##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

|  |  |                                                                                   
|- |  | ----------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
| 
|  |  | For the quarterly period ended September 30, 2002                                 
| 
|  |  | OR                                                                                
| 
|o |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File No. 001-12739

AESP, INC.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|FLORIDA                                                        |  | 59-2327381                       
|                                                               |  |                                  
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)

|                                            |  |           
|------------------------------------------- |  | ----------
|1810 N.E. 144TH STREET
NORTH MIAMI, FLORIDA |  | Z33181    
|                                            |  |           
|(Address of Principal Executive Offices)    |  | (Zip Code)

Registrants Telephone Number, Including Area Code: (305) 944-7710

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes   x   No   o

Indicate
by check mark whether the registrant is on accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes   o   No   x

The number of shares of the registrants Common Stock outstanding as of
November 11, 2002 is 4,796,721 shares.





---

TABLE OF CONTENTS



|                                                         |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial Information                           
|                                                         | Item 1. FINANCIAL STATEMENTS                                                                 
|CONDENSED CONSOLIDATED BALANCE SHEETS                   
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS         
|CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS         
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    
|                                                         | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                         | Item 3. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK                               
|                                                         | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                              
|                                                         | Item 1. LEGAL PROCEEDINGS                                                                    
|                                                         | Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                                         | Item 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                                                         | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                                
|                                                         | Item 5. OTHER INFORMATION                                                                    
|                                                         | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|Extension Letter Agreement                              
|CERTIFICATION OF CEO                                    
|CERTIFICATION OF CFO                                    



---



##### Table of Contents



AESP, Inc. and Subsidiaries

INDEX

|                              |  |                                                                                                                                    |  |  |      |   
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | --
|                              |  |                                                                                                                                    |  |  | Page |   
|                              |  |                                                                                                                                    |  |  |      |   
|Part I. Financial Information |  |                                                                                                                                    |  | 
|                             
|Item 1.                       |  | FINANCIAL STATEMENTS                                                                                                               |  |  |      |   
|                             
|                              |  | Condensed Consolidated Balance Sheets at December 31, 2001 and
September 30, 2002 (unaudited)                                      |  |  |      | 3 
|                             
|                              |  | Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 2002 and 2001 (unaudited) |  |  |      | 4 
|                             
|                              |  | Condensed Consolidated Statement of Shareholders Equity for the
nine months ended September 30, 2002 (unaudited)                  |  |  |      | 5 
|                             
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 (unaudited)                  |  |  |      | 6 
|                             
|                              |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  |  |      | 7 
|                             
|Item 2.                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                              |  |  |      | 14
|                             
|Item 3.                       |  | QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT
MARKET RISK                                                                           |  |  |      | 21
|                             
|Item 4.                       |  | CONTROLS AND PROCEDURES                                                                                                            |  |  |      | 22
|                             
|                             
|Part II. Other Information    |  |                                                                                                                                    |  | 
|                             
|Item 1.                       |  | LEGAL PROCEEDINGS                                                                                                                  |  |  |      | 23
|                             
|Item 2.                       |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                                          |  |  |      | 23
|                             
|Item 3.                       |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                    |  |  |      | 23
|                             
|Item 4.                       |  | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                                                                  |  |  |      | 23
|                             
|Item 5.                       |  | OTHER INFORMATION                                                                                                                  |  |  |      | 23
|                             
|Item 6.                       |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                   |  |  |      | 23

2



---



##### Table of Contents






Part I. Financial Information




Item 1. FINANCIAL STATEMENTS

AESP, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |        |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | -
|                                                             |                                                                                                                                                   |   | September 30, 2002 |        | December 31, 2001
|                                                             |                                                                                                                                                   |   |                    |        |                  
|                                                             |                                                                                                                                                   |   | (unaudited)        |        |                   |   |       
|Current Assets                                               |                                                                                                                                                   |   |                    |        |                   |   |        |       
|                                                             | Cash                                                                                                                                              |   | $                  | 664    |                   |   | $      | 1,288  |  
|                                                             | Accounts receivable, net of allowance
for doubtful accounts of $331 at
September 30, 2002 and $233 at December
31, 2001                           |   |                    | 3,873  |                   |   |        | 4,094  |  
|                                                             | Inventories                                                                                                                                       |   |                    | 5,492  |                   |   |        | 5,930  |  
|                                                             | Income tax receivable                                                                                                                             |   |                    | 135    |                   |   |        | 148    |  
|                                                             | Due from employees                                                                                                                                |   |                    | 89     |                   |   |        | 31     |  
|                                                             | Prepaid expenses and other current assets                                                                                                         |   |                    | 369    |                   |   |        | 211    |  
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|Total current assets                                         |                                                                                                                                                   |   | 10,622             |        |                   |   | 11,702 |       
|Property and equipment, net                                  |                                                                                                                                                   |   | 572                |        |                   |   | 580    |       
|Goodwill, net                                                |                                                                                                                                                   |   | 640                |        |                   |   | 643    |       
|Deferred tax assets                                          |                                                                                                                                                   |   | 94                 |        |                   |   | 78     |       
|Assets of business transferred under
contractual arrangement |                                                                                                                                                   |   | 695                |        |                   |   | 732    |       
|Investment in marketable equity securities                   |                                                                                                                                                   |   | 171                |        |                   |   | 270    |       
|Other assets                                                 |                                                                                                                                                   |   | 120                |        |                   |   | 200    |       
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|TOTAL ASSETS                                                 |                                                                                                                                                   | $ | 12,914             |        |                   | $ | 14,205 |       
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|Liabilities and Shareholders Equity                         |                                                                                                                                                   |   |                    |        |                   |   |        |       
|Current Liabilities                                          |                                                                                                                                                   |   |                    |        |                   |   |        |       
|                                                             | Line of Credit                                                                                                                                    |   | $                  | 1,806  |                   |   | $      | 1,546  |  
|                                                             | Bank loan payable                                                                                                                                 |   |                    | 783    |                   |   |        | 456    |  
|                                                             | Accounts payable                                                                                                                                  |   |                    | 3,959  |                   |   |        | 5,163  |  
|                                                             | Accrued expenses                                                                                                                                  |   |                    | 597    |                   |   |        | 1,058  |  
|                                                             | Income taxes payable                                                                                                                              |   |                    | 104    |                   |   |        | 52     |  
|                                                             | Customer deposits and other                                                                                                                       |   |                    | 1,286  |                   |   |        | 449    |  
|                                                             | Due to shareholders                                                                                                                               |   |                    |       |                   |   |        | 152    |  
|                                                             | Other current liabilities                                                                                                                         |   |                    | 472    |                   |   |        | 270    |  
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|Total current liabilities                                    |                                                                                                                                                   |   | 9,007              |        |                   |   | 9,146  |       
|Long term liabilities                                        |                                                                                                                                                   |   | 9                  |        |                   |   | 30     |       
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|TOTAL LIABILITIES                                            |                                                                                                                                                   |   | 9,016              |        |                   |   | 9,176  |       
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|Shareholders Equity                                         |                                                                                                                                                   |   |                    |        |                   |   |        |       
|                                                             | Preferred stock, $.001 par value; 1,000
shares authorized; none issued                                                                            |   |                    |       |                   |   |        |       |  
|                                                             | Common stock, $.001 par value; 20,000
shares authorized; issued: 4,797 and
4,407 shares at September 30, 2002 and
December 31, 2001, respectively |   |                    | 5      |                   |   |        | 4      |  
|                                                             | Paid-in capital                                                                                                                                   |   |                    | 12,525 |                   |   |        | 12,198 |  
|                                                             | (Deficit)                                                                                                                                         |   |                    | (8,101 | )                 |   |        | (6,684 | )
|                                                             | Deferred Compensation                                                                                                                             |   |                    | (126   | )                 |   |        |       |  
|                                                             | Accumulated other comprehensive loss                                                                                                              |   |                    | (405   | )                 |   |        | (489   | )
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|TOTAL SHAREHOLDERS EQUITY                                   |                                                                                                                                                   |   | 3,898              |        |                   |   | 5,029  |       
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                   |                                                                                                                                                   | $ | 12,914             |        |                   | $ | 14,205 |       
|                                                             |                                                                                                                                                   |   |                    |        |                   |   |        |       

