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, 1997

                                       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)

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

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

Issuer's telephone number       (305) 944-7710

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

    Title of each class               Name of each exchange on which registered
---------------------------------   --------------------------------------------

         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, 1997 was
$21,185,911.

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 March 20, 1998 of $3.63 per
share) was approximately $8,284,000. There is no non-voting stock.

The number of shares outstanding of the Company's Common Stock, as of March 20,
1998, is 2,282,201.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders, scheduled to be held in May 1998, 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]

                                       2

<PAGE>

                   ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                AND SUBSIDIARIES

                                      INDEX

                                     PART I
<TABLE>
<CAPTION>

                                                                                                               PAGE

<S>                                                                                                              <C>
Item 1.  Description of Business..................................................................................4

Item 2.  Description of Property.................................................................................13

Item 3.  Legal Proceedings.......................................................................................13

Item 4.  Submission of Matters to a Vote of Security Holders.....................................................13

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters................................................14

Item 6.  Management's Discussion and Analysis or Plan of Operation...............................................15

Item 7.  Financial Statements and Supplementary Data.............................................................22

Item 8.  Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure.......................................................................22

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Central Persons;
                  Compliance with Section 16(a) of the Exchange Act..............................................23

Item 10. Executive Compensation..................................................................................23

Item 11. Security Ownership of Certain Beneficial Owners and Management..........................................23

Item 12. Certain Relationships and Related Transactions..........................................................23

Item 13. Exhibits and Reports on Form 8-K........................................................................23

FINANCIAL STATEMENTS

                           Reports of Independent Certified Public Accountants..................................F-2
                           Consolidated Balance Sheet at December 31, 1997......................................F-4
                           Consolidated Statements of Income for the Years Ended
                                    December 31, 1997 and 1996..................................................F-5
                           Consolidated Statements of Shareholders' Equity for the Years Ended
                                    December 31, 1997 and 1996..................................................F-6
                           Consolidated Statements of Cash Flow for the Years Ended
                                    December 31, 1997 and 1996..................................................F-7
                           Summary of Significant Accounting Policies...........................................F-8
                           Notes to Consolidated Financial Statements...........................................F-13

</TABLE>

                                       3

<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 WHICH 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 AND IN THE COMPANY'S
PROSPECTUS DATED FEBRUARY 13, 1997. 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 computer
connectivity and networking products nationally and internationally. The Company
currently offers a broad range of products to its customers, including computer
cables, connectors, installation products, data sharing devices, and fiber optic
cables, as well as a complete selection of networking products, such as
networking interface cards, hubs, transceivers, and repeaters for different
networking topologies. The Company works with various 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 Beach facility. The Company offers its products to
a broad range of customers, including original equipment manufacturers ("OEM")
and retail customers (such as computer superstores and dealers, and mail order
customers) in North America, Latin America, and Eastern and Western Europe.

         In February and March 1997, the Company completed an initial public
offering ("IPO") in which it raised net proceeds of approximately $4,374,000.
The net proceeds of the IPO were used for repayment of indebtedness, the opening
of new sales offices, product development and design,

                                       4

<PAGE>

increasing inventory to support customer requirements, increasing the sales
force, implementing the international manufacturing standard "ISO 9000",
advertising and marketing, acquisitions and working capital and general
corporate purposes.

         Subsequent to completion of its IPO, the Company has completed two
acquisitions: (i) effective September 30, 1997, the Company acquired the assets
of the networking division of Focus Enhancements, Inc., which sells networking
products under the "Focus Networking" tradename to retail customers, primarily
in the United States and Europe, and (ii) on November 12, 1997, the Company
acquired the outstanding shares of Dataholding AS (now called Jotec/AESP AS), a
distributor of connectivity and computer products located in Oslo, Norway.

(B)      BUSINESS OF ISSUER

THE COMPUTER CONNECTIVITY INDUSTRY

         The growth of computer sales over the past five to seven years has
increased the need for components and devices which connect computers with
computer peripherals and other computer-related equipment. Companies which
currently service this growing computer connectivity market fall into four
categories: manufacturers, distributors, retailers and catalog houses. Catalog
houses sell directly to end-users by mass mailing catalogs. Retailers sell to
end-users from retail stores. Often retailers have multiple locations.
Manufacturers and distributors, such as the Company, service both the retailers
and catalog houses.

         Distributors of computer connectivity products range in size from large
distributors reporting in the range of $50-$250 million in annual net sales to
smaller distributors reporting little more than $1-3 million in annual net
sales. Small distributors predominate the computer connectivity industry, and
are largely fragmented throughout the different sectors of the computer
connectivity industry. See "Competition" below. The Company believes that
competitive factors affecting its business include providing quality products at
competitive prices and providing a broad range of services. The Company is
constantly seeking to improve its competitive position within its industry.

         In general, the computer industry is characterized by rapidly changing
technology. The Company must continuously update its existing products to keep
them current with changing technology and must develop new products to take
advantage of new technologies that could render existing products obsolete.
These products must be compatible with the computers and other products with
which they are used. The Company's future prospects are dependent in part on its
ability to develop in the future new products that address new technologies and
achieve market acceptance. There can be no assurance that the Company will be
successful in these efforts. If the Company were unable, due to resource
constraints or technological or other reasons, to develop and introduce such
products in a timely manner, this inability could have a material adverse effect
on the Company's results of operations. In addition, due to the uncertainties
associated with the evolving markets being addressed by the Company, there can
be no assurance that the Company will be able

                                       5

<PAGE>

to respond effectively to product demands, fluctuations, or to changing
technologies or customer requirements and specifications.

         Although the computer connectivity and networking industry is not
generally affected as much by rapidly changing technology as the computer
industry as a whole, the Company is aware of and monitoring the development of
universal interfaces and any potential effect such developments would have on
the Company. In general, these interfaces would be used to facilitate the
interaction between many different types of computers and computer devices.
Specifically, the universal interfaces would allow many different devices (such
as monitors, keyboards, modems and printers) and computer types which are
currently connected by different connectors, to be connected using one universal
interface for each connection. It is possible that the different connectors
currently in use will be replaced by such universal interfaces. Although the
Company anticipates that the sales volume of these universal interfaces should
be at a similar level to the aggregate sales volume for the connectors that they
replace, it is possible that the profit margin associated with the new universal
interfaces may be lower than the Company's current connectors. Although, in the
short term, demand for these universal interfaces may create a new product for
the Company, the Company cannot determine with any certainty how its other
similar products will be affected or what the long-term effect will be on the
Company's sales and operating results. No assurance can be given that the
computer industry will agree on one or more of these universal interfaces or
that such interfaces will be accepted by the market.

         The computer industry has been affected historically by general
economic downturns, which have had an adverse economic effect upon
manufacturers, distributors and retailers of computers and computer-related
products. General economic downturns have traditionally had adverse effects upon
the computer-related industry. There can be no assurance that the Company will
be able to predict or respond to such cycles.

PRODUCTS AND SERVICES

         The Company's products fall into four product categories: connectivity,
networking, audio/video and accessories. Connectivity products generally include
cable assembles, adaptors, connectors, installation products and data-sharing
devices. Connectivity products can be characterized as products which connect a
computer, for example, to other external hardware, such as a printer. Networking
products include, for example, interface cards, hubs, transceivers and repeaters
for different networking topologies. Networking products can be described as
products which connect a computer, for example, to another computer or to a
network server. Audio/video products include connectivity-type products for
multimedia applications. Audio/video products connect audio and video output to
homes and businesses. Accessories include tools, testers and surge protectors.
Accessories are used across all three other product lines.

         Part of the Company's success to date has resulted from expanding the
variety of the products it offers through its diversification into, and
management of, these four product categories. By diversifying among these four
product categories, the Company has expanded its product lines as well as the
total number of its products offered within those lines allowing it to enter new
markets and increase gross sales. Another important element to the Company's
success is product management,

                                       6

<PAGE>

which includes overseeing the production and assembly of the Company's products
as well as keeping in touch with new types of products being produced by the
industry as a whole.

