                                                      14,518,559
-------------------------------------------------------------------------------
Net Income
    The Company                                                      317,902
    Jotec/AESP                                                       165,201
-------------------------------------------------------------------------------
Combined                                                      $      483,103
-------------------------------------------------------------------------------

In connection with the merger, the Company recorded, in the fourth quarter, a
charge to operating expenses of approximately $100,000 for direct and other
merger-related costs pertaining to the merger transaction.

Included in distributions for the year ended December 31, 1997 is $691,341
related to Jotec/AESP, including $458,581 related to a return of capital due to
a change in the Norwegian tax laws.

Effective September 30, 1997, the Company entered into an Asset Purchase
Agreement with Focus Enhancements, Inc. ("Focus"), pursuant to which the Company
acquired certain assets and inventory constituting the Network Division of
Focus, in exchange for cash of $138,000 and 189,701 shares of common stock of
the Company valued at $700,000, plus the assumption of $21,000 of liabilities.
Additionally, the Company incurred approximately $71,000 in professional fees in
conjunction with the acquisition. The assets acquired consisted of inventory,
supplier lists, customer lists, and rights to trademarks.

The Company recorded inventory in the amount of approximately $159,000 and
customer lists and trademark rights of approximately $771,000, which is being
amortized over 7 years. Additionally, in conjunction with the issuance of the
shares of common stock, the Company credited common stock and paid-in-capital
for $700,000. During 1998 and 1997, the Company recorded approximately

                                      F-16
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$109,500 and $27,500 in amortization, respectively.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER 31,                                                             1998
--------------------------------------------------------------------------------

Leasehold improvements                                      $         275,408
Capital leases                                                        159,011
Office equipment                                                      384,605
Machinery and equipment                                               212,468
Furniture and fixtures                                                 40,766
Vehicles                                                              102,987
--------------------------------------------------------------------------------
                                                                    1,175,245
Less:  accumulated depreciation and amortization                      539,578
--------------------------------------------------------------------------------
                                                            $         635,667
--------------------------------------------------------------------------------

                                      F-17
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. LONG-TERM DEBT

Long-term debt, comprising notes payable and capital leases at December 31, 1998
comprise the following:

Prime + .25% (8% at December 31, 1998) line of
credit with a financial institution in the
amount of $3,500,000, due June 1, 1999,
secured by all assets; guaranteed by the
Company's principal shareholders.
                                                            $       2,370,000

9.5% capital lease, $3,346 monthly, net of interest in
the amount of $31,874 at December 31, 1998 due April
2000.                                                                 143,502

Other                                                                  27,948
--------------------------------------------------------------------------------
                                                                    2,541,450

Less:
    Current portion                                                 2,405,263
--------------------------------------------------------------------------------
                                                            $         136,187
--------------------------------------------------------------------------------

The line of credit agreement requires the Company to comply with certain
covenants. At December 31, 1998, the Company was in violation of its financial
covenants. In this connection, the lender waived the covenant violations for
1998; however, it has indicated that it will enforce such covenants
prospectively.

Although the Company is seeking to refinance or restructure the loan, and
believes it will be able to prior to the June 1, 1999 maturity date, no
assurances can be given that it will be successful in its efforts. If the
Company is unable to refinance or restructure the loan, the Company's business
may be materially and adversely affected.



5. RUSSIAN WRITE-DOWN

During the third quarter, the Company wrote-off approximately $1,400,000 related
to a receivable from its distributor located in Russia. The Company took the
write-down in the receivable as a result of the financial and economic
conditions in Russia and the impact which it expected these conditions to have
on its financial statements.

Additionally, the Company wrote-off approximately $659,000 in specific inventory
which is custom made for the Russian distributor and would have no other
markets.

                                      F-18
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. FOREIGN OPERATIONS
<TABLE>
<CAPTION>


                                                                                       SWEDEN
                                             UNITED                                       AND        ELIMINA-
                                             STATES        NORWAY       GERMANY       UKRAINE            TION          TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>           <C>           <C>           <C>             <C>
Year ended December 31, 1998:

   Sales to unaffiliated customers    $  12,218,570  $  5,309,905  $  2,272,127  $  2,168,393  $            -  $  21,968,995