See accompanying notes to condensed consolidated financial statements.

3



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |        |  
|------------------------------------------- | -------------------------------------------- | - | ------------------ | ----- | ----------------- | - | ----- | ----- | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                            |                                              |   | Three months ended |       | Nine Months ended
|                                            |                                              |   | September 30,      |       | September 30,    
|                                            |                                              |   |                    |       |                  
|                                            |                                              |   | 2002               |       | 2001              |   | 2002  |       | 2001
|                                            |                                              |   |                    |       |                   |   |       |       |     
|Net sales                                   |                                              | $ | 6,888              |       |                   | $ | 6,406 |       |      | $ | 21,169 |        |   | $ | 21,128 |       
|Operating expenses                          |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|                                            | Cost of sales                                |   |                    | 5,000 |                   |   |       | 4,413 |      |   |        | 14,904 |   |   |        | 15,166 |  
|                                            | Selling, general and
administrative expenses |   |                    | 2,681 |                   |   |       | 2,739 |      |   |        | 7,717  |   |   |        | 7,748  |  
|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|Total operating expenses                    |                                              |   | 7,681              |       |                   |   | 7,152 |       |      |   | 22,621 |        |   |   | 22,914 |       
|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|Loss from operations                        |                                              |   | (793               | )     |                   |   | (746  | )     |      |   | (1,452 | )      |   |   | (1,786 | )     
|Other income (expense):                     |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|                                            | Interest, net                                |   |                    | (53   | )                 |   |       | (63   | )    |   |        | (151   | ) |   |        | (209   | )
|                                            | Other                                        |   |                    | 130   |                   |   |       | 40    |      |   |        | 250    |   |   |        | 66     |  
|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|Loss before income taxes                    |                                              |   | (716               | )     |                   |   | (769  | )     |      |   | (1,353 | )      |   |   | (1,929 | )     
|Provision for income taxes                  |                                              |   | (6                 | )     |                   |   | 18    |       |      |   | 64     |        |   |   | 10     |       
|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|Net loss                                    |                                              | $ | (710               | )     |                   | $ | (787  | )     |      | $ | (1,417 | )      |   | $ | (1,939 | )     
|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       
|Net loss per common share                   |                                              | $ | (0.15              | )     |                   | $ | (0.18 | )     |      | $ | (0.31  | )      |   | $ | (0.50  | )     
|Net loss per common share
assuming dilution |                                              | $ | (0.15              | )     |                   | $ | (0.18 | )     |      | $ | (0.31  | )      |   | $ | (0.50  | )     
|                                            |                                              |   |                    |       |                   |   |       |       |      |   |        |        |   |   |        |       

See accompanying notes to condensed consolidated financial statements.

4



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(UNAUDITED)
(IN THOUSANDS)


|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  |                   |      |                    |  |   |        |   |  |   |        |  
|------------------------------------------------------ |  | ------------ | - | --------------- |  | ------- | ------ | ------------ |  | ------------- | ------ | ------------- | - | -------- | ---- | ------------- |  | ----------------- | ---- | ------------------ |  | - | ------ | - |  | - | ------ | -
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  | Accumulated Other |      |                    |  |   |        |   |  |  
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   | Deferred |      | Comprehensive |  | Comprehensive     |      | Total
Shareholders
|                                                       |  | Common Stock |   | Paid-In Capital |  | Deficit |        | Compensation |  | Income (Loss) |        | Income (Loss) |   | Equity  
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |         
|Balance at January 1, 2002                             |  | $            | 4 |                 |  | $       | 12,198 |              |  | $             | (6,684 | )             |   |          |     |               |  | $                 | (489 | )                  |  |   |       |   |  | $ | 5,029  |  
|Net loss                                               |  |              |   |                 |  |         |        |              |  |               |        | (1,417        | ) |          |      |               |  |                   |      |                    |  |   | (1,417 | ) |  |   | (1,417 | )
|Conversion of debt                                     |  |              | 1 |                 |  |         | 151    |              |  |               |        |               |   |          |      |               |  |                   |      |                    |  |   |        |   |  |   | 152    |  
|Stock issued for services                              |  |              |  |                 |  |         | 176    |              |  |               |        |               |   |          | (126 | )             |  |                   |      |                    |  |   |        |   |  |   | 50     |  
|Investment in marketable
equity securities, net of
tax |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  |                   | (96  | )                  |  |   | (96    | ) |  |   | (96    | )
|Cumulative foreign
currency translation
adjustment     |  |              |  |                 |  |         |       |              |  |               |       |               |   |          |     |               |  |                   | 180  |                    |  |   | 180    |   |  |   | 180    |  
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  |                   |      |                    |  |   |        |   |  |   |        |  
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  |                   |      |                    |  | $ | (1,333 | ) |  |   |        |  
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  |                   |      |                    |  |   |        |   |  |   |        |  
|Balance at September 30,
2002                          |  | $            | 5 |                 |  | $       | 12,525 |              |  | $             | (8,101 | )             |   | $        | (126 | )             |  | $                 | (405 | )                  |  |   |        |   |  | $ | 3,898  |  
|                                                       |  |              |   |                 |  |         |        |              |  |               |        |               |   |          |      |               |  |                   |      |                    |  |   |        |   |  |   |        |  

See accompanying notes to condensed financial statements.