         The Company is constantly seeking to upgrade its product lines in an
effort to meet customer demand. The Company provides its customers with a
comprehensive, reference-style catalog, which describes over 1,000 of the
Company's products. The Company has also expanded the product lines it offers
with the acquisition of the assets of Focus' networking division in September
1997 and by the addition of the Plugged-In(TM) line of ultra high quality
computer cables.

         Products offered by the Company to its customers in different
geographic locations may differ from country to country primarily due to
different electrical standards and different customer requirements. For example,
in Russia and the Ukraine, the Company sells more bulk cable (wire on rolls) and
electrical raceways (external conduits) than it does in the United States,
primarily due to the Company serving a higher percentage of the cable installers
in Russia and the Ukraine than it does in the United States. Furthermore, in
countries outside of the United States, electrical power may be of different
voltage and frequencies and wall connections may be of different configurations
than in the United States, which requires the Company to stock different types
of power cords, plugs and connectors for deliveries to each country served.
Normally these unique inventory items are stocked in the closest sales offices
or warehouse in relationship to the country that requires them.

         In addition to offering a large variety of products, the Company also
offers numerous services to its customers. These services include stock rotation
(where the customer can return unsold products for credit towards purchases of
new products); price protection (where the customer is entitled to receive a
lower price if another customer receives a lower price on the same product);
enhanced packaging; custom packaging; technical and design support (where the
customer receives advise 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. These value-added services assist the Company's customers,
providing what the Company believes to be a competitive advantage.

MANUFACTURING AND SUPPLIERS

         All of the Company's products are manufactured according to the
Company's design specifications. Specifically, those specifications are derived
from the Company's designs or from standard industry designs, which the Company
also employs. Products which the Company designs are custom designs where often
the customer provides the specifications (usually with the Company's
assistance). OEM products are generally custom designed. The Company also
provides products, such as bulk cable products, from standard industry designs
where the Company is, for the most part, not involved in the design process.
Retail products are generally derived from standard industry designs.

                                       7

<PAGE>

         The Company contracts with suppliers to manufacture its products using
one of two methods. With the first method, the Company works with a primary
manufacturer (a/k/a an assembler) in directing this manufacturer to various
other manufacturers (with whom the Company also works) in order to obtain the
numerous component parts which the primary manufacturer uses in assembling a
particular product or product line. With the second method, the Company works
solely with a primary manufacturer of a product or product line and does not
assist that manufacturer in identifying the various other manufacturers (a/k/a
suppliers) for its component parts. Under either method, the primary
manufacturer is responsible for assembling the product, which assembly procedure
following the Company's specifications is generally uniform throughout the
various primary manufacturers for each product. For example, the assembly of
molded cables consists of several uniform procedures which can be summarized as
follows: (a) the cable is prepared by cutting, removing the PVC jacket and
stripping the connectors, (b) the connectors on either end of the cable are then
soldered to their respective connector type, (c) the soldered connectors are
then molded using injection molding, (d) a shield is then placed on top of the
first mold, (e) a final mold is then applied along with a shield foil protecting
the connectors, and (f) the cable is packaged and shipped. The above process can
be modified depending upon the Company's final product specifications and
requirements.

         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, Hong Kong, Malaysia and Korea. The Company also assembles a
small percentage of its products at the Company's North Miami, Florida facility.

         For the production of each specific type of retail product, the Company
usually maintains an on-going relationship with several suppliers to guard
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 OEM 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, often 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 significantly 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 1997. No other source of supply
accounted for more than 10 percent of the Company's purchases during 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 to customer demand. Nevertheless, the loss of one
or more suppliers could have an adverse impact on the Company.



                                       8

<PAGE>

QUALITY CONTROL

         The goal of the Company's quality control program is to provide the
Company's 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 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.

         The Company is working towards compliance with the "ISO 9000" standard
by the end of calendar year 1998. The ISO 9000 is an international manufacturing
standard which is becoming more prevalent across numerous industries. Almost all
of the Company's current suppliers are in the process of implementing ISO 9000
procedures.

DISTRIBUTION

         OEM sales are generally handled by salespersons located in the
Company's headquarters in North Miami, Florida, with an additional warehouse in
the Pleasanton, California area to improve delivery times from the Pacific rim.
OEM customers located in the Western half of the United States receive their
product directly from the Company's Pleasanton warehouse, while customers
located in the Eastern half of the United States 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 and
Norwegian offices and warehouses. Quality assurance points are located at all
warehouse locations.

CUSTOMER BASE

         The Company's customer base is divided into two categories: OEM and
retail. OEM customers are generally manufacturers of computer-related 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 domestic retail sales and also
represent the most potential in the Company's efforts to expand its retail
customer base. The retail mass merchandising market also represent a significant
growth area for the Company. The Company does not sell 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. Internationally, the Company's products are sold through wholesale
distributors and mail order companies, dealers and VARs. Accordingly, the
Company is dependent

                                       9

<PAGE>

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. No other customer of the
Company accounted for more than 10 percent of the Company's net sales for the
same period. The Company's top 10 customers accounted for approximately 48% of
the Company's net sales for the year ended 1996 and approximately 40% of the
Company's net sales for the year ended December 31, 1997.

         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. See Item 6. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION". 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 the 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.

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, several 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 event that more
competitors begin to carry products which the Company carries and price

                                       10

<PAGE>

competition with respect to the Company's products significantly increases,
competitive pressures could cause the Company to reduce the prices of its
products, which would result in reduced profit margins. Prolonged price
competition 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 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.

GROWTH STRATEGY

         The Company's goals are to become a leader and achieve brand
recognition in the computer connectivity and networking industry. In order to
achieve these two goals, the Company's strategy is to increase its retail and
OEM customer base through internal growth and through growth by acquisition.

         The Company plans to increase its operating revenues and income by
increasing its retail and OEM customer base in existing markets and expanding
into new markets. In order to increase its national and international retail
customer base, the Company intends to continue to increase its marketing with
large catalog companies and to increase its product line and the size of its
inventory as well as continue to expand its sales and marketing efforts by
opening additional sales offices in the United States, in Eastern and Western
Europe and in Latin America. In an effort to expand its OEM customer base, the
Company intends to seek to offer its products not only to OEM computer product
manufacturers, but also to manufacturers in the medical, telecommunications and
cable TV industries.

         Another element of the Company's strategy to achieve its goals is to
grow by the acquisition of other companies, assets, and/or product lines that
would compliment or expand the Company's existing business. The Company believes
that there are many small distributors which would be interested in
consolidating with the Company. In general, the Company intends to look for
companies and/or product lines with new designs, new technology, new services,
and advanced products, preferably in high technology industries. In particular,
the Company would be interested in companies and/or product lines in the
telecommunications, cable audio/video, and computer markets. The Company
believes that acquisitions will enable it to leverage its current level of
operations and accelerate its growth. The Company has no present understanding,
agreement or arrangement with respect to any material acquisition.

         The Company's ability to grow by acquisition is dependent upon, and may
be limited by, the availability of suitable acquisition candidates and capital,
and by restrictions contained in the Company's credit agreements, which
restrictions include maintaining certain minimum ratios of assets versus
liabilities and not permitting any indebtedness, guarantees or liens which would
materially affect the Company's ability to repay its loan to the bank. In
addition, acquisitions involve risks that could adversely affect the Company's
operating results, including the assimilation of the operations and personnel of
acquired companies, the possible amortization of acquired intangible assets and
the potential loss of key employees of acquired companies. Although the Company
completed two acquisitions during 1997, there can be no assurance that the
Company will be successful in

                                       11

<PAGE>

consummating future acquisitions on terms acceptable to the Company. Other than
as required by the Company's Articles of Incorporation, By-Laws, and applicable
law, shareholders of the Company generally will not be entitled to vote upon
such acquisitions.

         The acquisitions of companies and/or inventories as set forth above are
expected to be funded in part by borrowings under the Company's revolving credit
facility, from the Company's operating cash flow, and through the issuance of
additional shares of the Company's authorized but unissued Common Stock.