   Transfers between geographic
      areas                               2,625,158                           -             -      (2,625,158)             -
----------------------------------------------------------------------------------------------------------------------------
   Total                              $  14,843,728  $  5,309,905  $  2,272,127  $  2,168,393      (2,625,158) $  21,968,995
----------------------------------------------------------------------------------------------------------------------------
   Operating income (loss)            $  (4,427,728) $    825,739  $    (38,325) $    306,236         (40,216) $  (3,374,294)
----------------------------------------------------------------------------------------------------------------------------
   Loss before income taxes           $  (5,705,169) $    830,917  $     54,959  $    255,069          26,363  $  (4,537,861)
----------------------------------------------------------------------------------------------------------------------------
   Identifiable assets                $   9,077,534  $  2,205,150  $  1,065,443  $  1,660,507      (1,593,729) $  12,414,905
----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                    
                                             UNITED                                                  ELIMINA-
                                             STATES        NORWAY       GERMANY       SWEDEN            TION          TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>           <C>           <C>           <C>             <C>
Year ended December 31, 1997:

   Sales to unaffiliated customers    $  13,397,100  $  4,861,607  $  1,640,867  $  1,286,337  $            -  $  21,185,911

   Transfers between geographic
      areas                               1,574,976                           -                    (1,574,976)             -
----------------------------------------------------------------------------------------------------------------------------
   Total                              $  14,972,076  $  4,861,607     1,640,867  $  1,286,337  $   (1,574,976) $  21,185,911
----------------------------------------------------------------------------------------------------------------------------
   Operating income (loss)            $     518,586  $    497,655        36,634  $    177,486  $     (118,403) $   1,111,958
----------------------------------------------------------------------------------------------------------------------------
   Income (loss) before income
      taxes                           $     351,588  $    502,013       (16,581) $    190,903  $     (118,403) $     909,520
----------------------------------------------------------------------------------------------------------------------------
   Identifiable assets                $  10,991,802  $  1,435,353       623,433  $    683,184  $     (728,574) $  13,005,198
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Identifiable assets are those assets, that are identified with the operations in
each geographic area. Foreign sales, including those of AESP, for the years
ended December 31, 1998 and 1997 approximated 59.9% of consolidated revenues.
The Company's operations, consisting of network and connectivity products, are
handled by each of its subsidiaries operating in their respective countries.
Accordingly, management has chosen to organize its segments on a country by
country basis. Segment information is presented above for each significant
country.

7. RELATED PARTY TRANSACTIONS

During 1997, the Company repaid an 8.5% note payable to an entity owned by the
principal shareholders, in the amount of $125,350, including interest.

                                      F-19
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Jotec/AESP paid $121,795 and $25,918 to a company partially owned by its former
chairman and managing director for consulting services during 1998 and 1997,
respectively.

Jotec/AESP paid $31,752 to a company partially owned by a member of the Board of
Jotec/AESP for services provided in 1998.

Included in other current assets at December 31, 1998 is a $65,600 loan to a
member of the Board of Jotec/AESP.

8. SIGNIFICANT CUSTOMERS

For the year ended December 31, 1997, one customer accounted for 15.1% of
consolidated revenues; at December 31, 1997, accounts receivable from this
customer amounted to approximately $1.8 million. There were no significant
customers in 1998.

9. FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including accounts receivable,
accounts payable and short-term debt approximated fair value due to the
relatively short maturity.

10. COMMITMENTS

The Company rents office space and warehouse under non-cancelable leases. The
minimum future rental commitment for leases in effect at December 31, 1998,
including leases to related parties, approximates the following:

YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------------------

1999                                                        $         164,000
2000                                                                  164,000
2001                                                                  157,000
2002                                                                  155,000
2003                                                                  155,000
Thereafter                                                                  -
--------------------------------------------------------------------------------
                                                            $         795,000
--------------------------------------------------------------------------------

In July 1996, the Company entered into a five year lease agreement to rent
office and warehouse space from an entity owned by the principal shareholders of
the Company at $3,600 per month. The mortgage on the property has been
guaranteed by the Company. The balance outstanding on the mortgage at December
31, 1998 and

                                      F-20

<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1997 was approximately $217,000 and $230,000, respectively.

Rent expense in 1998 and 1997 aggregated approximately $255,000 and $373,000,
respectively, including $43,200 in each year to related parties.

The Company is liable under a patent license agreement, expiring in 2000,
whereby it is required to pay a fee (as defined) for each product sold subject
to the agreement. During 1998 and 1997, approximately $21,000 and $9,100,
respectively, of royalties were paid.

