<PAGE>

                      Advanced Electronic Support Products
                                and Subsidiaries

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 June 30, 2001

                                       OR

[ ]  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

                   ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
             (Exact name of registrant as specified in its charter)

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

         1810 N.E. 144TH STREET
         NORTH MIAMI, FLORIDA                                 33181
---------------------------------------       ----------------------------------
(Address of Principal Executive Offices)                   (Zip Code)

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

     Check 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 [ ]

     The number of shares outstanding of the registrant's Common Stock, as of
August 5, 2001, is 4,260,723 shares.
<PAGE>

                      Advanced Electronic Support Products
                               and Subsidiaries

                                      INDEX


                          Part I. Financial Information

<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----
<S>        <C>                                                                                                 <C>
Item 1.    FINANCIAL STATEMENTS

           Condensed Consolidated Balance Sheets at June 30, 2001 and December 31, 2000
            (unaudited)...........................................................................................3

           Condensed Consolidated Statements of Operations for the three and six months
           ended June 30, 2001 and 2000 (unaudited)...............................................................4

           Condensed Consolidated Statement of Shareholders' Equity for the
           six months ended June 30, 2001 (unaudited).............................................................5

           Condensed Consolidated Statements of Cash Flows for the six months
           ended June 30, 2001 and 2000 (unaudited)...............................................................6

           Notes to Condensed Consolidated Financial Statements (unaudited).......................................7

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................................12

Item 3     QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT
           MARKET RISK...........................................................................................17

                                                    Part II. Other Information


Item 1.    LEGAL PROCEEDINGS.....................................................................................18

Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................18

Item 3.    DEFAULTS UPON SENIOR SECURITIES.......................................................................18

Item 4.    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.....................................................18

Item 5.    OTHER INFORMATION.....................................................................................18

Item 6.    EXHIBITS AND REPORTS ON FORM 8-K......................................................................18
</TABLE>

                                       2
<PAGE>

                      Advanced Electronic Support Products
                                and Subsidiaries

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>

                                                                               June 30, 2001          December 31,
                                                                                (unaudited)               2000
------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
Current Assets
   Cash.......................................................                   $    618               $  1,769
   Accounts receivable, net of allowance for doubtful
   accounts of $176 at June 30, 2001 and $125 at
   December 31, 2000..........................................                      3,605                  3,299
   Inventories, net...........................................                      5,262                  7,411
   Income tax receivable......................................                         78                     63
   Due from related parties...................................                         29                     37
   Prepaid expenses and other current assets..................                        288                    264
------------------------------------------------------------------------------------------------------------------
Total current assets..........................................                      9,880                 12,843
Property and equipment, net...................................                        473                    510
Intangible assets.............................................                      1,737                  1,916
Deferred tax asset............................................                         19                     20
Assets of business transferred under contractual arrangement                          749                     --
Other assets..................................................                         99                    137
------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................................                   $ 12,957               $ 15,426
==================================================================================================================

Liabilities and Shareholders' Equity
Current Liabilities
   Notes payable..............................................                   $  1,429               $  2,680
   Accounts payable...........................................                      3,010                  3,647
   Accrued expenses...........................................                        980                  1,114
   Income taxes payable.......................................                          5                    149
   Customer deposits and other................................                        185                    189
   Other current liabilities..................................                         91                    105
------------------------------------------------------------------------------------------------------------------
Total current liabilities.....................................                      5,700                  7,884
Long term liabilities.........................................                         69                    119
TOTAL LIABILITIES.............................................                      5,769                  8,003
------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
   Preferred stock, $.001 par value; 1,000 shares
   authorized; none issued....................................                         --                     --
   Common stock, $.001 par value; 20,000 shares authorized;
   issued: 4,246 shares at June 30, 2001 and 3,681 shares at
   December 31, 2000..........................................                          4                      3
   Paid-in capital............................................                     11,636                 10,655
   (Deficit)..................................................                     (3,622)                (2,470)
   Accumulated other comprehensive loss.......................                       (830)                  (765)
------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY....................................                      7,188                  7,423
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $ 12,957               $ 15,426
==================================================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                            Three months ended                    Six Months Ended
                                                                  June 30,                             June 30,
                                                      --------------------------------    ---------------------------------
                                                            2001              2000                2001             2000
                                                      --------------------------------    ---------------------------------
<S>                                                       <C>               <C>                 <C>               <C>
Net sales....................................             $   6,511         $   7,121           $ 14,722          $13,820