CORPORATE ORGANIZATION

         The Company is divided into five departments: (1) the Sales and
Marketing Department, (2) the International Sales Department (including
affiliated 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 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 North Miami headquarters. The
International Sales Department covers sales in Eastern and Western Europe, with
offices in Sweden, Germany and Norway servicing the European sector, and
exclusive distributors in the Ukraine and Russia handling East European
customers.

         The Sales and Marketing Department also includes product management,
graphic arts and technical support services. The International Sales Department
also receives support from the Sales and Marketing Department.

EMPLOYEES

         As of December 31, 1997, the Company employed 96 people at the
following locations: Miami office - 65; AESP Sweden - 7; AESP Germany - 10; and
Norway - 14. Company wide-19 employees work in administration/accounting, 6
employees work in purchasing, 39 employees work in sales and marketing, and 32
work in the Operations Department. None of the Company's employees is covered
by collective bargaining agreements. The Company believes that its relationship
with its employees is good.

                                       12

<PAGE>

ITEM 2.           DESCRIPTION OF PROPERTY

         The Company's executive offices are located in North Miami, Florida.
All of the Company's properties are maintained on a regular basis and are
adequate for the Company's present requirements.

         The table set forth below identifies the principal properties utilized
by the Company. All properties are leased. RSB Holdings, Inc., a related party,
owns the corporate headquarters, product assembly and central warehouse, and
leases such properties to the Company. See Note 11 to Notes to Consolidated
Financial Statements for information regarding the financial terms of the
Company's leases.


                                                                     APPROXIMATE
                                                                       SQUARE
FACILITY DESCRIPTION                  LOCATION                         FOOTAGE
--------------------                  --------                         -------
Corporate Headquarters,               North Miami, FL                  10,000
Product Assembly and
Central Warehouse
Warehouse                             North Miami, FL                  20,000
Warehouse                             Pleasanton, CA                    4,500
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                      Sulzemoos, Germany                6,000
Bonded Warehouse                      Vinnitsa, Ukraine                10,000


ITEM 3.           LEGAL PROCEEDINGS

         As of March 20, 1998, 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, 1997.

                                       13

<PAGE>

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         (a) The Company's Common Stock and Warrants have been, since February
13, 1997, traded on the NASDAQ SmallCap Market under the symbols "AESP" and
"AESPW". According to the NASDAQ Stock Market, since the Company's initial
public offering, and through December 31, 1997, the high and low bid price for
the Shares and Warrants on the NASDAQ SmallCap Market has been $9 and $2 15/16,
and $2 3/4 and $1/2, respectively. As of March 20, 1998, the high and low bid
price for the Shares and Warrants on the NASDAQ SmallCap Market was 3 11/16 and
3 5/8, and 5/8 and 5/8, respectively.

         (b) As of March 20, 1998, the number of holders of record of the
Company's Common Stock was approximately 14. The Company believes that there are
approximately an additional 750 holders who at that date beneficially owned
shares of the Company's Common Stock in street name.

         (c) The Company does not intend to pay any cash dividends with respect
to its Common Stock in the foreseeable future. Rather, the Company intends to
currently retain its earnings, if any, for use in the operation of its business.
Furthermore, the Company's ability to declare or pay dividends on its Common
Stock is limited by the terms of its loan agreement with a financial institution
and by terms of the underwriting agreement with the underwriters from its
initial public offering.

                                       14

<PAGE>

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

GENERAL

         Since its incorporation in 1983, the Company has designed,
manufactured, marketed and distributed computer connectivity and networking
products nationally and internationally. Through AESP Germany, established in
1987, and AESP Sweden, established in 1988, the Company has continued to grow
its sales and distribution network.

         On February 19, 1997, the Company completed an initial public offering
("IPO") of 800,000 shares of Common Stock and 800,000 of the Company's
Redeemable Common Stock Purchase Warrants (exercisable at $6.90 per share). On
March 20, 1997, the Company sold an additional 120,000 shares of Common Stock
and 120,000 of the Company's Redeemable Common Stock Purchase Warrants in
connection with the exercise by the underwriters of an over-allotment option. In
the aggregate, the Company raised net proceeds of approximately $4,374,000 in
its IPO. The Company has used these net proceeds to repay indebtedness, to open
new sales offices, for product development and design, to increase inventory to
support customer requirements, to increase its sales force, to implement the
international quality standard "ISO 9000", for advertising, marketing,
acquisitions, and for working capital and general corporate purposes.

         Subsequent to the completion of the IPO, effective September 30, 1997,
the Company acquired the assets of the networking division of Focus
Enhancements, Inc. ("Focus"). The networking division of Focus sells networking
products under the "Focus Networking" tradename to retail customers, primarily
in the United States and Europe. In connection with this acquisition, the
Company issued an aggregate of 189,701 shares of its authorized but unissued
Common Stock to Focus (valued at $700,000). The Company also paid Focus an
aggregate of $159,371 to acquire Focus' inventory of networking products,
subject to a warranty claims adjustment of $21,000.

         Additionally, on September 29, 1997 the Company entered into a two year
exclusive supply agreement with Focus whereby Focus agreed to purchase a minimum
of $1,250,000 per year of the Company's OEM products at agreed upon margins. The
term of the Agreement may be automatically renewed for additional one year terms
unless either party provides prior written notice of its intent not to renew the
term of the Agreement.

         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. As a result
of this pooling of interests accounting treatment, the Company's 1996 and 1997
net sales increased by approximately $4,605,000 and $4,862,000, respectively,
and the Company's 1996 and 1997 net income increased by approximately $427,000
and $359,000, respectively.

                                       15

<PAGE>

         RESULTS OF OPERATIONS

         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.

         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. The Company believes that it must continue to
manage the mix between OEM sales and retail 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. The
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.


                                       16

<PAGE>

         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 such
inventory during periods of low sales activity. The capital necessary to hold
such 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.

         The market for the Company's products in Russia and the Ukraine is
generally driven by concerns as to availability for immediate delivery, as well
as by price and quality. In order to take advantage of this market, the Company
increased inventory levels held in the Ukraine during 1997 in an effort to
decrease delivery times to its customer.

         Recent accounting pronouncements, including Statement of Financial
Accounting Standards ("SFAS") No. 130, entitled "Reporting Comprehensive Income"
and SFAS 131 entitled "Disclosures about Segments of an Enterprise and Related
Information", which affect the reporting of the Company's financial statements
contained herein, are described in more detail in the Company's financial
statements to this Annual Report. See "Summary of Significant Accounting
Policies" in the Consolidated Financial Statements.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Net sales for the fiscal year ended December 31, 1997 were
approximately $21.2 million, an increase of approximately $2.9 million or 15.7%
compared to net sales for the fiscal year ended December 31, 1996 of
approximately $18.3 million. OEM sales decreased 46.4% from 1996 to 1997,
primarily due to the Company's reduction in sales to two large OEM customers.
During 1996, these two customers made significant purchases from the Company
that were not repeated in 1997 (due to issues unrelated to the Company). The
Company has recently expanded its OEM sales group in order to broaden its base
of OEM customers and to increase its OEM sales in the future.

         Despite the loss of OEM sales, the Company's overall increase in net
sales was primarily attributable to the success of the Company's increased sales
and marketing efforts which resulted in approximately a 35.0% increase in the
Company's retail sales from fiscal year 1996 to fiscal year 1997. In particular,
the Company's retail sales to its exclusive distributors in Russia and the
Ukraine increased approximately 157.0% from period to period. The sales mix
changed from approximately 25% OEM, 75% retail, in 1996 to approximately 10%
OEM, 90% retail, in 1997. Although the Company increased its sales and marketing
effort in 1997 as compared to 1996 which resulted in increased retail sales,
such increased marketing and sales effort has not resulted in increased OEM
sales. The Company believes that this is primarily due to the longer sale lead
time for OEM sales than for retail sales. Typically, the length of time to
complete a sale ("lead time"), from initial customer contact to a sales
shipment, is from 12 to 18 months for an OEM sale, and is from 3 to 6 months for
a retail sale. During both 1996 and 1997, the Company increased its worldwide
sales and marketing personnel and its U.S. sales offices. In addition, the
Company increased its advertising, trade show, and sales travel expenditures,
all in an attempt to increase sales. Due to the longer sale lead time for OEM
sales than for retail sales, the increased sales efforts during 1997 resulted
only in increases in retail sales.

