SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(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, 1998

                                       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 small business issuer 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)

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

         Check whether the issuer (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 issuer's common stock, as of
November 9, 1998, is 2,282,201 shares.

Transitional Small Business Disclosure Format (check one)

                       Yes    [ ]            No    [X]   

<PAGE>
                          Part I. Financial Information

                                                                           PAGE
                                                                           ----

Item 1.    FINANCIAL STATEMENTS

      Condensed Consolidated Balance Sheets at
      September 30, 1998 (unaudited) and December 31, 1997...................3

      Condensed Consolidated Statements of Income for the
      three and nine months ended September 30, 1998 and 1997 (unaudited)....4

      Condensed Consolidated Statements of Shareholders' Equity
      for the nine months ended September 30, 1998 (unaudited)...............5

      Condensed Consolidated Statements of Cash Flows for the nine
      months ended September 30, 1998 and 1997 (unaudited)...................6

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

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS
           OR PLAN OF OPERATION.............................................13

                           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.................................19


                                        2


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

                                           CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,        DECEMBER 31,
                                                                                               1998                1997
--------------------------------------------------------------------------------------------------------------------------
                                                                                        (UNAUDITED)
<S>                                                                                <C>                 <C>             
ASSETS

CURRENT
     Cash                                                                          $        669,251    $        424,036
     Accounts receivable, net of allowance for doubtful accounts of $106,091
         at September 30, 1998 and $132,000 at December 31, 1997                          4,024,070           5,037,267
     Inventories                                                                          4,828,766           5,765,156
     Income tax refund                                                                      429,000                   -
     Current deferred tax asset                                                             506,000             131,411
     Prepaid expenses and other current assets                                              108,760             249,814
--------------------------------------------------------------------------------------------------------------------------

Total current assets                                                                     10,565,847          11,607,684
Property and equipment, net                                                                 400,394             427,360
Intangible assets, net                                                                      680,809             761,203
Deferred tax asset                                                                          790,000             139,586
Other assets                                                                                130,292              69,365
--------------------------------------------------------------------------------------------------------------------------

                                                                                   $     12,567,342    $     13,005,198
==========================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT
     Notes Payable                                                                 $      1,945,000    $        227,078
     Accounts payable and accrued expenses                                                2,017,928           3,042,476
     Income taxes payable                                                                   277,353             235,525
     Current deferred tax liability                                                               -               9,407
--------------------------------------------------------------------------------------------------------------------------

Total current liabilities                                                                 4,240,281           3,514,486
Deferred tax liability                                                                       64,581              64,581
Notes payable-shareholders                                                                1,439,125           1,439,125
Long-term debt                                                                                    -               3,015
--------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                         5,743,987           5,021,207
--------------------------------------------------------------------------------------------------------------------------
Commitment and contingency (Note 4)
--------------------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
     Preferred stock, $.001 par value;  1,000,000
         shares authorized;  none issued                                                          -                   -
     Common stock, $.001 par value;  20,000,000 shares
         authorized;  2,282,201 shares issued                                                 2,283               2,283
     Paid-in capital                                                                      6,868,374           6,843,374
     Retained earnings                                                                       (4,589)          1,235,413
     Cumulative foreign currency translation adjustment                                     (42,713)           (97,079)
--------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                                6,823,355           7,983,991
--------------------------------------------------------------------------------------------------------------------------
                                                                                   $     12,567,342    $     13,005,198
==========================================================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES


                                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                     (UNAUDITED)


<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED              NINE MONTHS ENDED
                                                     SEPTEMBER 30,                   SEPTEMBER 30,
                                             ----------------------------------------------------------------
                                                    1998           1997            1998            1997
-------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>              <C>         
NET SALES                                      $   5,213,425  $  5,000,358   $   15,975,563   $ 14,518,559
-------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES:
     Cost of sales                                 3,539,312     3,044,146        9,516,078      8,575,434
     Selling, general and administrative
         expenses                                  2,056,649     1,756,911        6,334,009      5,071,069
     Write off of uncollectible accounts
         receivable from Russian distributor
         and inventory                             2,081,474             -        2,081,474              -
-------------------------------------------------------------------------------------------------------------

TOTAL OPERATING EXPENSES                           7,677,435     4,801,057       17,931,561     13,646,503
-------------------------------------------------------------------------------------------------------------

INCOME (LOSS) FROM OPERATIONS                     (2,464,010)      199,301       (1,955,998)       872,056

Other income (expense):
     Interest                                        (73,447)      (40,071)        (199,062)      (115,107)
     Other                                            (9,962)        7,423           33,886         10,687
-------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE INCOME TAXES                 (2,547,419)      166,653       (2,121,174)       767,636