Operating expenses
   Cost of sales.............................                 5,108             4,426             10,753            8,412
   Selling, general and administrative
   expenses..................................                 2,569             2,526              5,009            4,848
--------------------------------------------------------------------------------------------------------------------------

Total operating expenses.....................                 7,677             6,952             15,762           13,260
--------------------------------------------------------------------------------------------------------------------------

(Loss) income from operations................                (1,166)              169             (1,040)             560
Other income (expense):
   Interest, net.............................                   (59)              (59)              (146)            (112)
   Other.....................................                    38                63                 26              109
--------------------------------------------------------------------------------------------------------------------------

(Loss) income before income taxes............                (1,187)              173             (1,160)             557
Provision (benefit) for income taxes.........                   (13)               13                 (8)             149
--------------------------------------------------------------------------------------------------------------------------

Net (loss) income............................             $  (1,174)        $     160           $ (1,152)         $   408
--------------------------------------------------------------------------------------------------------------------------

Net (loss) income per common share...........             $   (0.32)        $    0.05           $  (0.31)         $  0.12
Net (loss) income per common share assuming
dilution.....................................             $   (0.32)        $    0.04           $  (0.31)         $  0.11
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                (IN THOUSANDS)

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                              Accumulated
                                                                                 Other                            Total
                                     Common        Paid-In                   Comprehensive    Comprehensive    Shareholders'
                                      Stock        Capital       Deficit     Income (Loss)    Income (Loss)       Equity
                                  -----------------------------------------------------------------------------------------
<S>                                  <C>           <C>          <C>          <C>              <C>              <C>
Balance at January 1, 2001               $3        $10,655      $ (2,470)       $  (765)             --         $  7,423

Net Loss                                                          (1,152)                        (1,152)          (1,152)

Sale of Ukrainian subsidiary                                                        282             282              282

Issuance of common stock in
connection with exercise of
stock options                                            9                                                             9

Sale of common stock in private
  placement                               1            972                                                           973

Cumulative  foreign  currency
  translation adjustment                 --             --            --           (347)           (347)            (347)
                                                                                                   ----
                                                                                               $ (1,217)
                                                                                               ========
                                  -----------------------------------------------------------------------------------------
Balance at June 30, 2001                 $4        $11,636       $(3,622)       $  (830)                        $  7,188
                                  =========================================================================================
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
                                    (NOTE 2)

<TABLE>
<CAPTION>

                                                                                    Six months ended June 30,
                                                                                    2001               2000
-------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                   <C>
Operating Activities:
   Net (Loss) income                                                              $(1,152)              $408