         During 1996 and 1997, domestic sales were approximately 47.0% and
40.1%, respectively, of net sales and international sales were approximately
53.0% and 59.9%, respectively, of net sales. The Company is optimistic that it
will achieve growth in net sales in both its domestic and international markets
during future periods.

                                       17

<PAGE>

         Gross profits as a percentage of gross sales increased approximately
1.3%, from 41.7% in 1996 to 43.0% in 1997. Though the increase was small, it
does reflect the shift in sales mix from OEM sales to retail sales. OEM sales
typically command a lesser gross margin than retail sales. Retail sales however,
typically have greater overhead and SG&A expenses associated with them and
therefore typically generate less operating profits than do OEM sales. The
Company believes that future gross profits and operating profits will continue
to be affected by the mix of sales.

         Selling, general and administrative expenses ("SG&A") increased
significantly from 1996 to 1997, both in absolute dollars and as a percentage of
net sales. SG&A expenses increased approximately $1.9 million from 1996 to 1997,
a 31.7% increase. As a percentage of net sales, SG&A expenses increased from
approximately 33.2% in 1996 to approximately 37.8% in 1997. Included in 1996
SG&A expenses were approximately $125,000 in expenses relating to the Company's
proposed merger with the Americas Growth Fund, Inc. ("AGF"), for which there was
no comparable expense in 1997. Had the AGF merger expenses not been incurred,
the Company's 1996 SG&A expenses, as a percentage of sales, would have been
32.5%.

         SG&A expenses for 1997 reflect additional expenses relating to the
sales mix change, the additional expenses relating to the Company's increased
selling and marketing efforts, the expenses relating to the Company's
acquisition search efforts, non-cash expenses relating to the Company having
issued Common Stock options to two consultants (which is not expected to recur
in 1998), and the expenses increase relating to the Company being a public
company.

         As a result of the factors set forth above, income from operations for
1996 was approximately $1.6 million, compared to income from operations of
approximately $1.1 million for 1997, reflecting a decrease of 29.1%.

         Other income and expenses, net, decreased from income of approximately
$66,000 during 1996 to an expense of approximately $202,000 during 1997. This
was due to several 1996 transactions in particular which were not repeated in
1997. During 1996 AESP's Norwegian subsidiary disposed of an inactive subsidiary
and recorded a gain on the transaction. During 1996 the Company also recorded
gains on the sale of inventory delivered by one of the Company's largest OEM
customers as payment for accounts receivable. Foreign exchange losses were
approximately $67,000 and $11,000, respectively, in 1997 and 1996. Interest
expense from period to period increased a modest 8.5% or $12,000, from
approximately $140,000 during 1996 to approximately $152,000 during 1997. The
nature of the Company's debt changed from primarily institutional lending in
1996 to stockholder debt in 1997; the average borrowed amounts and interest
rates, however, were comparable year to year.

         Pro forma net income, which reflects the Company's net income had the
Company been taxed as a C corporation in 1996 and 1997, was $638,143 for the
year ended December 31, 1997, which was a decrease of 43.0% compared to 1996 pro
forma net income of $1,119,073.

                                       18

<PAGE>

         Pro forma basic earnings during 1996 was $0.95 per average share
compared to $0.32 in 1997. There were 71.9% more average shares outstanding in
1997 than in 1996. Pro forma fully diluted earnings in 1996 were $0.95 per
average, fully diluted share, compared to $0.30 in 1997, a 68.4% decrease. There
were 102.6% more average, fully diluted, shares outstanding in 1997 than there
were in 1996.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

         Historically, the Company has financed its operations primarily with
cash flow from operations and with the proceeds from its available credit lines.
For the fiscal year ended December 31, 1996, cash flows from operating
activities was approximately $721,000; the cash required for operating
activities in 1997 was approximately $1,573,000. For 1996, positive cash flows
resulted from net income, collections of accounts receivable, and increases in
accounts payable, which were offset in part by increases in inventory. For 1997,
cash was used to pay down accounts payable, increase inventories, and to
increase accounts receivable, particularly those accounts receivable from Russia
and the Ukraine, which were partially offset by net income. Much of the cash
used in 1997 for these purposes was derived from the IPO.

         Cash required by investing activities was due solely to net purchases
of property and equipment in 1996. In 1997, cash required for investing
activities was due primarily to additions to property and equipment (net of
disposals), as well as the purchase of the assets of the networking division,
which were partially offset by the sale of investment securities which were
previously held by the Company's Norwegian subsidiary.

         On October 31, 1996, an extraordinary general meeting of the Board of
Directors of Dataholding AS (the Company's Norwegian subsidiary, acquired
November 12, 1997, and now known as Jotec/AESP AS), was held. At that meeting,
the then shareholders of Dataholding determined to avail themselves of the
benefits of a recent change in Norwegian tax law which newly permitted low tax
rates on distributions and returns of capital to shareholders. These unusual
returns of capital were paid by Dataholding during 1997.

         Cash used by financing activities for the year ended December 31, 1996
was approximately $351,000 and was the result of dividends and other
distributions paid which were partially offset by borrowings. Cash provided by
financing activities for the year ended December 31, 1997 was approximately
$1,617,000 which was the result of the Company's receipt of the proceeds from
the IPO, partially offset by payments on borrowings, both to financial
institutions and to shareholders, payments of dividends and distributions, and a
return of capital.

         Working capital was approximately $3.1 million on December 31, 1996,
compared to working capital of approximately $8.1 million on December 31, 1997.
Accounts receivable, net of allowance for doubtful accounts, was approximately
$5.0 million on December 31, 1997 compared to approximately $3.5 million in
December 31, 1996, an increase of approximately $1.5 million. This increase was
due primarily to increases in accounts receivable relating to increased sales to
the Company's Russian and Ukrainian exclusive distributors during 1997.
Inventories increased from

                                       19

<PAGE>

period to period by approximately $0.5 million due to inventory purchases made
during the year to expand the Company's product offerings.

         During 1997, the Company renegotiated its revolving line of credit with
a financial institution and increased its credit facility to $4,500,000 (from
$2,500,000). Borrowings under the line of credit bear interest at the rate of
prime plus 0.25% per annum. Available borrowings under the line of credit are
based upon specific percentages of the Company's U.S. based accounts receivable
and inventories. The line of credit is secured by a lien on the Company's
worldwide accounts receivable, inventories, and all other assets of the Company.
As of December 31, 1996, approximately $1,470,000 was outstanding under the
previous credit facility. In February, 1997, the Company repaid, net of
borrowings, approximately $1,270,000 to the lender under the credit facility
existing at that time. At December 31, 1997 the amount due under the line of
credit was approximately $214,000. On March 20, 1998, the amount due under the
line of credit was approximately $1,250,000.

         In connection with its credit facility agreement, the Company is
required to comply with certain affirmative and negative covenants, including
limitations on further borrowings and dividend payments. Further, the Company is
obligated to remain in compliance with certain financial ratios during the term
of the agreement. As of December 31, 1997, the Company was in compliance with
the covenants and ratios required under the line of credit.

         The Company intends to borrow additional funds from the credit facility
to fund its future growth. There can be no assurances that the Company will be
in a position to borrow funds under its credit line at such time as they are
required. The credit facility will mature on July 26, 1998, and while the
Company expects that it will be able to renew the facility, there can be no
assurance that the credit facility will be renewed or even if renewed that it
can be renewed on its current terms.