5



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(IN THOUSANDS)


|                                        |  |                                                                             |                                           |   |                                 |        |        |   |        |      |  
|--------------------------------------- |  | --------------------------------------------------------------------------- | ----------------------------------------- | - | ------------------------------- | ------ | ------ | - | ------ | ---- | -
|                                        |  |                                                                             |                                           |   | Nine months ended September 30,
|                                        |  |                                                                             |                                           |   |                                
|                                        |  |                                                                             |                                           |   | 2002                            |        | 2001  
|                                        |  |                                                                             |                                           |   |                                 |        |       
|Operating Activities:                   |  |                                                                             |                                           |   |                                 |        |        |  
|                                        |  | Net loss                                                                    |                                           | $ | (1,417                          | )      |        | $ | (1,939 | )   
|                                        |  | Adjustments to reconcile net loss to net cash used in
operating activities: |                                           |   |                                 |        |        |   |        |     
|                                        |  | Provision, net for losses on accounts receivable                            |                                           |   | 31                              |        |        |   | 138    |     
|                                        |  | Depreciation and amortization                                               |                                           |   | 211                             |        |        |   | 166    |     
|                                        |  | Amortization of goodwill                                                    |                                           |   |                                |        |        |   | 166    |     
|                                        |  | Provision for impairment of intangible assets                               |                                           |   |                                |        |        |   | 331    |     
|                                        |  | Provision for inventory obsolescence                                        |                                           |   | 157                             |        |        |   | 779    |     
|                                        |  | Stock for services                                                          |                                           |   | 50                              |        |        |   |       |     
|                                        |  | (Increase) decrease, net of acquired business, in:                          |                                           |   |                                 |        |        |   |        |     
|                                        |  |                                                                             | Accounts receivable                       |   |                                 | (73    | )      |   |        | (502 | )
|                                        |  |                                                                             | Inventories                               |   |                                 | 1,169  |        |   |        | 747  |  
|                                        |  |                                                                             | Income tax receivable                     |   |                                 | 37     |        |   |        | 23   |  
|                                        |  |                                                                             | Prepaid expenses and other current assets |   |                                 | (142   | )      |   |        | (28  | )
|                                        |  |                                                                             | Other assets                              |   |                                 | 118    |        |   |        |     |  
|                                        |  | Increase (decrease), net of acquired business, in:                          |                                           |   |                                 |        |        |   |        |     
|                                        |  |                                                                             | Accounts payable and accrued expenses     |   |                                 | (1,963 | )      |   |        | (548 | )
|                                        |  |                                                                             | Income taxes payables                     |   |                                 | 22     |        |   |        | (230 | )
|                                        |  |                                                                             | Customer deposits and other               |   |                                 | 655    |        |   |        | (6   | )
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Net cash (used in) operating activities |  |                                                                             | (1,145                                    | ) |                                 |        | (903   | )
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Investing Activities:                   |  |                                                                             |                                           |   |                                 |        |        |  
|                                        |  | Net cash used in acquisitions                                               |                                           |   |                                |        |        |   | (394   | )   
|                                        |  | Additions to property and equipment                                         |                                           |   | (212                            | )      |        |   | (189   | )   
|                                        |  | Collection (issuance) of loans due from employees                           |                                           |   | (2                              | )      |        |   | 5      |     
|                                        |  | Collection on note receivable from sale of Ukrainian subsidiary             |                                           |   | 18                              |        |        |   | 33     |     
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Net cash (used in) investing activities |  |                                                                             | (196                                      | ) |                                 |        | (545   | )
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Financing Activities:                   |  |                                                                             |                                           |   |                                 |        |        |  
|                                        |  | Net proceeds (payments) on borrowings                                       |                                           |   | 587                             |        |        |   | (813   | )   
|                                        |  | Proceeds from sale of stocks and warrants, net                              |                                           |   |                                |        |        |   | 956    |     
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|                                        |  | Net cash provided by financing activities                                   |                                           |   | 587                             |        |        |   | 143    |     
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Net decrease in cash                    |  |                                                                             | (754                                      | ) |                                 |        | (1,305 | )
|Effect of exchange rate changes on cash |  |                                                                             | 130                                       |   |                                 |        | (25    | )
|Cash, at beginning of period            |  |                                                                             | 1,288                                     |   |                                 |        | 1,769  |  
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Cash, at end of period                  |  | $                                                                           | 664                                       |   |                                 | $      | 439    |  
|                                        |  |                                                                             |                                           |   |                                 |        |        |  
|Supplemental information:               |  |                                                                             |                                           |   |                                 |        |        |  
|                                        |  | Cash paid for:                                                              |                                           |   |                                 |        |        |   |        |     
|                                        |  | Interest                                                                    |                                           | $ | 151                             |        |        | $ | 209    |     
|                                        |  | Taxes                                                                       |                                           | $ | 93                              |        |        | $ | 197    |     
|Non-cash transactions:                  |  |                                                                             |                                           |   |                                 |        |        |  
|                                        |  | Common stock issued for acquisition                                         |                                           |   |                                |        |        | $ | 427    |     
|                                        |  | Note in exchange for sale of business                                       |                                           |   |                                |        |        | $ | 772    |     
|                                        |  | Note issued for acquisition                                                 |                                           |   |                                |        |        |   | 213    |     
|                                        |  | Conversion of debt to equity                                                |                                           | $ | 152                             |        |        |   |       |     
|                                        |  | Common stock issued for investment services                                 |                                           | $ | 176                             |        |        |   |       |     

See accompanying notes to condensed consolidated financial statements.

6



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


|   |  |                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | Basis of Presentation |  | The accompanying unaudited condensed
consolidated financial statements
have been prepared in accordance
with generally accepted accounting
principles for interim financial
information and with the
instructions to Form 10-Q.
Accordingly, they do not include all
of the information and footnotes
required by generally accepted
accounting principles for complete
financial statements. In the opinion
of management, all adjustments
(consisting of normal recurring
accruals) considered necessary for a
fair presentation have been
included. Operating results for the
nine-month period ended September
30, 2002 are not necessarily
indicative of the results that may
be expected for the year ended
December 31, 2002. The condensed
consolidated balance sheet
information as of December 31, 2001
was derived from the audited
consolidated financial statements
included in the Companys Annual
Report on Form 10-K for 2001 (the
Form 10-K). For further
information, refer to the
consolidated financial statements
and footnotes thereto included in
the Form 10-K.
|  
|2. |  | Line of Credit        |  | The Company had a $1.9 million line
of credit which matured on September
30, 2002. The lender did not want to
renew the line of credit; however,
the lender extended the termination
date to January 23, 2003 in order to
give the Company time to secure new
financing. The Company is currently searching for a new lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  |                       |  | The line of credit agreement
requires the Company to comply with other
covenants, including limitations on
further borrowings, dividend
payments, and with certain financial
covenants. As of September 30, 2002,
the Company was not in compliance
with two of the financial covenants
contained in the agreement, and the
lender waived compliance with those
covenants at that date.
Additionally, the Company will
likely not meet its financial
covenants in future periods unless
its results of operations
substantially improve. While there
can be no assurance, the Company
expects that its lender will
continue to waive covenant
violations during future periods. If the Company is unable to obtain
alternative debt financing to replace its existing line of credit or
to obtain an extension of its existing line of
credit beyond its January 23, 2003 maturity date, the
Companys business would likely be materially and adversely
affected.                                                                                                                        