   Adjustments to reconcile net income to net cash (used in) provided by
   operating activities:
   Provision (recovery) for bad debt                                                   88               (9)
   Depreciation and amortization                                                       104               108
   Amortization of goodwill                                                            107                74
   Deferred tax assets                                                                  --               (2)
   Provision for inventory obsolescence                                                779
   (Increase) decrease, net of acquired business, in:
       Accounts receivable                                                           (302)             (467)
       Inventories                                                                     717           (1,046)
       Income tax receivable                                                          (32)               (8)
       Prepaid expenses and other current assets                                       121             (128)
       Other assets                                                                  (150)                 1
   Increase (decrease), net of acquired business, in:
       Accounts payable and accrued expenses                                         (728)             1,250
       Income taxes payables                                                         (134)             (179)
       Other liabilities                                                              (38)              (25)
       Deferred tax liability                                                            2                --
-------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities                                  (618)              (23)
-------------------------------------------------------------------------------------------------------------
Investing Activities:
   Net cash acquired in (used in) acquisitions                                          --             (370)
   Additions to property and equipment                                               (157)              (92)
   Collection of loans due from related parties                                          5               229
   Collection on note receivable from sale of Ukrainian subsidiary                      23                --
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                                  (129)             (233)
-------------------------------------------------------------------------------------------------------------
Financing Activities:
   Net Proceeds (payments) on borrowings                                           (1,295)             (237)
   Proceeds from sale of stocks and warrants, net                                      982               443
-------------------------------------------------------------------------------------------------------------
   Net cash (used in) provided by financing activities                               (313)               206
-------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash                                                    (1,060)              (50)
Effect of exchange rate changes on cash                                               (91)              (45)
Cash, at beginning of period                                                         1,769             1,602
-------------------------------------------------------------------------------------------------------------
Cash, at end of period                                                               $ 618            $1,507
=============================================================================================================
Supplemental information:
   Cash paid for:
   Interest                                                                          $ 146              $ 62
   Taxes                                                                              $190               $70
Non-cash transactions:
   Common stock issued for the acquisition of Lanse                                                     $597
   Note in exchange for sale of business                                              $772                --
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries



              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

<TABLE>

<S>  <C>                       <C>
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 three and six month periods ended June 30, 2001 are not
                               necessarily indicative of the results that may be expected for
                               the year ended December 31, 2001. The condensed consolidated
                               balance sheet information as of December 31, 2000 was derived
                               from the audited consolidated financial statements included in
                               the Company's Form 10-KSB. For further information, refer to the
                               consolidated financial statements and footnotes thereto included
                               in the Company's Annual Report on Form 10-KSB for the year ended
                               December 31, 2000.

2.   Long-term Debt            The line of credit agreement requires the Company to comply
                               with certain covenants including limitations on further
                               borrowings and dividend payments. As of June 30, 2001, the
                               Company was in compliance with all of the aforementioned
                               benchmarks and ratios.

3.   Acquisitions and          In January 2001, the Company sold its wholly owned Ukrainian
Divestitures                   subsidiary for the approximate book value of $772,000 in exchange
                               for a ten year note bearing interest at eight (8%) per annum.
                               Until the note is satisfied, the subsidiary is required to
                               purchase all goods from AESP. The agreement stipulates that if
                               there is a default on the note, AESP will resume ownership over
                               the Ukrainian company.

                               In May 2000, the Company completed the acquisition of Lanse AS, a
                               Norwegian manufacturer and distributor of networking hardware,
                               for a purchase price of $890,095 in cash (including expenses) and
                               294,170 shares of the Company's common stock (valued at
                               $597,000). This acquisition was accounted for under the purchase
                               method, whereby the purchase price was allocated to the
                               underlying assets and liabilities based on their estimated fair
                               values. The excess cost over net assets acquired amounted to
                               approximately $1.0 million and is being amortized over fifteen
                               years.
</TABLE>

                                       7
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                            The following unaudited pro forma information
                            presents the results of operations of the Company
                            and its subsidiaries as if this acquisition had
                            occurred on January 1, 2000 (in thousands except
                            per share amounts):

                                Six Months Ended June 30,             2000
                            ---------------------------------------------------
                            Net sales                                 $ 15,162
                            Net income                                     420
                            Net income per common share                   0.12
                            Net income per common shares -                0.10
                            assuming dilution

4.   Earnings Per Share     The following reconciles the components of the
                            earnings per share (EPS) computation (in thousands
                            except per share amounts):