11. DEFERRED COMPENSATION PLAN

The Company has a defined contribution plan established pursuant to Section
401(k) of the Internal Revenue Code. Employees contribute to the plan a
percentage of their salaries, subject to certain dollar limitations and the
Company matches a portion of the employees' contributions. The Company's
contributions to the plan for the years ended December 31, 1998 and 1997
aggregated $21,545 and $27,883, respectively.

12. INCOME TAXES

The following are the components of income tax expense:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                              1998                1997
--------------------------------------------------------------------------------
<S>                                      <C>                 <C>             
Current
    Federal                              $       (227,833)   $        216,253
    State                                         (40,223)             38,189
    Foreign                                       335,926             173,047
--------------------------------------------------------------------------------
                                                   67,870             427,489
--------------------------------------------------------------------------------
Deferred
    Federal                              $        180,735    $       (182,454)
    State                                          30,938             (29,220)
    Foreign                                       (12,592)             44,562
--------------------------------------------------------------------------------
                                                  199,081            (167,112)
--------------------------------------------------------------------------------
Total                                    $        266,951    $        260,377
--------------------------------------------------------------------------------
</TABLE>

                                      F-21
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company intends to invest the undistributed earnings of the foreign
subsidiaries in their respective countries. Accordingly, no provision for United
States income taxes on undistributed earnings is required.

The reconciliation of income tax computed at the United States federal statutory
tax rate of 34% to income tax expense is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                              1998                1997
--------------------------------------------------------------------------------
<S>                                      <C>                 <C>             
Tax (benefit) at the United States
    statutory rate                       $     (1,542,872)   $        309,236

States income taxes, net of federal
benefit                                          (207,098)             20,023

Differences in effective income tax
of other countries                                 64,584             (30,120)

Permanent differences, net                        304,500             (12,339)

Valuation allowance adjustment                  1,753,462                   -

Other                                            (105,625)            (26,423)
--------------------------------------------------------------------------------
Total                                    $        266,951    $        260,377
--------------------------------------------------------------------------------
</TABLE>


The provision for foreign income taxes relates to the Norway, Sweden, Germany
and Ukraine. The statutory tax rates in Norway, Sweden, Germany and Ukraine for
1998 and 1997 range from 28% to 45%.

Deferred income taxes reflect the net tax effect of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31, 1998 are as
follows:

                                      F-22
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<S>                                                         <C>              
Deferred Tax Assets:
    Allowance for doubtful accounts                         $          78,727
    Inventory reserve                                                 261,198
    Inventory capitalization                                           20,992
    Net operating loss carryforward                                 1,183,890
    Depreciation                                                       29,702
    Goodwill                                                           27,976
    Compensation related to options granted
         for compensation                                             161,809
    Change in accounting principal                                    (18,815)
    Other                                                              42,138
--------------------------------------------------------------------------------
                                                                    1,787,617
Valuation allowance                                                 1,753,467
--------------------------------------------------------------------------------
Total deferred tax asset, net                                          34,150
--------------------------------------------------------------------------------
Deferred Tax Liabilities:
    Untaxed Sweden reserve                                             84,939
--------------------------------------------------------------------------------
Total tax liabilities                                       $          84,939
--------------------------------------------------------------------------------
</TABLE>


Realization of any portion of the Company's deferred tax asset at June 30, 1998
is not considered to be more likely than not and accordingly a $1,753,467
valuation allowance has been provided.

                                      F-23

<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. EARNINGS PER SHARE

The following reconciles the components of the earnings per share (EPS)
computation:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                         1998                                      1997
--------------------------------------------------------------------------------------------------------------------------

                                            INCOME         SHARES   PER-SHARE        INCOME         SHARES    PER-SHARE
                                       (NUMERATOR)  (DENOMINATOR)      AMOUNT   (NUMERATOR)  (DENOMINATOR)       AMOUNT
--------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>            <C>        <C>            <C>              <C>  
Earnings per common share                                                                                     
    Net income (loss) available to                                                                          
common shareholders                    $(4,537,861)     2,284,201      $(1.99)    $ 649,183      2,015,712        $ .32

Effect of Dilutive Securities:
    Convertible notes                            -              -                    64,080        359,781            
--------------------------------------------------------------------------------------------------------------------------
Net income available to common                                                                              
shareholders plus assumed
conversions                            $(4,537,861)     2,284,201      $(1.99)    $ 713,263      2,375,493        $ .30
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-24
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 8-1/2% convertible stockholder notes amounting to $1,439,125 are convertible
at $4 per share and are considered dilutive for 1997.