7



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

|   |  |                    |  |                                                                                                                              
|-- |  | ------------------ |  | -----------------------------------------------------------------------------------------------------------------------------
|3. |  | Earnings Per Share |  | The following reconciles the components of the
earnings per share (EPS) computation (In
thousands, except per share amounts):

|                                                                    |  |      |  |      |  |             |      |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |      |   |  |  |  |  |  |  |       |  |  |   |       |   |  |  |  | 
|------------------------------------------------------------------- |  | ---- |  | ---- |  | ----------- | ---- | ------------- |  | --------- |  | ----------- |  | ------------- | ----- | --------- |  | - | ----- | - |  |  |  |  |  | - | ---- | - |  |  |  |  |  |  | ----- |  |  | - | ----- | - |  |  |  | 
|For the three months                                                |  |      |  |      |  |             |      |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |      |   |  |  |  |  |  |  |       |  |  |   |       |   |  |  |  | 
|ended September 30,                                                 |  | 2002 |  | 2001
|                                                                    |  |      |  |     
|                                                                    |  |      |  |      |  | Loss        |      | Shares        |  | Per-Share |  | Loss        |  | Shares        |       | Per-Share |  |   |       |  
|                                                                    |  |      |  |      |  | (Numerator) |      | (Denominator) |  | Amount    |  | (Numerator) |  | (Denominator) |       | Amount    |  |   |       |  
|                                                                    |  |      |  |      |  |             |      |               |  |           |  |             |  |               |       |           |  |   |       |  
|Earnings per common
share                                           |  |      |  |      |  |             |      |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |      |   |  |  |  |  |  |  |       |  |  |   |       |  
|Net loss applicable
to common
shareholders                          |  |      |  |      |  | $           | (710 | )             |  |           |  |             |  |               | 4,797 |           |  | $ | (0.15 | ) |  |  |  |  |  | $ | (787 | ) |  |  |  |  |  |  | 4,309 |  |  | $ | (0.18 | )
|Effect of dilutive
Securities:                                      |  |      |  |      |  |             |      |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |      |   |  |  |  |  |  |  |       |  |  |   |       |  
|Exercisable options
to purchase shares
of common stock              |  |      |  |      |  |             |      |               |  |           |  |             |  |               |      |           |  |   |       |   |  |  |  |  |  |   |      |   |  |  |  |  |  |  |      |  |  |   |       |  
|Net loss applicable
to common
shareholders plus
assumed conversions |  |      |  |      |  | $           | (710 | )             |  |           |  |             |  |               | 4,797 |           |  | $ | (0.15 | ) |  |  |  |  |  | $ | (787 | ) |  |  |  |  |  |  | 4,309 |  |  | $ | (0.18 | )

|                                                                     |  |      |  |      |  |             |        |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |        |   |  |  |  |  |  |  |       |  |  |   |       |   |  |  |  | 
|-------------------------------------------------------------------- |  | ---- |  | ---- |  | ----------- | ------ | ------------- |  | --------- |  | ----------- |  | ------------- | ----- | --------- |  | - | ----- | - |  |  |  |  |  | - | ------ | - |  |  |  |  |  |  | ----- |  |  | - | ----- | - |  |  |  | 
|For the nine months                                                  |  |      |  |      |  |             |        |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |        |   |  |  |  |  |  |  |       |  |  |   |       |   |  |  |  | 
|ended September 30,                                                  |  | 2002 |  | 2001
|                                                                     |  |      |  |     
|                                                                     |  |      |  |      |  | Loss        |        | Shares        |  | Per-Share |  | Loss        |  | Shares        |       | Per-Share |  |   |       |  
|                                                                     |  |      |  |      |  | (Numerator) |        | (Denominator) |  | Amount    |  | (Numerator) |  | (Denominator) |       | Amount    |  |   |       |  
|                                                                     |  |      |  |      |  |             |        |               |  |           |  |             |  |               |       |           |  |   |       |  
|Earnings per common
share
Net loss applicable
to common
shareholders |  |      |  |      |  | $           | (1,417 | )             |  |           |  |             |  |               | 4,630 |           |  | $ | (0.31 | ) |  |  |  |  |  | $ | (1,939 | ) |  |  |  |  |  |  | 3,896 |  |  | $ | (0.50 | )
|Effect of dilutive
Securities:                                       |  |      |  |      |  |             |        |               |  |           |  |             |  |               |       |           |  |   |       |   |  |  |  |  |  |   |        |   |  |  |  |  |  |  |       |  |  |   |       |  
|Exercisable options
to purchase shares
of common stock               |  |      |  |      |  |             |        |               |  |           |  |             |  |               |      |           |  |   |       |   |  |  |  |  |  |   |        |   |  |  |  |  |  |  |      |  |  |   |       |  
|Net loss applicable
to common
shareholders plus
assumed conversions  |  |      |  |      |  | $           | (1,417 | )             |  |           |  |             |  |               | 4,630 |           |  | $ | (0.31 | ) |  |  |  |  |  | $ | (1,939 | ) |  |  |  |  |  |  | 3,896 |  |  | $ | (0.50 | )

8



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

| |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Options to purchase 20,000 shares, 91,450 shares, 332,401 shares, and 19,000 shares of common stock at $3.69, $2.13,
$1.75, and $2.86 per share, respectively, were outstanding during 2002, but were not included in the computation of
diluted EPS as the options exercise price were greater than the average market price of the common shares and because of
the Companys net loss. These options, which expire in 2007, 2009, 2010, and 2011 were outstanding at September 30, 2002.                                                                                                                                         
|
| |  |  |  | Options to purchase 20,000 shares of common stock at $3.69 were outstanding during 2001, but were not included in the
computation of diluted EPS as the options exercise price were greater than the average market price of the common shares
and because of the Companys net loss. These options, which expire in 2007, were outstanding at September 30, 2001.                                                                                                                                                                                                                                                                  
|
| |  |  |  | In March 2002,
debt of $152,000 owed to the Companys principal stockholders was
converted into an aggregate of 190,000 shares of common stock (at
$0.80 per share, the fair market value of the common stock on the
conversion date).                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  |  | Effective July 1, 2002, the Company issued 200,000 shares of its common stock to two investment banking firms for
services. These shares will vest over a twelve month period as to 100,000 shares and over an eighteen month period as to
100,000 shares. The $176,000 estimated fair value of these shares at the date the Company committed to issue them is
initially recorded as deferred compensation in the accompanying condensed consolidated balance sheet and amortized to
selling, general, and administrative expenses during the eighteen month period in which the investment bankers have
agreed to provide services.