         During the fiscal year 1997, accounts receivable due to the Company
from non U.S. customers increased significantly. In addition, a significant
amount of inventories were placed in Europe to support the growth of the
Company's sales in that area. The Company expects this trend to continue. Since
the Company's current line of credit allows borrowings based only upon accounts
receivable from U.S. customers and on inventories held in the U.S., the Company
believes that some time within the next year the Company's ability to borrow
under its current facility may become constrained. To facilitate the Company's
expected international growth, the Company is currently negotiating with various
financial institutions, including its current lending institution, to develop a
new facility that will allow the Company to borrow additional funds based upon
its foreign held assets. There can be no assurance that the Company will be
successful in obtaining such funds or, if obtained, that they can be obtained on
terms favorable to the Company.

         In order to reimburse Messrs. Stein and Briskin for the loss of tax
benefits associated with the previously taxed profits of the Company, the
Company on February 13, 1997 executed two seven year Convertible Subordinated
Promissory Notes (the "Principal Shareholders' Notes") each in the amount of
$869,562.00 in favor of Messrs. Stein and Briskin. The Principal Shareholders'
Notes bear interest at a rate of one percent over the floating prime rate
charged by Citibank, N.A. The

                                       20

<PAGE>

holders of the notes have the right to convert the principal amount of the notes
at any time prior to maturity into shares of the Company's Common Stock based
upon a conversion rate of $4.00 per share. In the event that the holders of the
Principal Shareholders' Notes exercise the conversion rights, the shares of
Common Stock issued upon conversion will be afforded one-time demand
registration rights and certain piggyback registration rights.

         The Company had entered into a loan agreement with US Advantage (the
sole shareholders of which are Messrs. Stein and Briskin) in the principal
amount of $120,000. As of December 31, 1996, $120,000 remained outstanding under
the loan, with $15,007 in accrued interest. On August 15, 1997, the Company paid
the principal due under this loan.

         The Company expects that its cash flow from operations, along with its
currently available line of credit, will be sufficient to meet its current
financing requirements for its current level of operations over the next twelve
months. This is a projection, however, and no assurance can be given that the
Company's cash flow from operations and from its available line of credit will
be sufficient to meet the Company's cash requirements over the next twelve
months. For example, if the Company were to make a significant acquisition
during the next twelve months, it might require additional working capital in
order to complete such acquisition and/or to finance the operations of the
acquired business, depending upon the particular circumstances of the
acquisition and the Company's capital resources at that time.

         The Company's management does not believe that inflation has had a
significant effect on the Company's operations during the last several years.
The Company's management believes the Company has historically been able to pass
on increased costs of production to the price charged for its products.

         The Company does not expect that the costs of converting its computer
systems to be compliant with the year 2000 requirements will be material to its
financial condition or results of operations, nor does it anticipate any
material disruption in its operations with respect thereto.


                                       21

<PAGE>

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.

                                       22

<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 1998, 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 1998, 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 1998, 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 1998, 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

                                       23

<PAGE>

                  10.2     Promissory Note between the Company and U.S.
                           Advantage, dated July 15, 1996 2

                  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 July 26, 1997 3

                  10.13    Master Purchase Agreement between the Company and
                           Focus Enhancements, Inc., dated September 29, 1997 4

                  10.14    Asset Purchase Agreement between the Company and
                           Focus Enhancements, Inc., dated September 30, 1997 4

                  10.15    Share Exchange Agreement between the Company,
                           Dataholding AS, and selling shareholders of
                           Dataholding AS, dated November 12, 1997 5

                  21.1     List of Subsidiaries*

                  27.1     Financial Data Schedule*

                  27.2     Restated 1996 Fiscal Year End Financial Data
                           Schedule/dagger/

-----------------

         *        Filed herewith.

         /dagger/ Restated to reflect the pooling of interests transaction with
                  Dataholding which occurred in 1997.

         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.

                                       24

<PAGE>

         (b)      REPORTS ON FORM 8-K

         The Company filed no Current Reports on Form 8-K during the fourth
quarter of the Company's fiscal year ended December 31, 1997. The Company filed
a Current Report on Form 8-K on January 26, 1998 amending Item 5 of the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997 with respect to financial statements required to be filed in connection
with the Company's acquisition of Dataholding.

                                       25

<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, 1998                                       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, 1998
-----------------------------------
Slav Stein                                            Officer and Director

                                                      Executive Vice President,                  April 13, 1998
/S/ ROMAN BRISKIN                                     Secretary and Director
-----------------------------------
Roman Briskin

/S/ RANDALL N. PAULFUS                                Vice President, Chief Financial            April 13, 1998
-----------------------------------
Randall N. Paulfus                                    Officer and Treasurer

/S/ TERRENCE R. DAIDONE                               Director                                   April 12, 1998
-----------------------------------
Terrence R. Daidone

/S/ WILLIAM B. COLDRICK                               Director                                   April 13, 1998
-----------------------------------
William B. Coldrick

                                                      Director                                   April __, 1998
-----------------------------------
L. Phillips Reames

</TABLE>

                                       26

<PAGE>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                                                        CONTENTS

                                                                        PAGE

           Reports of Independent Certified Public Accountants           F-2

           Consolidated Balance Sheet at December 31, 1997               F-4

           Consolidated Statements of Income for the Years Ended
             December 31, 1997 and 1996                                  F-5

           Consolidated Statements of Shareholders' Equity for the Years
             Ended December 31, 1997 and 1996                            F-6

           Consolidated Statements of Cash Flows for the Years
             Ended December 31, 1997 and 1996                            F-7

           Summary of Significant Accounting Policies                    F-8

           Notes to Consolidated Financial Statements                    F-13


                                       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, 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years 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 did not audit the
1996 financial statements of Dataholding AS, a foreign subsidiary, which
statements reflect total revenues of $4,605,002 for the year ended December 31,
1996. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for such subsidiary, is based solely on the report of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and report of other auditors, 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, 1997, and the results of
their operations and their cash flows for each of the two years then ended in
conformity with generally accepted accounting principles.

As discussed in note 3 to the consolidated financial statements, the Company
changed its method of valuing inventory in 1997.


                                                          /S/ BDO SEIDMAN, LLP
                                                          ----------------------
Miami, Florida                                            BDO SEIDMAN, LLP
March 20, 1998                                           

                                       F-2

<PAGE>

                                 Translation from the original Norwegian version

To the Annual Shareholders' Meeting of Dataholding AS

Auditor's Report For 1996

We have audited the annual report and accounts of Dataholding AS for 1996 which
shows a profit for the year of NOK 2.014.492 for the parent company and a
consolidated profit for the year of NOK 2.014.537. The annual report and
accounts, which comprise the Board of Directors' report, profit and loss
account, balance sheet, statement of cash flow and notes to the accounts and
consolidated accounts, are presented by the company's Board of Directors and its
managing director.

Our responsibility is to examine the company's annual report and accounts, its
accounting records and other related matters.

We have conducted our audit in accordance with relevant laws, regulations and
Norwegian and United States generally accepted auditing standards. We have
performed those audit procedures which we have considered necessary to confirm
that the annual report and accounts are free of material misstatements. We have
examined, on a test basis, the evidence supporting the accounts and assessed the
accounting principles applied, the estimates made by management, and the content
and presentation of the annual report and accounts. To the extent required by
Norwegian generally accepted auditing standards we have reviewed the company's
internal control and the management of its financial affairs.

The Board of Directors' proposal for the application of the profit and equity
transfers for the year is in accordance with the requirements of the Norwegian
Joint-Stock Companies Act.

In our opinion, the annual report and accounts have been prepared in accordance
with the requirements of the Norwegian Joint-Stock Companies Act and present
fairly the financial position of the company and of the group as of December 31,
1996 and the result of its operations for the financial year, in accordance with
Norwegian and United States generally accepted accounting principles.