<TABLE>
<CAPTION>

For the three months ended June 30,           2001                                                   2000
--------------------------------------------------------------------------------------------------------------------------------
                          Income             Shares           Per-Share         Income              Shares           Per-Share
                       (Numerator)        (Denominator)         Amount        (Numerator)       (Denominator)         Amount
--------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                    <C>           <C>                  <C>                <C>              <C>
Earnings per
common share
Net (loss)
income available
to common shares            $(1,174)               3,694         $(0.32)              $160               3,489            $0.05
Effect of
dilutive
Securities:
Exercisable
options to
purchase shares
of common stock                                       --                                                   517
Net (loss)
income available
to common
shareholders
plus assumed
conversions                 $(1,174)               3,694         $(0.32)              $160               4,006            $0.04
</TABLE>

                                       8
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

 For the six months ended June 30,            2001                                                   2000
--------------------------------------------------------------------------------------------------------------------------------
                          Income             Shares           Per-Share         Income              Shares           Per-Share
                       (Numerator)        (Denominator)         Amount        (Numerator)       (Denominator)         Amount
--------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                <C>                <C>              <C>               <C>                  <C>
Earnings per
common share
Net (loss)
income available
to common shares            $(1,152)               3,689         $(0.31)              $408               3,377            $0.12
Effect of
dilutive
Securities:
Exercisable
options to
purchase shares
of common stock                                       --                                                   496
Net (loss)
income available
to common
shareholders
plus assumed
conversions                 $(1,152)               3,689         $(0.31)              $408               3,873            $0.11
</TABLE>



                            Options to purchase 20,000 shares of common stock
                            were outstanding during 2001, but were not included
                            in the computation of diluted EPS as the effect of
                            inclusion would be antidilutive due to the Company's
                            net loss.

                            Options to purchase 20,000 shares of common stock at
                            $3.69 per share were outstanding during 2000, 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. The
                            options, which expire in 2007, were outstanding at
                            March 31, 2000.


                                       9
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


<TABLE>

<S> <C>                   <C>
5.  Private Placement     The Company recently completed a private placement of shares of
                          its common stock. The Company sold 573,900 shares in the private
                          placement at a gross purchase price of $2.00 per share (558,900
                          shares were sold on June 29, 2001 and 15,000 shares were sold on
                          July 13, 2001). The net proceeds of the placement ($1.0 million)
                          will be used for acquisitions and working capital. In connection
                          with the placement, the Company issued a warrant to Newbridge
                          Securities Corporation, which acted as the placement agent, to
                          purchase 57,390 shares at a purchase price of $2.20 per share.

6.  Recent Accounting     In June 2001, the Financial Accounting Standards Board
    Pronouncements        finalized FASB Statements No. 141, "Business Combinations"
                          (SFAS 141), and No. 142, "Goodwill and Other Intangible
                          Assets" (SFAS 142). SFAS 141 requires the use of the
                          purchase method of accounting and prohibits the use of the
                          pooling-of-interests 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.

7.  Significant           The Company has one supplier located in China which supplied
    Concentrations        approximately 10% of purchases for the first six months ended
                          June 30, 2001 and 13% for the first six months ended June 30,
                          2000. No other source of supply accounted for more than 10%
                          of our purchases.

                          Sales to the exclusive distributor in Russia, AESP-Russia,
                          amounted to approximately 15% of net sales for the first six
                          months ended June 30, 2001 and 10% for the first six months
                          ended June 30, 2000. No other customer accounted for more
                          than 10 percent of our net sales for the first six months
                          ended June 30, 2001 and June 30, 2000.

8.  Inventory             Included in cost of sales for the three and six months
    Allowances            ended June 30, 2001 is a provision of $578,000 and $779,000
                          respectively, to reduce inventories to estimated net realizable
                          value. At June 30, 2001 and December 31, 2000, inventories in the
                          accompanying condensed consolidated balances sheets are net of
                          allowances to reduce inventories to net realizable value of
                          $665,000 and $76,000 respectively.

9.  Income                Income tax expense for the three and six months ended June 30,
    Taxes                 2000 is computed based upon the tax rates applicable to the
                          Company's operations in the United States, Germany, Sweden,
                          Norway and Ukraine, which range from 34% to 45%.

                          Substantially all of the Company's 2001 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 $19,000 of the Company's
                          deferred tax assets at June 30, 2001.