9



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

|   |  |                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. |  | Recent Accounting Pronouncements |  | In June 2001, the Financial Accounting Standards Board (FASB) finalized Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires the
use of the purchase method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires
that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain
criteria. SFAS 141 applies to all business combinations
initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon
adoption of SFAS 142, that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  |                                  |  | SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized
intangible assets, and cease amortization of intangible assets with an
indefinite useful life. An intangible asset with an indefinite useful life
should be tested for impairment in accordance with the guidance in SFAS 142.
SFAS 142 is required to be applied in fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142 requires
the Company to complete a transitional goodwill impairment test
six months from the date of adoption. The Company is also
required to reassess the useful lives of other intangible assets within
the first interim quarter after adoption of SFAS 142. Other than its 1997
acquisition of Jotec, AS, the Companys previous business combinations were accounted for using the purchase method of
accounting. The Company initially adopted SFAS 141 and SFAS 142 during the quarter ended March 31, 2002. During the
quarter ended June 30, 2002, the Company completed the transitional goodwill impairment test and determined that it had
no impairment of its goodwill at that date. The Company will continue to assess the value of its goodwill during future
periods in accordance with the rules.

10



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

| |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | The principal effect of initial adoption of SFAS 141 and
SFAS 142 was to eliminate amortization of the Companys
goodwill. Had goodwill amortization ceased at January 1,
2001, expenses would have decreased by $166,000 and net
loss and net loss per share for the nine months ended
September 30, 2001 would have been $1.8 million and $0.46,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  |  | In August 2001, the FASB issued SFAS 144, Accounting for
the Impairment or Disposal of Long-lived Assets. This
Statement addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This
Statement supersedes FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a
segment a Business
(as previously defined in that Opinion). The provisions of
this Statement are effective for financial statements
issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early
adoption encouraged. The provisions of this Statement
generally are to be applied prospectively. The adoption of
SFAS 144 on January 1, 2002, had no material effect on the
Companys consolidated financial statements.                    
|
| |  |  |  | In April 2002, the FASB issued SFAS No. 145, Rescission of
FASB Statement No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. Under
Statement 4, all gains and losses from extinguishments of
debt were required to be aggregated and, if material,
classified as an extraordinary item, net of related income
tax effect. This Statement eliminates Statement 4 and as a
result, gains and losses from extinguishment of debt should
be classified as extraordinary items only if they meet the
criteria in Accounting Principles Board Opinion 30,
Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently occurring Events
and Transactions. Additionally, this Statement amends
SFAS No. 13, Accounting for Leases, such that lease
modifications that have economic effects similar to
sale-leaseback transactions be accounted for in a similar
manner as a sale-leaseback. This Statement is generally
effective for financial statements issued on or after May
15, 2002. The impact of adopting SFAS No. 145 was not
material.

11



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

|   |  |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                  |  | In June 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This
Statement addresses financial accounting and reporting for
costs associated with exit or
disposal activities and supercedes Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to
Exit and Activity (including certain costs incurred in a
Restructuring). A liability for a cost associated with an
exit or disposal activity shall be recognized and measured
initially at its fair value in the period in which the
liability is incurred, except for certain qualifying
employee termination benefits. This Statement will be
effective for exit or disposal activities initiated by the
Company after December 31, 2002. The adoption of SFAS 146
will impact the timing of recognition of costs associated with any
such future exit and disposal activities.
|  
|5. |  | Subsequent Event |  | The Companys Board of Directors has approved a
warrant dividend (the Warrant Dividend). On the record
date of the Warrant Dividend, the Company will issue one
common stock purchase warrant (the Warrants) to purchase
one share of the Companys common stock for each share of
the Companys common stock owned by each of its
shareholders as of the record date. The record date of the
Warrant Dividend has not yet been determined, although it
is anticipated to be prior to January 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  |                  |  | The Warrants will be non-transferable. The Warrant
exercise period will commence on the date following the
effectiveness of a registration statement registering the
sale of the shares of common stock underlying the Warrants
(the Warrant Effective Date) and will continue for a
period of one year thereafter. The exercise price of the
Warrants will be as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |  |  |  |   |  |                                                                                                                                                                                
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  |  |  | For the 90 day period following the Warrant
Effective Date, the Warrants will be exercisable at an
exercise price of $1.50 per share,                                          
|
| |  |  |  |  |  | For the subsequent 90 day period following the
completion of the 90 day period referred to above, the
Warrants will be exercisable at an exercise price of $2.50
per share, and
|
| |  |  |  |  |  | For the balance of the term of the Warrants, the
Warrants will be exercisable at an exercise price of $5.50
per share.                                                         

| |  |  |  |                                                                                                                                                                                                            
| |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Any proceeds received from the exercise of the
Warrants will be used for general working capital purposes
or for acquisitions. However no material commitments or
binding agreements have been reached with

12



---



##### Table of Contents



AESP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

| |  |  |  |                                                                                                                                                                                                                                    
| |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | respect to any acquisitions. There can be no assurance
that any of the Warrants will be exercised.                                                                                                                                 
|
| |  |  |  | The Company intends to file a registration statement
with the SEC to register the shares of common stock
underlying the Warrants. The Company expects to file such
registration statement by the end of the fourth quarter of
2002.

13



---



##### Table of Contents






Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENT

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934 WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED THEREBY.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT
NOT LIMITED TO THE FOLLOWING: THE COMPANYS ABILITY TO OBTAIN SUFFICIENT
WORKING CAPITAL TO MEET ITS CURRENT AND FUTURE REQUIREMENTS, THE COMPANYS
ABILITY TO REFINANCE ITS U.S. LINE OF CREDIT, 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 NETWORKING AND INTERNATIONAL SALES (WHICH HAVE
COMPARATIVELY HIGHER GROSS PROFIT MARGINS WITH HIGHER EXPENSES) FROM PERIOD TO
PERIOD; THE COMPANYS DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING AND
ASSEMBLY OF PRODUCTS AND THE ABSENCE OF SUPPLY AGREEMENTS; AND COMPANYS
ABILITY TO FINANCE AND INTEGRATE FUTURE ACQUISITIONS. THESE AND ADDITIONAL
FACTORS ARE DISCUSSED HEREIN AND IN THE FORM 10-K FOR THE YEAR 2001 (THE FORM
10-K). THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN AND THEREIN 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.

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE INFORMATION SET FORTH IN MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN THE FORM 10-K.

14



---



##### Table of Contents



Critical Accounting Policies

The Companys consolidated financial statements contained in the Form 10-K
includes a summary of the significant accounting policies and methods used in
the preparation of the financial statements. Management believes the following
critical accounting policies affect the significant judgments and estimates
used in the preparation of the financial statements.

Revenue Recognition

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

Use of Estimate

Managements discussion and analysis of financial condition and results of
operations is based upon the Companys consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
require management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses, and related disclosure
of contingent assets and liabilities. On an ongoing basis, management
evaluates these estimates, including those related to allowances for doubtful
accounts receivable and the carrying value of inventories and long-lived
assets. Management bases these estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Results of Operations

For the nine months ended September 30, 2002, the Company achieved net
sales of $21.2 million, an increase of $41,000 or .2% over net sales of $21.1
million for the nine months ended September 30, 2001. For the quarter ended
September 30, 2002, the Company achieved net sales of $6.9 million, an increase
of $482,000 or 7.5% over net sales of $6.4 million for the quarter ended
September 30, 2001.