Provision for income taxes (benefit)                (914,011)       89,746         (881,172)       284,532
-------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS)                              $  (1,633,408) $     76,907   $   (1,240,002)  $    483,104

Net Income (Loss) Per Common Share             $       (0.72) $       0.04   $        (0.54)  $       0.25
Net Income (Loss) Per Common Share
     Assuming Dilution                                 (0.72)         0.04            (0.54)          0.23
=============================================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                       CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                     (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                 CUMULATIVE
                                                                                    FOREIGN                          TOTAL
                                                                                   CURRENCY                         SHARE-
                                            COMMON      PAID-IN      RETAINED   TRANSLATION    COMPREHENSIVE      HOLDERS'
                                             STOCK      CAPITAL      EARNINGS    ADJUSTMENT           INCOME        EQUITY
-----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>       <C>          <C>           <C>             <C>             <C>        
Balance at January 1, 1998                $  2,283  $ 6,843,374  $  1,235,413  $    (97,079)               -   $ 7,983,991

Compensation expense in connection with
   issuance of stock options                     -       25,000             -             -                -        25,000

Net loss                                         -            -    (1,240,002)            -    $  (1,240,002)   (1,240,002)

Other comprehensive income
   Foreign currency translation
   adjustment                                    -            -             -        54,366           54,366        54,366
                                                                                               --------------
                                                                                                  (1,185,636)
-----------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1998             $  2,283  $ 6,868,374  $     (4,589) $    (42,713)   $           -   $ 6,823,355
=============================================================================================================================
</TABLE>


SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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

                                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     (UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,                                                  1998                1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                  <C>         
OPERATING ACTIVITIES:
  Net (loss) income                                                     $  (1,240,002)       $    483,104
  Adjustments to reconcile net income (loss)  to net cash
    (used in) operating activities:
      Provision for losses on accounts receivable                                   -              (2,833)
      Depreciation and amortization                                           219,360              55,472
      Deferred income taxes                                                (1,034,410)            (32,000)
      Write off of uncollectable accounts receivable and inventory          2,081,474                   -
      Compensation expense in connection with issuance of stock options        25,000                   -
      (Increase) decrease, net of business segment acquired, in:
        Accounts receivable                                                  (388,277)           (881,793)
        Inventories                                                           256,390             217,967
        Prepaid expenses and other current assets                             141,054            (284,377)
        Income tax receivable                                                (429,000)                  -
        Other assets                                                          (60,927)            (33,624)
      Increase (decrease), net of business segment acquired, in:
        Accounts payable and accrued expenses                              (1,024,548)         (1,529,399)
        Income taxes payable                                                   41,828             211,369
-----------------------------------------------------------------------------------------------------------------------
Net cash (used in)  operating activities                                   (1,412,058)         (1,796,114)
-----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
  Reduction in investments                                                          -              59,832
  Acquisition of business segment                                                   -            (174,683)
  Additions to property and equipment                                        (112,000)            (98,761)
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                        (112,000)           (213,612)
-----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
  Return of capital                                                                 -            (305,818)
  Net proceeds (payments) on borrowings                                     1,714,907          (1,631,328)
  Dividend distributions                                                            -            (412,909)
  Payment on notes payable-shareholders                                             -            (300,000)
  Proceeds from sale of stock and warrants, net                                     -           4,637,085
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                   1,714,907           1,987,030
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH                                               190,849             (22,696)
Effect of exchange rate changes in cash                                        54,366             (50,366)
CASH, AT BEGINNING OF YEAR                                                    424,036             628,135
-----------------------------------------------------------------------------------------------------------------------
CASH, AT END OF PERIOD                                                  $     669,251        $    555,073
=======================================================================================================================

SUPPLEMENTAL INFORMATION:
  Cash paid for:
    Interest                                                            $     211,597        $     55,718
    Taxes                                                               $     329,889        $    104,237
  Non-cash distribution to shareholders in the form of a
    convertible subordinated promissory note                            $           -        $  1,739,125
  Non-cash distribution credited to paid-in capital                     $           -             719,560
  Non-cash reclassification of cumulative undistributed earnings
    applicable to the Company's S corporation status                    $           -        $  1,133,920
  Deferred offering costs charged against paid-in capital
    in connection with initial public offering                          $           -        $    262,189
  Issuance of common stock for acquisition of business segment          $           -        $    700,000
=======================================================================================================================
</TABLE>


SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       6
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (UNAUDITED)


1.  BASIS OF               The accompanying unaudited condensed consolidated    
    PRESENTATION           financial statements have been prepared in accordance
                           with generally accepted accounting principles for    
                           interim financial information and with the           
                           instructions to Form 10-QSB. 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), have been included. Operating   
                           results for the nine month period ended September 30,
                           1998 are not necessarily indicative of the results   
                           that may be expected for the year ending December 31,
                           1998. 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, 1997. 