</TABLE>

                                      10
<PAGE>

                     Advanced Electronic Support Products
                               and Subsidiaries


             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

<TABLE>
<S>                       <C>
                          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.

                          The Company's previous business combinations were accounted for
                          using the purchase method. As of June 30, 2001, the net carrying
                          value of goodwill is $1.7 million. Amortization expense during
                          the six-month period ended June 30, 2001 was approximately
                          $107,000. Currently, the Company is assessing but has not yet
                          determined how the adoption of SFAS 141 and SFAS 142 will impact
                          its financial position and results of operations.
</TABLE>

                                      11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         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 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH ARE INTENDED TO BE
COVERED BY THE SAFE HARBORS CREATED THEREBY. THESE FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
COMPETITION FROM OTHER MANUFACTURERS AND DISTRIBUTORS OF CONNECTIVITY AND
NETWORKING PRODUCTS BOTH NATIONALLY AND INTERNATIONALLY; THE BALANCE OF THE MIX
BETWEEN ORIGINAL EQUIPMENT MANUFACTURER SALES (WHICH HAVE COMPARATIVELY LOWER
GROSS PROFIT MARGINS WITH LOWER EXPENSES) AND 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 WORKING
CAPITAL AVAILABILITY TO SUPPORT BOTH INTERNAL GROWTH AND FUTURE GROWTH OF THE
COMPANY'S OPERATIONS THROUGH ACQUISITIONS. THESE AND ADDITIONAL FACTORS ARE
DISCUSSED HEREIN AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR 2000 (THE
"FORM 10-KSB"). 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 PUBLIC 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 OR PLAN
OF OPERATION" IN THE FORM 10-KSB.

Results of Operations

         For the six months ended June 30, 2001, the Company achieved net sales
of $14.7 million, an increase of $902,000 or 6.5% over net sales of $13.8
million for the six months ended June 30, 2000. For the quarter ended June 30,
2001, the Company achieved net sales of $6.5 million, a decrease of $610,000 or
8.6% over net sales of $7.1 million for the quarter ended June 30, 2000.

                                      12
<PAGE>

The Company experienced a significant drop in sales throughout its worldwide
operation for the quarter ended June 30, 2001 due to heightened competition and
worsening economic conditions in the U.S and abroad.

         Contributing to the overall increase in first half sales were increases
in international sales, which were up 22.7% to $8.5 million for the first six
months of 2001, from $6.9 million for the first six months of 2000, and up 1.7%
to $3.4 million for the second quarter of 2001 from $3.3 million for the second
quarter of 2000. The increase in the first six months international sales was
primarily due to sales by Lanse AS (Lanse was acquired in May 2000) and
increased sales to the Company's distributor in Russia.

         The decrease in sales for the second quarter resulted from reductions
of U.S. OEM sales and networking sales of $670,000, and international sales
(other than from Lanse AS) of $370,000 offset by Lanse sales of $430,000. Second
quarter sales to the Company's Russian and Ukrainian distributor were also down
significantly compared to first quarter 2001 sales to those customers. The
primary reason for the sales decrease was the economic slowdown in the United
States and abroad. The Company expects its revenues will continue to be impacted
for the discernable future by the economic slowdown.

         The Company's gross profit margin was 27.0% for the six months ended
June 30, 2001, compared to 39.1% for the six months ended June 30, 2000, and was
21.4% for the second quarter of 2001 compared to 37.9% for the second quarter of
2000. The primary reasons for the gross margin decline were the additional
inventory charges described below, shifts in product mix, impact on our margins
of lower margins from sales by our subsidiary Lanse, heightened price
competition and lower demand for our products (all due primarily to the above -
described economic slowdown and decreased spending on technology).

         The Company recorded inventory charges totaling $578,000 in the second
quarter of 2001 due to the sudden and significant decrease in demand for its
products resulting from decreased spending on technology. These charges were
estimated based on the carrying value of current inventory balances compared to
current sales prices and estimated future sales price analysis prepared by the
Company's sales departments for computer connectivity and networking products in
each of the Company's geographic areas of operations. For the three and six
months of 2001 ended June 30, 2001, inventory charges totaled $578,000 and
$779,000, respectively.