Revenues for the first nine months of 2002 were positively impacted by $3.2
million of sales by Intelek, the Companys Czech Republic subsidiary, which was acquired
in August 2001. Without Inteleks sales, net sales for the first nine months of
2002 would have decreased by $3.2 million or 14.8% compared to first nine
months 2001 net sales. Contributing to the overall decrease for the first nine
months sales were decreases in international sales, which were down by 19.6% to
$9.6 million for the first nine months of 2002, from $11.9 million for the
first nine months of 2001. In addition, U.S. networking sales were down by 22%
to $4.5 million for the first nine months of 2002, from $5.8 million for the
first nine months of 2001. OEM sales increased by 15.2% to $3.6 million for
the first nine months of 2002, from $3.1 million for the first nine months of
2001. The increase in sales for the third quarter resulted from Intelek sales
($1.0 million) offset by reductions of U.S networking sales of $314,000, and
international sales (other than from Intelek) of $433,000.

15



---



##### Table of Contents



The weakening U.S. dollar also benefited sales in 2002 due to better
currency translations of net sales from the various currencies in which the
Company sells its products. The decrease in net sales for the three and nine
months 2002 periods (after adjusting for Intelek sales) was primarily due to
heightened competition, worsening worldwide economic conditions generally in
the technology market, and worsening economic conditions specifically in the
networking, telecom and consumer sectors, which are the Companys primary
markets. The Company expects these factors will continue to impact its net
sales throughout 2002, although it believes that its net sales will increase as
the economy improves, which the Company believes will occur sometime
during 2003.

The Companys gross profit margin was 29.6% for the nine months ended
September 30, 2002, compared to 28.2% for the nine months ended September 30,
2001, and was 27.4% for the third quarter of 2002 compared to 31.1% for the
third quarter of 2001. During the nine month 2001 periods, the Company recorded
a provision totaling $779,000 for inventory impairment; whereas, a provision of
$157,000 was recorded in the comparative nine month 2002 period. In the third quarter
of 2002, the Company recorded a provision totaling $157,000 for inventory
impairment. No such provision was recorded in the comparative 2001
three month period.
Although there can be no assurance, the Company believes that with its current
mix of operations, gross profit margin should remain in the 27% to 32% range
during foreseeable periods, and the factors described in the Forward Looking
Statements discussion above may impact whether gross profit margin falls
within or outside this range.

Selling, general and administrative (SG&A) expenses remained roughly the
same at $7.7 million for the nine months ended September 30, 2002 and 2001. For
the quarter ended September 30, 2002, SG&A expenses decreased by 2.1% to $2.7
million from the comparative 2001 period. SG&A expenses as a percentage of
sales for the three and nine months ended September 30, 2002 were 38.9% and
36.5%, respectively, compared to 42.8% and 36.7%, respectively, for the three
and nine months ended September 30, 2001. SG&A in 2002 was affected by
Inteleks SG&A in the amount of $213,000 and $679,000 for the three and nine
months ended September 30, 2002. It was also affected by goodwill amortization
of $166,000 and $60,000 for the 2001 nine and three month periods. No such
amortization was required in 2002 under SFAS No. 142.

As a result of the aforementioned factors, the loss from operations for
the three months ended September 30, 2002 was $793,000, an increase of $47,000
from the loss from operations of $746,000 for the three months ended September
30, 2001. For the first nine months of 2002, the loss from operations was $1.5
million, a decrease of $334,000 from the loss from operations of $1.8 million
for the first nine months of 2001.

Other income for the 2002 three and nine month periods primarily benefited
from the substantial positive changes in currency exchange rates during 2002.

Interest expense for the nine months ended September 30, 2002 was
$151,000, compared to $209,000 for the first nine months of 2001. Interest
decreased for the first nine months of 2002 due to lower borrowings by the
Company and a lower interest rate compared to the similar

16



---



##### Table of Contents



period in 2001. For the same reasons, third quarter 2002 interest was $53,000,
compared to $63,000 in the third quarter of 2001.

Income tax expense for the three and nine months ended September 30, 2002
is computed based upon the tax rates applicable to the Companys operations in
the United States, Germany, Sweden, Norway and the Czech Republic, which range
from 34% to 45%. Substantially all of the Companys 2002 loss before income
taxes arose in tax jurisdictions where no immediate income tax benefit is
available. Realization of substantially all of the Companys deferred tax
assets resulting from the available net operating loss carryforwards and other
net temporary differences is not considered more likely than not and
accordingly a valuation allowance has been provided for all but $94,000 of the
Companys deferred tax assets at September 30, 2002.

The Company anticipates that its consolidated effective tax rate in future
periods will be impacted by which of its businesses are profitable in any such
future period and whatever it will be able to take advantage of its net
operating loss carry forwards to affect taxable income in such periods.

As a result of the foregoing factors, the Company had a net loss of $1.4
million for the nine months ended September 30, 2002, a reduction of $522,000
from the net loss of $1.9 million for the nine months ended September 30, 2001,
and a net loss of $710,000 for the quarter ended September 30, 2002, a
reduction of $77,000 from net loss of $787,000 for the third quarter of 2001.
The Company believes that its revenues, gross profit, and net income (loss)
will continue to be negatively impacted by the current economic slowdown and
by decreased spending on technology.

Basic (loss) per share were $(0.31) for the nine months ended September
30, 2002, compared to basic (loss) per share of $(0.50) for the nine months
ended June 30, 2001. Diluted (loss) per share were $(0.31) for the first nine
months of 2002, compared to diluted (loss) per share of $(0.50) for the first
nine months of 2001. For the third quarter of 2002, basic (loss) per share were
$(0.15), compared to basic (loss) per share of $(.18) for the third quarter of
2001. Likewise, diluted (loss) per share were $(0.15) for the third quarter of
2002, reduced from diluted (loss) per share of $(0.18) for the third quarter of
2001.

Liquidity & Capital Resources

Historically, the Company has primarily financed its operations with cash
flow from operations, borrowings under its available lines of credit, and sales
of its equity securities.

At September 30, 2002, the Company had working capital of $1.6 million, a
decrease of 36.9% over working capital of $2.6 million at December 31, 2001.
The principal causes of the decrease were a decrease of approximately $624,000
(change of 48.5%) in cash, a decrease of approximately $438,000 in inventories
(change of 7.4%), a decrease of $221,000 in accounts receivable (change of
5.4%), an increase in the line of credit of $260,000 (change of 16.8%), an
increase in customer deposits and other liabilities of $837,000 (change of
186%), offset by an increase in prepaid expenses of $158,000 (change of 74.9%),
a decrease in accounts payable of $877,000 (change of 15.6%) and, a decrease in
accrued expenses of $461,000 (change of 43.6%).