Oslo, April 10,1997
DELOITTE & TOUCHE

Jacob Berger (sign)
State Authorized Public Accountant (Norway)

                                       F-3

<PAGE>

<TABLE>
<CAPTION>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET


                                                                                                     DECEMBER 31,
                                                                                                             1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>              
ASSETS (NOTE 5)

CURRENT ASSETS
  Cash                                                                                          $         424,036
  Accounts receivable, net of $132,000 allowance for doubtful accounts                                  5,037,267
  Inventories (Note 3)                                                                                  5,765,156
  Deferred tax asset (Note 13)                                                                            131,411
  Prepaid expenses and other current assets                                                               249,814
-------------------------------------------------------------------------------------------------------------------

Total current assets                                                                                   11,607,684
Property and equipment, net (Note 4)                                                                      427,360
Intangible assets                                                                                         761,203
Deferred tax asset (Note 13)                                                                              139,586
Other assets                                                                                               69,365
-------------------------------------------------------------------------------------------------------------------
                                                                                                $      13,005,198
===================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Current portion long-term debt (Note 5)                                                       $         227,078
  Accounts payable and accrued expenses                                                                 3,042,476
  Income taxes                                                                                            235,525
  Deferred tax liability (Note 13)                                                                          9,407
-------------------------------------------------------------------------------------------------------------------
                                                                                                        3,514,486
Convertible promissory notes (Note 6)                                                                   1,439,125
Deferred tax liability (Note 13)                                                                           64,581
Long-term debt (Note 5)                                                                                     3,015
-------------------------------------------------------------------------------------------------------------------
                                                                                                        5,021,207
-------------------------------------------------------------------------------------------------------------------
Commitments (Notes 1, 11 and 12)
-------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTES 1, 14 AND 15):
  Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued
  Common stock, $ .001 par value; 20,000,000 shares authorized;
    2,282,201 shares issued and outstanding                                                                 2,283
  Additional paid-in capital                                                                            6,843,374
  Retained earnings                                                                                     1,235,413
  Cumulative foreign currency translation adjustment                                                      (97,079)
-------------------------------------------------------------------------------------------------------------------
                                                                                                        7,983,991
-------------------------------------------------------------------------------------------------------------------
                                                                                               $       13,005,198
===================================================================================================================

</TABLE>

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

                                       F-4

<PAGE>

<TABLE>
<CAPTION>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                               CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31,                                                             1997                1996
---------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>             
NET SALES (Notes 7, 8 and 9)                                             $     21,185,911    $     18,312,644

OPERATING EXPENSES:
 Cost of sales                                                                 12,068,751          10,668,171
 Selling, general and administrative (Notes 11, 12 and 16)                      8,005,202           6,077,042
---------------------------------------------------------------------------------------------------------------
Total operating expenses                                                       20,073,953          16,745,213
---------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS                                                          1,111,958           1,567,431

OTHER INCOME (EXPENSES):
  Interest                                                                       (151,713)           (139,855)
  Other                                                                           (50,725)            206,467
---------------------------------------------------------------------------------------------------------------

Income before income taxes                                                        909,520           1,634,043

Provision for income taxes (Note 13)                                              260,337             139,970
---------------------------------------------------------------------------------------------------------------

NET INCOME                                                               $        649,183    $      1,494,073
===============================================================================================================

PRO FORMA AMOUNTS:
Income before income taxes                                                        909,520           1,634,043
Provision for income taxes (Note 13)                                              271,377             514,970
---------------------------------------------------------------------------------------------------------------

PRO FORMA NET INCOME                                                              638,143           1,119,073
===============================================================================================================

Earnings per common share                                                $            .32    $           1.27
Earnings per common share - assuming dilution                                         .30                1.27
Pro forma earnings per common share                                                   .32                 .95
Pro forma earnings per common share - assuming dilution                               .30                 .95
===============================================================================================================

</TABLE>

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

                                       F-5

<PAGE>

<TABLE>
<CAPTION>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                                         CUMULATIVE
                                                                                                            FOREIGN           TOTAL
                                                                          ADDITIONAL                       CURRENCY          SHARE-
                                                               COMMON        PAID-IN       RETAINED     TRANSLATION        HOLDERS'
                                                                STOCK        CAPITAL       EARNINGS      ADJUSTMENT          EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>             <C>             <C> 
Balance at December 31, 1995, as
previously reported                                       $       813    $    45,901    $ 3,345,549     $    13,108     $ 3,405,371

Adjustment for cumulative effect on prior
years of applying retroactively the new
method of accounting for inventory                               --             --          (69,000)           --           (69,000)

Adjustment for pooling of interest                                360        381,912        406,587            --           788,859
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1995, as restated                       1,173        427,813      3,683,136          13,108       4,125,230

Distributions                                                    --             --         (758,738)           --          (758,738)

Net income                                                       --             --        1,494,073            --         1,494,073

Cumulative foreign currency translation
adjustment                                                       --             --             --           (17,999)        (17,999)
-----------------------------------------------------------------------------------------------------------------------------------

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

Cumulative foreign currency translation
 adjustment                                                      --             --             --           (92,188)        (92,188)
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997                              $     2,283    $ 6,843,374    $ 1,235,413     $   (97,079)    $ 7,983,991
===================================================================================================================================
</TABLE>

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

                                       F-6

<PAGE>
<TABLE>
<CAPTION>

                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,                                                             1997                    1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                     <C>             
OPERATING ACTIVITIES:
  Net income                                                             $        649,183        $      1,494,073
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
     Provision for losses on accounts receivable                                  144,434                  27,802
     Depreciation and amortization                                                152,094                 155,290
     Amortization of goodwill                                                      27,526                       -
     Options granted in lieu of consulting fees                                   200,000                       -
     Deferred income taxes                                                       (193,723)                 (3,286)
     (Increase) decrease in:
      Accounts receivable                                                      (1,687,967)                107,166
      Inventories                                                                (457,395)             (1,471,705)
      Prepaid expenses and other current assets                                   (27,394)                (48,991)
      Other assets                                                                212,824                (282,189)
     Increase (decrease) in:
      Accounts payable and accrued expenses                                      (657,980)                772,157
      Income taxes payable                                                         65,219                 (29,702)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                            (1,573,179)                720,615
------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
  Acquisition of net assets                                                       (88,729)                      -
  Reduction in investments                                                        102,072                       -
  Additions to property and equipment                                            (169,069)                (51,703)
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                            (155,726)                (51,703)
------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
  Net proceeds from (payments on) borrowings                                   (1,648,750)                407,353
  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)                      -
  Shareholders' distributions                                                    (951,341)               (758,738)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                             1,616,994                (351,385)
------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH                                                  (111,911)                317,527
Effect of exchange rate changes on cash                                           (92,188)                (17,999)
CASH, AT BEGINNING OF YEAR                                                        628,135                 328,607
------------------------------------------------------------------------------------------------------------------
Cash, at end of year                                                     $        424,036        $        628,135
==================================================================================================================
SUPPLEMENTAL INFORMATION:
   Cash paid for:
     Interest                                                            $         70,688        $        164,193
     Taxes                                                                        330,361                  71,340
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        $              -
Options granted in lieu of consulting fees                               $        200,000        $              -
==================================================================================================================
</TABLE>

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

                                       F-7


<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

As the subsidiaries, Advanced Electronic Support Products Computertillbehor i
Sweden AB ("AESP Sweden"), AESP Computerzubehor GmbH ("AESP Germany," and
Jotec/AESP AS ("Jotec/AESP"), formerly known as Dataholding AS, are based and
operating in Sweden, Germany and Norway, respectively, the functional and
reporting currency for statutory purposes is the Swedish Krona, German Mark and
Norway Krone, 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 ($67,000) and
($11,000) for the years ended December 31, 1997 and 1996, 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.

                                      F-8

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

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 are amortized over
the shorter of the life of the asset or the lease.


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 the
Company's initial public offering.

The pro forma provisions for income taxes and net income assume that the Company
was subject to income tax.

AESP Germany, AESP Sweden and Jotec/AESP are subject to taxation in Germany,
Sweden and Norway, 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-9

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

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

EARNINGS PER SHARE

Effective December 31, 1997, the Company adopted Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," which simplifies the computation of
earnings per share requiring the restatement of all prior periods.

Pro forma basic earnings per share are computed on the basis of the weighted
average number of common shares outstanding during each year.

Pro forma 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.


FUTURE ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial

                                      F-10

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

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

statement that is displayed with the same prominence as other financial
statements.

Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the pubic. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.