                           Through February 13, 1997, AESP, with the consent of 
                           its stockholders, elected to be taxed as an S        
                           Corporation. Shareholders of an S Corporation are    
                           taxed on their proportionate share of the Company's  
                           taxable income. Accordingly, no provision for federal
                           income tax is required for periods prior to February 
                           13, 1997.                                            
                           
                           Had the Company not been taxed as an S Corporation,
                           the Company would have been taxed approximately
                           $11,000 additionally during the nine months ended
                           September 30, 1997. This additional amount of
                           taxation has an insignificant effect on the earnings
                           per share calculations.

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

                           On February 13, 1997, and concurrent with the
                           Company's initial public offering ("IPO"), the
                           Company elected C Corporation tax status and a net
                           deferred tax asset was recorded for the three months
                           ended March 31, 1997. Such net deferred tax asset
                           resulted

                                       7
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (UNAUDITED)

                           principally from temporary differences relating to
                           allowance for doubtful accounts.

                           For the purpose of these financial statements the
                           Company has adopted the provisions of Statement of
                           Financial Accounting Standards (SFAS) 109, Accounting
                           for Income Taxes for all periods presented. Under the
                           asset and liability method of SFAS 109, deferred
                           taxes are recognized for differences arising from the
                           differences between financial statement and income
                           tax bases of assets and liabilities.

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

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

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

                           The results of operations for the separate companies
                           and the combined amounts for the nine months ended
                           September 30, 1997 presented in the consolidated
                           financial statements follows:

                                       8
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (UNAUDITED)

                           NINE MONTHS ENDED
                           SEPTEMBER 30,                       1997
                           ----------------------------------------

                           Net Sales
                               The Company              $11,146,954
                               Jotec/AESP                 3,371,605
                           ----------------------------------------

                           Combined                      14,518,559
                           ----------------------------------------

                           Net Income        
                               The Company                  317,902
                               Jotec/AESP                   165,202
                           ----------------------------------------

                           Combined                     $   483,104
                           ========================================

                           Included in shareholder distributions for the nine
                           months ended September 30, 1997 are distributions in
                           the amount of $412,909 related to Jotec/AESP.

3.  EARNINGS PER SHARE     The following reconciles the components of the 
                           earnings per share (EPS) computation:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,                  1998                                    1997
---------------------------------------------------------------------------------------------------------------------------
                                              INCOME
                                              (LOSS)           SHARES    PER-SHARE       INCOME          SHARES   PER-SHARE
                                         (NUMERATOR)     (DENOMINATOR)      AMOUNT  (NUMERATOR)   (DENOMINATOR)      AMOUNT
---------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>           <C>         <C>            <C>             <C>  
Earnings (loss) per common share
    Net income (loss) available to
         common shareholders             $(1,633,408)       2,282,201     $(0.72)     $ 76,907       2,092,500       $0.04

Effect of Dilutive Securities:
    Exercisable options to purchase
       shares of common stock                                                                           23,000
    8 1/2% convertible notes                                                            23,024         359,781
---------------------------------------------------------------------------------------------------------------------------

Net income (loss) available to common
    shareholders plus assumed
    conversions                          $(1,633,408)       2,282,201     $(0.72)     $ 99,931       2,475,281       $0.04
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       9
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (UNAUDITED)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,                    1998                                     1997
-----------------------------------------------------------------------------------------------------------------------------

                                               INCOME          SHARES   PER-SHARE       INCOME          SHARES   PER-SHARE
                                          (NUMERATOR)   (DENOMINATOR)     AMOUNT   (NUMERATOR)   (DENOMINATOR)     AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>          <C>        <C>             <C>           <C>   
Earnings (loss) per common share
    Net income (loss) available to
         common shareholders              $(1,240,002)      2,282,201    $ (0.54)   $ 483,103       1,925,907     $ 0.25

Effect of Dilutive Securities:
       Exercisable options to purchase
              shares of common stock                                                                   63,000
       8 1/2% convertible notes                                                        34,536         300,476
-----------------------------------------------------------------------------------------------------------------------------

Net income available to common
    shareholders plus assumed
    conversions                           $(1,240,002)      2,282,201    $ (0.54)   $ 517,639       2,289,383     $ 0.23
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                           Options to purchase 61,500 shares of common stock at
                           $2.75 were granted on March 9, 1998. These options
                           expire in 2008. As of September 30, 1998 options to
                           purchase 20,500 shares of common stock were
                           exercisable, and were not included in the computation
                           of diluted EPS, since they have an anti-dilutive
                           effect.