Options to purchase 1,001,600 shares, and 90,000 shares of common stock at
$1.50, $2.13 and $3.69 per share, respectively, were outstanding during 1998,
but not included in the computation of diluted EPS as the options were
anti-dilutive. The options with expirations from 2002 to 2008 were outstanding
at December 31, 1998.

Options to purchase 200,000 shares of common stock at $6.00 per share were
outstanding, but were not included in the computation of diluted EPS as the
options' exercise price was greater than the average market price of the common
shares. The options, which expire in 2006, were outstanding at December 31,
1997.

Options to purchase 360,500 shares, 36,000 shares, 23,000 shares, 40,000 shares,
120,000 shares and 70,200 shares of common stock at $6.00, $5.88, $4.00, $6.00,
$3.69 and $3.50 per share, respectively, were outstanding during 1998, but not
included in the computation of diluted EPS as the options' exercise price was
greater than the average market price of the common shares. The options with
expirations from 2002 to 2007 were outstanding at December 31, 1997.

14. STOCK OPTIONS

At December 31, 1998, the Company has a fixed stock option plan and non-plan
options which are described below. The Company applies APB Opinion 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in
accounting for employee stock options. Under APB Opinion 25, because the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation cost
is recognized.

Effective January 1, 1997, the Company entered into a consulting agreement for a
period of one year in which the consultant will be paid $16,300 per month. In
addition, the Company granted the consultant, in 1997, a seven year option to
purchase 63,000 shares of its common stock, at $4.00 a share with respect to
23,000 shares and $6.00 a share with respect to 40,000 shares. The shares were
valued at $91,000. Accordingly, in 1997, a charge in that amount has been
charged to consulting fees with a corresponding credit to additional paid in
capital. In 1998, the options were repriced to $2.13 a share and, accordingly,
the Company recorded a $104,000 charge to consulting fees with a corresponding
credit to additional paid in capital.


                                      F-25
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During October 1997, the Company granted 120,000 options to a consultant for
services to be rendered over the term of one year. The options are exercisable
at $3.69 per share. In connection with these options the Company has recorded a
charge to consulting fees with a corresponding credit to additional paid in
capital in the amount of $109,000. Additionally, the consultant was paid a one
time fee of $20,000. During 1998, options for 30,000 shares were forfeited. In
connection with the remaining terms of the agreement, the Company recorded a
charge to consulting fees with a corresponding credit to additional paid in
capital in the amount of $54,300.

During 1998, the Company granted options to purchase 75,000 shares of its common
stock at an exercise price of $1.50 a share to its directors. Accordingly, the
Company has taken a charge in the amount of $33,500 to advisory fees and a
corresponding credit to additional paid in capital. Additionally, certain
options to directors, issued in 1997, were repriced from $5.88 to $1.50 a share.
In connection with this repricing, the Company has recorded advisory fees in the
amount of $31,440 with a corresponding credit to additional paid in capital.

The fair value of the foregoing options to consultants and directors was
determined based on the Black Scholes method.

Pursuant to the Plan, the Company may grant incentive stock options and
nonqualified stock options. The exercise price of options granted is required to
be at least equal to the per share fair market value of the common stock on the
date of the grant. Options granted have maximum terms of not more than 10 years
and are not transferable. Incentive stock options granted to an individual
owning more than 10 percent of the total combined voting power of all classes of
stock issued by the Company must be equal to 110 percent of the fair market
value of the shares issuable on the date of the grant; such options are not
exercisable more than five years after the grant date.

The Company may not grant options in excess of 15% of the outstanding common
stock for a period of one year from the effective date of the Company's initial
public offering.

Generally, options are exercisable one-third upon grant, one-third on the first
anniversary of such grant and the final one-third on the second anniversary of
such grant. However, options granted under the Plan shall become immediately
exercisable if the holder of such options is terminated by the Company or is no
longer a director of the Company, as the case may be, and subsequent to certain
events which are deemed to be a "change in control" of the Company.

                                      F-26

<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Incentive stock options granted under the Plan are subject to the restriction
that the aggregate fair market value (determined as of the date of grant) of
options which first become exercisable in any calendar year cannot exceed
$100,000.

The Plan provides for adjustments in the number and type of shares covered by
the Plan and options granted thereunder in the event of any reorganization,
merger, recapitalization or certain other transactions involving the Company.