17



---



##### Table of Contents



For the nine months ended September 30, 2002, $1.1 million of cash was
used in operations. Net cash used in investing activities was $196,000,
primarily due to an increase in property and equipment. Cash of $587,000 was
generated in financing activities primarily from short term borrowings. As a
result of the foregoing, the Companys cash position decreased $754,000 between
December 31, 2001 and September 30, 2002. That decrease, combined with an
increase of $130,000 attributable to the effects of exchange rate changes on
cash, produced an overall decrease in cash of $624,000.

The Company has a $1.9 million line of credit with a financial
institution. Borrowings available under the line of credit bear interest at
the rate of prime plus one percent (1%) percent. Borrowings under the line of
credit are based on specific percentages of the Companys U.S. receivables and
inventories. The line of credit is secured by a lien on the Companys U.S.
assets, including accounts receivable and inventories. The line of credit is
also guaranteed by the Companys principal shareholders, who have pledged a
portion of the shares of the Companys common stock which they own to secure
their guarantees.

Under the terms of the loan agreement, the Company is required to comply
with certain affirmative and negative covenants and to maintain certain
financial benchmarks and ratios. As of September 30, 2001, December 31,
2001, June 30, 2002 and September 30, 2002, the Company was
not in compliance with one or more of
the covenants, and the
lender waived compliance. Additionally, the Company will likely not meet its
financial covenants during future periods unless its results of operations
improve substantially. While there can be no assurance, the Company expects
that its lender will continue to waive financial covenant violations during
future periods. As of September 30, 2002, $1,806,000 was outstanding under the
line of credit and $94,000 was available for borrowing based on applicable
borrowing base formulas.

The line of credit matured on September 23, 2002. The lender has advised the
Company that they are currently unwilling to renew the line of credit; however,
they extended the maturity date to January 23, 2003 in order to give the
Company time to secure new financing. The Company is presently
searching for a new
lender. If the Company is unable to close new financing and the Company were unable to further extend its existing line of
credit beyond its January 23, 2003 maturity date, the Companys business would
likely be materially and adversely affected.

The Companys foreign subsidiaries also have various lines of credits
available for their operations. At September 30, 2002, an aggregate of
$783,000 was outstanding under these lines of credit and $739,000 was available for
borrowing under those agreements.

The Company is making efforts to improve its cash situation through cost
reductions, collection of accounts receivable, and reduction in
inventory. In that regard, the Company is in the process of closing
down its unprofitable manufacturing facility in Pennsylvania and
moving its production to its Far East suppliers and the
Companys North Miami facility. The
Company believes that its internally generated cash flow from operations,
combined with renewal or replacement of its line of credit, will be sufficient to fund its current
operations for the next twelve months. The Company may also consider

18



---



##### Table of Contents



selling debt or equity securities in order to meet its current and future
working capital requirements or to fund future acquisitions.

The Companys Board of Directors has approved a
warrant dividend (the Warrant Dividend). On the record
date of the Warrant Dividend, the Company will issue one
common stock purchase warrant (the Warrants) to purchase
one share of the Companys common stock for each share of
the Companys common stock owned by each of its
shareholders as of the record date. The record date of the
Warrant Dividend has not yet been determined, although it
is anticipated to be prior to January 31, 2003.

The Warrants will be non-transferable. The Warrant
exercise period will commence on the date following the
effectiveness of a registration statement registering the
sale of the shares of common stock underlying the Warrants
(the Warrant Effective Date) and will continue for a
period of one year thereafter. The exercise price of the
Warrants will be as follows:

|  |  |                                                                                                                                                                                
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For the 90 day period following the Warrant
Effective Date, the Warrants will be exercisable at an
exercise price of $1.50 per share,                                          
| 
| |  | For the subsequent 90 day period following the
completion of the 90 day period referred to above, the
Warrants will be exercisable at an exercise price of $2.50
per share, and
| 
| |  | For the balance of the term of the Warrants, the
Warrants will be exercisable at an exercise price of $5.50
per share.                                                         

Any proceeds received from the exercise of the
Warrants will be used for general working capital purposes
or for acquisitions. However no material commitments or
binding agreements have been reached with respect to any acquisitions. There can be no assurance
that any of the Warrants will be exercised.

In March 2002, debt of $152,000 owed to the Companys principal
stockholders was converted into an aggregate of 190,000 shares of common stock
(at $.80 per share, the fair market value of the common stock on the conversion
date).

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

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) finalized
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company
reclassify the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within
the first interim quarter after adoption of SFAS 142. Other than its 1997
acquisition of Jotec, AS, the Companys previous business combinations were
accounted for using the purchase method. The Company initially adopted SFAS 141
and SFAS 142 during the quarter ended March 31, 2002. The Company completed
the transitional goodwill impairment test in the quarter ending June 30, 2002
and no impairment was required.

The principal effect of initial adoption of SFAS 141 and SFAS 142 was to
eliminate amortization of the Companys goodwill. Had goodwill amortization
ceased at January 1, 2001, expenses would have decreased by $166,000 and net
loss and net loss per share for the nine months ended September 30, 2001 would
have been $1.8 million and $ 0.46, respectively.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment
or

19



---



##### Table of Contents



Disposal of Long-lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB
Statement No. 121, Accounting for the Impairment the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment a Business (as previously defined in that Opinion).
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption encouraged. The provisions of this
Statement generally are to be applied prospectively. The adoption of SFAS 144
on January 1, 2002 had no material effect on the Companys consolidated
financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Under Statement 4, all gains and losses from extinguishments of
debt were required to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. This Statement
eliminates Statement 4 and as a result, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in Accounting Principles Board Opinion 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently occurring Events and Transactions.
Additionally, this Statement amends SFAS No. 13, Accounting for Leases, such
that lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in a similar manner as a sale-leaseback. This
Statement is generally effective for financial statements on or after May 15,
2002. The impact of adopting SFAS No. 145 was not material.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and supercedes Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity (including certain costs incurred in a
Restructuring). A liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair value in the
period in which the liability is incurred, except for certain qualifying
employee termination benefits. This Statement will be effective for exit or
disposal activities initiated by the Company after December 31,
2002. The adoption of SFAS 146 will impact the timing of
recognition of costs associated with any such future exit and
disposal activities.

20



---



##### Table of Contents






Item 3. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates, and as a
global company, the Company also faces exposure to adverse movements in foreign
currency exchange rates.

The Companys earnings are affected by changes in short-term interest
rates as a result of its credit facility. If short-term interest rates averaged
2% more in the first nine months ended September 30, 2002, the Companys
interest expense would have increased, and loss before taxes would increase by
$27,000; comparably, the Companys interest expense would have increased, and
loss before taxes would increase by $34,000 in the first nine months ended
September 30, 2001. In the event of a change of such magnitude, management
would likely take actions to mitigate its exposure to change.