These new standards are effective for financial statements for periods beginning
after December 15, 1997 and require comparative financial information for
earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.


RESTRICTED CASH

Included in the cash balance as of December 31, 1997, is approximately $54,000
in restricted cash related to withheld payroll tax in Norway.


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

                                      F-11

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

                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


In an event in which 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 1996 amounts have been reclassified to conform with the 1997
presentation.


                                      F-12
<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 tax
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 interests 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

                                      F-13

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

period of two years, for an aggregate fee of $47,000.

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 each of 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.

In addition to the foregoing distribution, 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.

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.

                                      F-14

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.      ACQUISITION 

In November 1997, the Company completed a merger with Jotec/AESP by exchanging
360,000 shares of its common stock for 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 the 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 the 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              1996
-------------------------------------------------------------------------------

Net Sales
    The Company                             $    16,324,304    $   13,707,642
    Jotec/AESP                                    4,861,607         4,605,002
-------------------------------------------------------------------------------
    Combined                                     21,185,911        18,312,644
-------------------------------------------------------------------------------

Net Income
    The Company                                     290,516         1,067,214
    Jotec/AESP                                      358,667           426,859
-------------------------------------------------------------------------------
Combined                                    $       649,183    $    1,494,073
===============================================================================

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, 

                                      F-15

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1997, prior to the combination being consummated, is presented as follows:

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.

Included in distributions for the year ended December 31, 1996 are dividends in
the amount of $77,610 related to Jotec/AESP.

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 product
warranty liabilities. Additionally, the Company incurred approximately $71,000
in professional fees in conjunction with the acquisition. The assets acquired
consisted of inventory, supplier

                                      F-16

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 1997, the Company recorded approximately $27,500 in
amortization.


3. ACCOUNTING CHANGE 

Effective January 1, 1997, the Company changed its inventory costing method for
U.S. inventories from LIFO to FIFO. There has been a steady decline in prices
associated with the Company's inventory. As a result, the Company believes that
the FIFO method is preferable as it will provide a more appropriate valuation of
inventory. This change in accounting principle had no material impact on
quarterly results and as a result, quarterly information is not restated.

The effect of the change in accounting principle was to increase net income by
approximately $62,000 or $.03 pro forma earnings per common share. The change
has been applied to prior years by retroactively restating the financial
statements. The effect of this restatement was to decrease retained earnings as
of January 1, 1996 by $69,000. The restatement decreased 1996 net income by
$31,000, or $.03 pro forma earnings per common share.


4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER 31,                                                             1997
-------------------------------------------------------------------------------
Leasehold improvements                                      $         265,912
Office equipment                                                      307,870
Machinery and equipment                                               104,886
Furniture and fixtures                                                248,804
Vehicles                                                               77,389
-------------------------------------------------------------------------------
                                                                    1,004,861
Less:  accumulated depreciation and amortization                      577,501
-------------------------------------------------------------------------------
                                                            $         427,360
===============================================================================

                                      F-17

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.      NOTES PAYABLE

Notes payable at December 31, 1997 consist of the following:


Prime + .25% (8.75% at December 31, 1997) line of 
credit with a financial institution in the amount 
of $4,500,000, due July 26, 1998, secured by all
assets.                                                     $         214,000

Other                                                                  16,093
-------------------------------------------------------------------------------
                                                                      230,093
Less current portion                                                 (227,078)
-------------------------------------------------------------------------------
                                                            $           3,015
===============================================================================


The line of credit agreement requires the Company to comply with certain
covenants.

6.      CONVERTIBLE PROMISSORY NOTES PAYABLE

Prime + 1% (9.50% at December 31, 1997) convertible subordinated notes payable
to the two principal shareholders (see Note 1) amounting to $1,439,125 due
February 13, 2004. These notes are convertible, at any time prior to maturity,
into shares of the Company's common stock based upon a conversion rate of $4 per
share.


7.      FOREIGN OPERATIONS
<TABLE>
<CAPTION>

                                                                    SWEDEN
                                            UNITED                     AND
                                            STATES      NORWAY     GERMANY   ELIMINATION         TOTAL
------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>           <C>        
Year ended December 31, 1997:

   Sales to unaffiliated customers     $13,397,100  $ 4,861,607  $2,927,204   $         -   $21,185,911

   Transfers between geographic areas    1,574,976            -           -    (1,574,976)            -
------------------------------------------------------------------------------------------------------
   Total                               $14,972,076  $ 4,861,607  $2,927,204   $(1,574,976)  $21,185,911
------------------------------------------------------------------------------------------------------
   Operating Income                    $   518,586  $   497,655  $  214,120   $  (118,403)  $ 1,111,958
------------------------------------------------------------------------------------------------------
   Income before income taxes          $   351,988  $   502,013  $  174,322   $  (118,403)  $   909,520
------------------------------------------------------------------------------------------------------
   Identifiable assets                 $10,991,802  $ 1,435,353  $1,306,167   $  (728,574)  $13,005,198
======================================================================================================

</TABLE>



                                      F-18

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                   SWEDEN
                                           UNITED                     AND
                                           STATES      NORWAY     GERMANY   ELIMINATION          TOTAL
------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>         <C>          <C>            <C>       
Year ended December 31, 1996:

   Sales to unaffiliated customers    $10,976,154  $4,605,002  $2,731,488   $         -    $18,312,644

   Transfers between geographic areas   1,133,743           -            -   (1,133,743)             -
------------------------------------------------------------------------------------------------------
   Total                              $12,109,897  $4,605,002  $2,731,488   $(1,133,743)   $18,312,644
------------------------------------------------------------------------------------------------------

   Operating Income                   $ 1,071,102  $  452,370  $    5,017   $    38,942    $ 1,567,431
------------------------------------------------------------------------------------------------------
   Income before income taxes         $ 1,023,140  $   13,196  $  558,765   $    38,942    $ 1,634,043
------------------------------------------------------------------------------------------------------
   Identifiable assets                $ 7,736,207  $2,086,803  $1,116,491   $  (486,978)   $10,452,523
======================================================================================================

</TABLE>

Transfers between geographic areas are made at prices which approximate prices
charged to unaffiliated customers and have been eliminated from consolidated
revenues.

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, 1997 and 1996 approximated 59.9% and 53.0% of consolidated
revenues, respectively.


8.      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.

Jotec/AESP paid $25,918 and $89,246 to a company partially owned by its former
chairman and managing director for consulting services during 1997 and 1996,
respectively.

                                      F-19

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.      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. For the year ended December 31,
1996, one customer (not the same customer as in 1997) accounted for 12.4% of
consolidated revenues, at December 31, 1996, accounts receivable from this
customer amounted to approximately $185,000.


10.     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.


11.     COMMITMENTS          

The Company rents office space and warehouse under non-cancelable leases. The
minimum future rental commitment for leases in effect at December 31, 1997,
including leases to related parties, approximates the following:


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

1998                                                        $         183,000
1999                                                                  156,000
2000                                                                  132,000
2001                                                                  125,000
2002                                                                  124,000
Thereafter                                                                  -
-------------------------------------------------------------------------------
                                                            $         720,000
===============================================================================

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, 1997 approximates $230,000.

Rent expense in 1997 and 1996 aggregated approximately $373,000 and $367,000,
respectively, including $43,200 in each year to related parties.

                                      F-20

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 1997 and 1996, approximately $9,100 and $12,000,
respectively, of royalties were paid.

12.     DEFERRED COMPENSATION PLAN

In 1996, the Company adopted 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, 1997 and 1996
aggregated $27,883 and $35,829, respectively.

13.     INCOME TAXES  

The following are the components of pro forma income tax expense:


YEAR ENDED DECEMBER 31,                               1997               1996
-------------------------------------------------------------------------------

Current
    Federal                               $        227,253   $        325,315
    State                                           38,189             55,309
    Foreign                                        173,047            161,470
-------------------------------------------------------------------------------
                                                   438,489            542,094
-------------------------------------------------------------------------------

Deferred
    Federal                               $       (182,454)  $         (5,315)
    State                                          (29,220)              (309)
    Foreign                                         44,562            (21,500)
-------------------------------------------------------------------------------
                                                  (167,112)           (27,124)
-------------------------------------------------------------------------------

Total                                     $        271,377   $        514,970
===============================================================================


The pro forma provision for income taxes represents the estimated income taxes
that would have been reported had AESP not been an S Corporation and had been
subject to federal and state income

                                      F-21

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

taxes for the entire period.