In 1998, the Company granted a total of 66,400 options to employees. These
options vest one-third upon the date of the grant and one-third each upon the
next two anniversaries of the date of the grant, which options are exercisable
at $1.50 per share. Further, during 1998, the two principal shareholders
received 200,000 options at an exercise price of $1.50.

In 1997, the Company granted a total of 36,000 options to directors. The options
vest over three years and were exercisable at $5.88. Additionally, 70,200
options were issued to employees. These options vest one-third upon the date of
grant and one-third each upon the next two anniversaries of the date of grant,
which options were exercisable at $3.50 per share. Further, during 1997, the two
principal shareholders received 360,500 contingent options (see Note 1). The
above options were repriced in 1998 to $1.50 a share.

FASB Statement 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," requires the
Company to provide pro forma information regarding net income and net income per
share as if compensation cost for the Company's employee stock options had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998: no dividend yield percent;
expected volatility of 93.2%; risk-free interest rates of approximately 6.5%,
and expected lives from 5 to 9 years for the non-plan options. The following
assumptions are used for grants in 1997: no dividend yield percent; expected
volatility of 46.5%; risk-free interest rates of 6.9% and expected lives of 5 to
9 years for the non-plan options.

                                      F-27

<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the accounting provisions of FASB Statement 123, the Company's pro forma
net income and earnings per share would have been as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                  1998             1997
--------------------------------------------------------------------------------
<S>                                             <C>              <C>          
Net income (loss)
    As reported                                 $ (4,804,812)    $     638,143
    Pro forma                                     (5,204,504)          574,891
--------------------------------------------------------------------------------
Net income (loss) per common share
    As reported                                 $      (1.99)    $         .32
    Pro forma                                          (2.28)              .29
--------------------------------------------------------------------------------
Net income (loss) per common share - diluted:
    As reported                                 $      (1.99)    $         .30
    Pro forma                                          (2.28)              .27
--------------------------------------------------------------------------------
</TABLE>

                                      F-28

<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Company's fixed stock option plan and non-plan
options as of December 31, 1998 and 1997, and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>

                                        DECEMBER 31, 1998      DECEMBER 31, 1997
                                      ----------------------   --------------------
                                                  WEIGHTED-              WEIGHTED-
                                                    AVERAGE                AVERAGE
                                                   EXERCISE               EXERCISE
                                        SHARES        PRICE     SHARES       PRICE
------------------------------------------------------------------------------------

<S>                                 <C>         <C>         <C>        <C>        
Outstanding at beginning of year       849,700  $      5.41    200,000 $      6.00
Granted                                341,400         1.50    649,700        5.23
Exercised                                    -            -          -           -
Forfeited                               36,500         3.16          -           -
------------------------------------------------------------------------------------

Outstanding at end of year           1,154,600         1.71    849,700        5.41
------------------------------------------------------------------------------------

Options exercisable at year-end        540,599         2.54    358,400        5.32
Weighted-average fair value of                                            
  options granted during the year   $  341,400         1.50 $     3.14
------------------------------------------------------------------------------------
</TABLE>


                                      F-29
<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about fixed stock options and
non-plan options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                                WEIGHTED-
                    NUMBER        AVERAGE     WEIGHTED-       NUMBER     WEIGHTED-
     RANGE OF  OUTSTANDING      REMAINING       AVERAGE   EXERCISABLE     AVERAGE
     EXERCISE           AT    CONTRACTUAL      EXERCISE           AT     EXERCISE
        PRICE     12/31/98           LIFE         PRICE     12/31/98        PRICE
------------------------------------------------------------------------------------
   <S>                   <C>            <C><C>                     <C> <C>
   $1.50-3.69    1,154,600              8  $       1.71      540,599   $     2.54
</TABLE>

15.  SUBSEQUENT

In March 1999, the Company completed the acquisition of the assets of 
Communications Components Company, Inc. ("CCCI"), a manufacturer of network
connectivity products and systems for $800,000, payable $250,000 in cash, 86,206
shares of common stock of the Company valued at $150,000 and $400,000 
payable with interest at 8% a year over three years. The acquisition will be
accounted for under the purchase method of accounting.


                                      F-30
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT           DESCRIPTION
-------           -----------
10.12       Loan Agreement between the Company and SunTrust Bank/Miami, N.A.,
            dated March 25, 1999*

10.14       Amendment to Master Purchase Agreement between the Company and
            Focus*

10.17       Stock Purchase Agreement among the Company, CCCI and Donald Y.
            Daily, Jr.*

21.1        List of Subsidiaries*

27.1        Financial Data Schedule*