         Selling, general and administrative ("SG&A") expenses increased by
$161,000, or 3.3%, to $5.0 million for the six months ended June 30, 2001, from
$4.8 million for the six months ended June 30, 2000. For the quarter ended June
30, 2001, SG&A expenses increased by 1.7% to $2.6 million, from $2.5 million for
the comparative 2000 period. SG&A expenses as a percentage of sales for the
three and six months ended June 30, 2001 were 39.5% and 34.0%, respectively,
compared to 35.5% and 35.1%, respectively, for the three and six months ended
June 30, 2000. In the three months ending June 30, 2001, the Company increased
its bad debt reserve and its reserve for sales allowances by an aggregate of
$177,000, given the worsening economic situation.

         In the second quarter ending June 30, 2001, the Company began steps to
modify its cost structure and reduce expenditures in order to respond to the
economic slowdown affecting the Company's sales. As a result, worldwide
employment dropped at June 30, 2001 by 11% from headcount levels at March 31,
2001, and additional workforce reductions are being considered.

         As a result of the aforementioned factors, the loss from operations for
the three months ended June 30, 2001 was $1.2 million, a decrease of $1.3
million from income from operations of $169,000 for the three months ended June
30, 2000. For the first six months of 2001, the loss

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<PAGE>

from operations was $1.0 million a decrease of $1.6 million from income from
operations of $560,000 for the first six months of 2000.

         Amortization of goodwill was $107,000 for the six months ended June 30,
2001, an increase of 44.6% over amortization of $74,000 for the six months ended
June 30, 2000. This increase is primarily attributable to amortization charges
arising as a result of the acquisition by the Company of Lanse in May 2000.
Amortization is expected to remain at its current level in future periods due
to the amortization of goodwill associated with the Lanse acquisition.

         Interest expense for the six months ended June 30, 2001 was $146,000,
compared to $112,000 for the first six months of 2000. Interest increased for
the first six months of 2001 due to higher borrowings by the Company compared to
the similar period in 2000. Second quarter 2001 interest was consistent with
interest expense for the first quarter 2001 ($59,000) due to lower interest
rates.

         Income tax expense for the three and six months ended June 30, 2000 is
computed based upon the tax rates applicable to the Company's operations in the
United States, Germany, Sweden, Norway and Ukraine which range from 34% to 45%.
Substantially all of the Company's 2001 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 $19,000 of the Company's deferred tax assets at June
30, 2001.

         As a result of the foregoing factors, the Company had a net loss of
$1.2 million for the six months ended June 30, 2001, a decrease of $1.6 million
from net income of $408,000 for the six months ended June 30, 2000, and a net
loss of $1.2 million for the quarter ended June 30, 2001, a decrease of $1.3
million from net income of $160,000 for the second quarter of 2000. The Company
believes that its revenues, valuation reserves, and earnings will continue to be
negatively impacted for the discernable future by the economic slowdown and
decreased spending on technology.

         Basic (loss) earnings per share were $(0.31) for the six months ended
June 30, 2001, compared to basic (loss) earnings per share of $.12 for
the six months ended June 30, 2000. Diluted (loss) earnings per share were
$(0.31) for the first six months of 2001, compared to diluted (loss) earnings
per share of $.11 for the first six months of 2000. For the second quarter of
2001, basic (loss) earnings per share were $(0.32), compared to basic (loss)
earnings per share of $.05 for the second quarter of 2000. Likewise, diluted
(loss) earnings per share were $(0.32) for the second quarter of 2001, reduced
from diluted (loss) earnings per share of $.04 for the second quarter of 2000.