Additionally, 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 pro forma and foreign income tax computed at the United
States federal statutory tax rate of 34% to income tax expense is as follows:

YEAR ENDED DECEMBER 31,                               1997               1996
-------------------------------------------------------------------------------

Tax at the United States statutory rate   $        309,236   $        555,575

State income taxes, net of federal
benefit                                             20,023             34,666

Differences in effective income tax 
of Norway                                          (30,120)           (33,525)

Permanent differences, net                         (12,339)           (29,803)

Differences in effective income tax
of other countries and  other items                (15,423)           (11,943)
                                                   
-------------------------------------------------------------------------------

Total                                     $        271,377   $        514,970
===============================================================================


The provision for foreign income taxes relates to the Norway, Sweden and Germany
operations. The statutory tax rates in Norway, Sweden and Germany for 1997 and
1996 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 pro forma deferred assets and liabilities at December 31, 1997 are
as follows:

                                      F-22

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Tax Assets:
    Allowance for doubtful accounts                         $          34,290
    Inventory reserve                                                  33,867
    Bonuses                                                            35,532
    Other                                                              27,722
-------------------------------------------------------------------------------
                                                                      131,411
-------------------------------------------------------------------------------

    Depreciation                                                       34,153
    Compensation related to options granted
         for compensation                                              85,000
    Other                                                              20,433
-------------------------------------------------------------------------------

                                                                      139,586
-------------------------------------------------------------------------------

Deferred Tax Liabilities:
    Effect of change in accounting principle                            9,407
-------------------------------------------------------------------------------
                                                                        9,407
-------------------------------------------------------------------------------

    Effect of change in accounting principle                           28,223
    Untaxed Sweden reserve                                             36,358
-------------------------------------------------------------------------------

                                                                       64,581
-------------------------------------------------------------------------------

Total net deferred tax asset                                $         197,009
===============================================================================

                                      F-23

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.     EARNINGS PER SHARE  

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                         1997                                       1996
--------------------------------------------------------------------------------------------------------------------------

                                            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
    Pro forma net income available to
    common shareholders                 $  649,183       2,015,712     $  .32   $ 1,494,073       1,172,500      $  1.27

Effect of Dilutive Securities:
    8 1/2% convertible notes                64,080         359,781                        -               -            -
--------------------------------------------------------------------------------------------------------------------------

Net income available to common
  shareholders plus assumed
  conversions                           $  713,263       2,375,493     $  .30   $ 1,494,073       1,172,500      $  1.27
--------------------------------------------------------------------------------------------------------------------------


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

FOR THE YEARS ENDED DECEMBER 31,                                         1997                                       1996
--------------------------------------------------------------------------------------------------------------------------

                                            INCOME          SHARES  PER-SHARE        INCOME          SHARES    PER-SHARE
                                       (NUMERATOR)   (DENOMINATOR)     AMOUNT   (NUMERATOR)   (DENOMINATOR)       AMOUNT
--------------------------------------------------------------------------------------------------------------------------

Pro forma earnings per common share
    Pro forma net income available to
    common shareholders                 $  638,143       2,015,712     $  .32   $ 1,119,073       1,172,500       $  .95

Effect of Dilutive Securities:
    8 1/2% convertible notes                64,080         359,781                        -               -            -
--------------------------------------------------------------------------------------------------------------------------

Pro forma net income available to
  common shareholders plus
  assumed conversions                   $  702,223       2,375,493     $  .30   $ 1,119,073       1,172,500       $  .95
--------------------------------------------------------------------------------------------------------------------------

</TABLE>

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

Options to purchase 200,000 shares of common stock at $6.00 per share were
outstanding during 1997 and 1996, but were not

                                      F-24

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 1997, 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.

15.     STOCK OPTIONS 

At December 31, 1997, 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.

The Company has adopted the 1996 Stock Option Plan (the "Plan"). Pursuant to the
Plan, options to acquire a maximum of 265,000 shares of Common Stock may be
granted to directors, executive officers, employees (including employees who are
directors), independent contractors and consultants of the Company. Options to
purchase 3,000 shares were granted in 1996 under the Plan.

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 1996, 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, a charge in that amount has been charged



                                      F-25

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

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


to consulting fees with a corresponding credit to additional paid in capital.

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.

The fair value of the foregoing options to consultants 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% 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

                                      F-26
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 1997, the Company granted a total of 36,000 options to directors. The options
vest over three years and are 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 are exercisable at $3.50 per share. Further, during 1997, the two
principal shareholders received 360,500 contingent options (See Note 1). In
1996, ten year non-plan options to purchase an aggregate of 200,000 shares at
$6.00 were granted to two officers of the Company.

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 1997: no dividend yield percent;
expected volatility of 46.5%; risk-free interest rates of approximately 6.9%,
and expected lives from 5 to 9 years for the non-plan options. The following
assumptions are used for grants in 1996: no dividend yield percent; expected
volatility of 0.1%; risk-free interest rates of 6% and

                                      F-27
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


expected lives of 10 years for the non-plan options.

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

YEAR ENDED DECEMBER 31,                               1997           1996
-------------------------------------------------------------------------

Pro forma net income
  As reported                                     $638,143     $1,119,073
  Pro forma                                        574,891        809,073
-------------------------------------------------------------------------

Pro forma net income per common share
  As reported                                     $    .32     $      .95
  Pro forma                                            .29            .69
-------------------------------------------------------------------------

Pro forma net income per common share-diluted:
  As reported                                     $    .30     $      .95
  Pro forma                                            .27            .69
-------------------------------------------------------------------------

A summary of the status of the Company's fixed stock option plan and non-plan
options as of December 31, 1997 and 1996, and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
                                            DECEMBER 31, 1997        DECEMBER 31, 1996
                                            ------------------       -----------------
                                                     WEIGHTED-              WEIGHTED-
                                                       AVERAGE                AVERAGE
                                                      EXERCISE               EXERCISE
                                            SHARES       PRICE       SHARES     PRICE
-------------------------------------------------------------------------------------
<S>                                        <C>           <C>        <C>         <C>       
Outstanding at beginning of year           200,000       $6.00            -     $   -
Granted                                    649,700        5.23      200,000      6.00
Exercised                                        -           -            -         -
Forfeited                                        -           -            -         -
-------------------------------------------------------------------------------------

Outstanding at end of year                 849,700        5.41      200,000      6.00
-------------------------------------------------------------------------------------

Options exercisable at year-end            358,400        5.32      200,000      6.00
Weighted-average fair value of options
  granted during the year                 $   3.14                 $   1.55
=====================================================================================
</TABLE>




                                      F-28
<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, 1997:

                             WEIGHTED-
                 NUMBER        AVERAGE    WEIGHTED-         NUMBER    WEIGHTED-
RANGE OF    OUTSTANDING      REMAINING      AVERAGE    EXERCISABLE      AVERAGE
EXERCISE             AT    CONTRACTUAL     EXERCISE             AT     EXERCISE
   PRICE       12/31/97           LIFE        PRICE       12/31/97        PRICE
--------------------------------------------------------------------------------

$3.50-6.00     849,700          7.82        $5.41          358,400        $5.32


16. PROPOSED MERGER

Included in selling, general and administrative expenses for the year ended
December 31, 1996, are approximately $125,000 of costs and expenses in
connection with a proposed merger which was unsuccessful.

                                      F-29
<PAGE>



                                 EXHIBIT INDEX

      EXHIBIT                           DESCRIPTION
      -------                           -----------

         21       List of Subsidiaries

         27.1     Financial Data Schedule

         27.2     Restated 1996 Fiscal Year End Financial Data Schedule