The Companys revenues and net worth are affected by foreign currency
exchange rates due to having subsidiaries in Norway, Sweden, Germany and the
Czech Republic. While the Companys sales to its subsidiaries are denominated
in U.S. dollars, each subsidiary owns assets and conducts business in its local
currency. Upon consolidation, the subsidiaries financial results are impacted
by the value of the U.S. dollar. A uniform 10% strengthening as of September
30, 2002 in the value of the dollar would have resulted in reduced revenues of
$1.1 million for the nine months ended September 30, 2002. A uniform 10%
strengthening as of September 30, 2001 in the value of the dollar would have
resulted in reduced revenues of $892,000 nine months ended September 30, 2001.
A uniform 10% strengthening as of September 30, 2002 in the value of the dollar
would have resulted in a reduction of the consolidated Companys net worth by
$272,000. A uniform 10% strengthening as of September 30, 2001 in the value of
the dollar would have resulted in a reduction of the consolidated Companys net
worth by $306,000. The strengthening of the value of the dollar has a larger
impact at September 30, 2002 versus 2001 since the Company purchased its Czech
Republic subsidiary, Intelek, in August 2001. The Company periodically
evaluates the materiality of foreign exchange risk and the financial
instruments available to mitigate this exposure. The Company attempts to
mitigate its foreign exchange exposures by only maintaining assets directly
related to the local operations in the exposed currency wherever possible.
However, the Company finds it impractical to hedge foreign currency exposure,
and as a result will continue to experience foreign currency gains and losses
in the future.

21



---



##### Table of Contents






Item 4. CONTROLS AND PROCEDURES

(a)  Within 90 days of filing this report on Form 10-Q (the Evaluation Date),
the Companys Chief Financial Officer and Chief Executive Officer evaluated the Companys
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act)). Based on that evaluation, these officers have concluded that
as of the Evaluation Date, the Companys disclosure controls and procedures were
effective in timely alerting them to material information relating to our
Company (including its consolidated subsidiaries) required to be included in
the Companys reports filed or submitted by us under the Exchange Act.

(b) There have been no significant changes in the Companys internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the most recent evaluation.

22



---



##### Table of Contents






PART II. OTHER INFORMATION




Item 1. LEGAL PROCEEDINGS

None




Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable




Item 3. DEFAULTS UPON SENIOR SECURITIES

None




Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

On August 8, 2002, the Company held its 2001 annual meeting of
shareholders. At the meeting, the stockholders elected the following five
persons to serve on the Companys Board of Directors until their successors are
elected and qualified: Slav Stein, Roman Briskin, Leonard Sokolow, Terrence R.
Diadone and William B. Coldrick. The shares voted for and against each of the
candidates for director were as follows: (i) Slav Stein (3,921,919 shares voted
for and 14,360 shares voted against), (ii) Roman Briskin, Terrence R. Diadone
and William B. Coldrick (3,922,929 shares voted for and 13,350 shares voted
against), and (iii) Leonard Sokolow (3,921,929 shares voted for and 14,350
shares voted against). The Companys shareholders also approved a change in the
Companys corporate name from Advanced Electronic Support Products, Inc. to
AESP, Inc. The vote in favor of the resolution to approve the corporate name
change was 3,916,329 shares in favor (85.2% of the outstanding shares), 9,000
shares voted against and 10,950 shares abstained.




Item 5. OTHER INFORMATION

None




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|     |  |                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------
|10.1 |  | Form of Extension Letter Agreement, dated September 18, 2002, between
the Company and
Commercebank, N.A.
|    
|99.1 |  | Certification of Chief Executive Officer                                                                
|    
|99.2 |  | Certification of Chief Financial Officer                                                                

(b)  Reports on Form 8-K

None

23



---



##### Table of Contents



SIGNATURES

In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|                        |  |                                                   
|----------------------- |  | --------------------------------------------------
|                        |  | AESP, INC.                                        
|                       
|                       
|                       
|Date: November 12, 2002 |  | By: /s/ ROY RAFALCO                               
|                        |  |                                                   
|                        |  | Roy Rafalco
Chief Financial and Accounting
Officer

24



---



##### Table of Contents



Certification of Chief Executive Officer

I, Slav Stein, certify that:

| |  |  |    |  |  |                                                                                                                                                                                                                                                                                                                               
| |  |  | -- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 1. |  |  | I have reviewed this quarterly report on Form 10-Q of
AESP, Inc.;                                                                                                                                                                                                                                                             
|
| |  |  | 2. |  |  | Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
|
| |  |  | 3. |  |  | Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;                   
|
| |  |  | 4. |  |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:                                                                                                     

| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                
| |  |  |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | a) |  | designed such disclosure controls and
procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
|
| |  |  |  | b) |  | evaluated the effectiveness of the
registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  |  | c) |  | presented in this quarterly report our
conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

| |  |  |    |  |  |                                                                                                                                                                                                                                               
| |  |  | -- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 5. |  |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent
function):

| |  |  |  |    |  |                                                                                                                                                                                                                                                                                               
| |  |  |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | a) |  | all significant deficiencies in the design
or operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified for
the registrants auditors any material weaknesses in
internal controls; and
|
| |  |  |  | b) |  | any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrants internal controls; and                                                                                                                                        

25



---



##### Table of Contents



| |  |  |    |  |  |                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | -- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 6. |  |  | The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

|                        |  |                                   
|----------------------- |  | ----------------------------------
|Date: November 12, 2002 |  |                                   
|                        |  | /s/ Slav Stein                    
|                        |  |                                   
|                        |  | Slav Stein
Chief Executive Officer

26



---



##### Table of Contents



Certification of Chief Financial Officer

I, Roy Rafalco, certify that:

| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                               
| |  |  | --- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 7.  |  |  | I have reviewed this quarterly report on Form 10-Q of
AESP, Inc.;                                                                                                                                                                                                                                                             
|
| |  |  | 8.  |  |  | Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
|
| |  |  | 9.  |  |  | Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;                   
|
| |  |  | 10. |  |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:                                                                                                     

| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                
| |  |  |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | a) |  | designed such disclosure controls and
procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
|
| |  |  |  | b) |  | evaluated the effectiveness of the
registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  |  | c) |  | presented in this quarterly report our
conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

| |  |  |     |  |  |                                                                                                                                                                                                                                               
| |  |  | --- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 11. |  |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent
function):

| |  |  |  |    |  |                                                                                                                                                                                                                                                                                               
| |  |  |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | a) |  | all significant deficiencies in the design
or operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have identified for
the registrants auditors any material weaknesses in
internal controls; and
|
| |  |  |  | b) |  | any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrants internal controls; and                                                                                                                                        

27



---



##### Table of Contents



| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | --- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 12. |  |  | The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

|                        |  |                                    
|----------------------- |  | -----------------------------------
|Date: November 12, 2002 |  |                                    
|                        |  | /s/ Roy Rafalco                    
|                        |  |                                    
|                        |  | Roy Rafalco
Chief Financial Officer

28