Liquidity & Capital Resources

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

         In June 2001, the Company completed a private placement of shares of
its common stock. The Company sold 573,900 shares in the private placement at a
gross purchase price of $2.00 per share (558,900 shares were sold on June 29,
2001 and 15,000 shares were sold on July 13, 2001). The net proceeds of the
placement (approximately $1.0 million) will be used for acquisitions and working
capital. In connection with the placement, the Company issued a warrant to
Newbridge Securities Corporation, which acted as the placement agent, to
purchase 57,390 shares at a purchase price of $2.20 per share. The Company is
obligated to file a registration statement to register for resale the securities
issued in the private placement by December 31, 2001 and to thereafter use its
best efforts to cause such registration statement to become effective.

         At June 30, 2001, the Company's working capital was $4.2 million, a
decrease of 14.5% over working capital of $5.0 million as of December 31, 2000.
The principal causes of the

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<PAGE>

decrease were decreases of approximately $2.1 million in inventories (29.0%),
and approximately $1.2 million (65.1%) in cash, offset in part by increases of
approximately $306,000 (9.3%) in accounts receivables, $637,000 (17.5%) in
accounts payable, $134,000 (12.0%) in accrued expenses, and $1.3 million (46.7%)
in short term borrowings. The decrease in short term borrowings related
primarily to the receipt of proceeds from the above described private placement
and the temporary use of those proceeds to reduce the principal balance of the
line of credit. The Company anticipates that all or portion of these funds will
be reborrowed in the future to complete one or more acquisitions, so long as the
Company is then in compliance with the terms of its line of credit (see below
for a discussion of the status of the line of credit).

         For the six months ended June 30, 2001, $595,000 of cash was used in
operations. The net loss of approximately $1.2 million reduced cash.
Additionally, accounts receivable increased $302,000 due to the increase in
sales during the six month period and inventories decreased $717,000 (exclusive
of the $779,000 non-cash provision) as the Company decreased inventory
procurement due to the ongoing economic slowdown. Net cash used in investing
activities was $152,000, as there was an increase in property and equipment.
Cash of $982,000 was generated in financing activities primarily from the
private placement, which was used on a temporary basis for payments on
borrowings. The total used to reduce borrowings was $1.3 million with a total of
$313,000 being used in financing activities. As a result of the foregoing, the
Company's cash position decreased $1.1 million between December 31, 2000 and
June 30, 2001. That decrease, combined with a decrease of $91,000 attributable
to the effects of exchange rate changes on cash, produced an overall decrease in
cash of $1.2 million.

         The Company is making efforts to improve its cash situation through
cost reductions, collection of accounts receivable, and further reduction in
inventory. As of June 30, 2001, the number of turns of inventory increased to
3.3 times (without the impact of write-offs) from 2.9 times in 2000, due to
better inventory management.

         In September 2000, the Company obtained a renewal of a $3.5 million
line of credit from a financial institution. The line of credit was further
increased to $4.0 million in March 2001. Borrowings available under the line of
credit, which matures on September 23, 2001, bear interest at the rate of prime
plus one-half (.50) percent. Borrowings under the line of credit are based on
specific percentages of the Company's receivables and inventories. The line of
credit is secured by a lien on the Company's U.S. assets, including its 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 respective 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 during future periods. As of June 30, 2001, the Company
was in compliance with all of the aforementioned benchmarks and ratios. As of
June 30, 2001, $1,429,000 was outstanding under the credit line and $1,425,000
was available for borrowing under the line of credit, based on applicable
borrowing base formulas.

         In August, 2001, the Company asked the financial institution to extend
the current line of credit based on the same terms and conditions, and the
financial institution is considering the request. Under the terms of the
proposed facility, the Company will be able to continue to finance its domestic
inventory and domestic and international insured receivables under predetermined
advance rates. Consummation of the new borrowing facility is subject to approval
of the Board of Directors of the Company, the financial institution's review of
the Company's domestic inventory and domestic and international receivables, and
the execution of definitive amended loan documents.

                                      15
<PAGE>

         While there can be no assurance, the Company expects to obtain an
extension of its line of credit from its lender. However, if the Company is
unable to close this new financing (or other alternative financing), and the
Company were unable to further extend its existing line of credit beyond its
September 23, 2001 maturity date, the Company's business would likely be
materially and adversely affected.

          The Company has entered into a non-binding letter of intent to acquire
a distributor and manufacturer of networking hardware and wireless networking
products located in Central Europe. The transaction is subject to various
conditions, including the execution of a definitive purchase agreement, approval
by the Boards of Directors of both companies. The purchase price is
approximately $1.1 million. The transaction, if completed, is expected to close
in August 2001. The Company is currently completing a diligence investigation on
the target. There can be no assurance that this acquisition will be completed.

         The Company believes that revenue growth requires working capital to
support increased sales and to support the receivables generated from increased
sales. The Company believes that its internally generated cash flow from
operations, combined with its line of credit, will be sufficient to fund its
current operations for the next twelve months. The Company may also consider
selling debt or equity securities in order to meet its current and future
working capital requirements or to fund future acquisitions.

         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.

New Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142). SFAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
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.

         The Company's previous business combinations were accounted for using
the purchase method. As of June 30, 2001, the net carrying value of goodwill is
$1.7 million.

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<PAGE>

Amortization expense during the six-month period ended June 30, 2001 was
approximately $107,000. Currently, the Company is assessing but has not yet
determined how the adoption of SFAS 141 and SFAS 142 will impact its financial
position and results of operations.


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 six months ended June 30, 2001, the Company's interest
expense would have increased, and loss before taxes would increase by $26,000;
comparably, the Company's interest expense would have increased, and income
before taxes would decrease by $22,000 in the first six months ended June 30,
2000. 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 and Germany. 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 June 30, 2001 in the value of
the dollar would have resulted in reduced revenues of $599,000 for the six
months ended June 30, 2001. A uniform 10% strengthening as of June 30, 2000 in
the value of the dollar would have resulted in reduced revenues of $566,000 six
months ended June 30, 2000. A uniform 10% strengthening as of June 30, 2001 in
the value of the dollar would have resulted in a reduction of the consolidated
Company's net worth by $299,000. A uniform 10% strengthening as of June 30, 2000
in the value of the dollar would have resulted in a reduction of the
consolidated Company's net worth by $407,000. The strengthening of the value of
the dollar has a lesser impact at June 30, 2001 versus 2000 since the Company
sold its wholly owned Ukrainian subsidiary in January 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 maintaining assets in the exposed
currency wherever possible. The Company finds it impractical to hedge foreign
currency exposure and as a result will continue to experience foreign currency
gains and losses.

                                      17
<PAGE>

                           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 July 30, 2001, the Company held its 2001 annual meeting of
          stockholders. 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 and Roman Briskin: 3,265,178 shares were
          voted in favor of each nominee for director, and 6,200 shares were
          voted against each nominee for director, and (ii) Leonard Sokolow,
          Terrence R. Diadone and William B. Coldrick: 3,266,178 shares were
          voted in favor of each nominee for director, and 5,200 shares were
          voted against each nominee for director.


ITEM 5.   OTHER INFORMATION

          The Company has entered into a non-binding letter of intent to acquire
          a distributor and manufacturer of networking hardware and wireless
          networking products located in Central Europe. The transaction is
          subject to various conditions, including the execution of a definitive
          purchase agreement, approval by the Boards of Directors of both
          companies. The purchase price is approximately $1.1 million. The
          transaction, if completed, is expected to close in August 2001. The
          Company is currently completing a diligence investigation on the
          target. There can be no assurance that this acquisition will be
          completed.

                                      18
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               None

          (b)  Reports on Form 8-K

               None


                                      19
<PAGE>

                                   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.

                                            ADVANCED ELECTRONIC SUPPORT
                                            PRODUCTS, INC.



Date: August 10, 2001                       By: /s/ ROY RAFALCO
                                            ------------------------------------
                                            Roy Rafalco, Chief Financial Officer

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