                           Options to purchase 70,200 shares of common stock at
                           $3.50 were granted on November 7, 1997. These options
                           expire in 2008. As of September 30, 1998 options to
                           purchase 22,100 shares of common stock were
                           exercisable but were not included in the computation
                           of diluted EPS, since they have an anti-dilutive
                           effect.

                           Options to purchase 200,000 shares of common stock at
                           $6.00 per share were outstanding during 1997 and
                           1996, but were not included in the computation of
                           diluted EPS as the options' exercise price was
                           greater than the average market price of the common
                           shares. The options, which expire in 2006, were
                           outstanding at September 30, 1998.

                           Options to purchase 200,000 shares of common stock at
                           $3.53 per share were granted on July 23, 1998. These
                           options expire in 

                                       10
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (UNAUDITED)

                           2003. As of September 30, 1998 options to purchase
                           100,000 shares of common stock were exercisable but
                           were not included in the computation of diluted EPS
                           as the option's exercise price was greater than
                           the average market price of the common shares.

                           Options to purchase 85,000 shares of common stock at
                           $3.53 were granted on July 23, 1998. These options
                           expire in 2003. As of September 30, 1998 options to
                           purchase all 85,000 shares of common stock were
                           exercisable, but were not included in the computation
                           of diluted EPS as the option's exercise price was
                           greater than the average market price of the common
                           shares.

                           Options to purchase 380,500 shares, 36,000 shares,
                           23,000 shares, 40,000 shares and 75,000 shares of
                           common stock at $6.00, $5.88, $4.00, $6.00, and $3.69
                           per share, respectively, were outstanding during
                           1997, but not included in the computation of diluted
                           EPS as the options' exercise price was greater than
                           the average market price of the common shares. The
                           options with expirations from 2002 to 2007 were
                           outstanding at September 30, 1998.

                           Subsequent to September 30, 1998, certain of the
                           foregoing options were repriced, as follows:

                           NUMBER OF SHARES   OLD OPTION PRICE  NEW OPTION PRICE
                           -----------------------------------------------------
                                 60,700             $3.50          $1.625
                                 56,700              2.75           1.625
                                 85,000              3.53           1.625
                                 36,000              5.88           1.625
                                200,000              3.53           1.625
                                200,000              6.00           1.625

4.  COMPREHENSIVE INCOME   The Company adopted SFAS No. 130, REPORTING          
                           COMPREHENSIVE INCOME, which INCOME requires that all 
                           components of comprehensive income and total         
                           comprehensive income be reported on one of the       
                           following: a statement of income and comprehensive   
                           income, a statement of comprehensive income or a     
                           statement of stockholders' equity. Comprehensive     
                           income is comprised of net income and all changes to 
                           stockholders' equity, except those due to investments
                           by owners (changes in paid in capital) and           
                           distributions to owners (dividends). For interim     
                           reporting purposes, SFAS 130 requires disclosure of  
                           total comprehensive income.                          
                           
                           Total comprehensive income is as follows:

                           FOR THE NINE MONTHS ENDED
                           SEPTEMBER 30,                    1998         1997
                           -----------------------------------------------------

                           Net (loss) income            $(1,240,002)   $483,104
                           Other comprehensive 
                            income (loss),
                             net of tax                      54,366     (40,101)
                           -----------------------------------------------------
                           Comprehensive (loss)
                            income                      $(1,185,636)   $443,003
                           -----------------------------------------------------

                                       11
<PAGE>
                                      ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
                                                                AND SUBSIDIARIES

                            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (UNAUDITED)


5.  WRITEDOWN OF           In the three months ending September 30, 1998, the   
    ACCOUNTS               Company recorded a write-off of $2,081,474 related to
    RECEIVABLE AND         losses that it expects to incur as a result of the   
    INVENTORY              financial and economic conditions in Russia and of   
                           its Russian distributor and the impact which such    
                           conditions are expected to have on the Company's
                           results of operations for the third quarter of 1998. 

6.  NOTES PAYABLE          At September 30, 1998, the Company has a revolving   
                           line of credit agreement with a bank that limited    
                           borrowings to a percentage of receivables and        
                           inventories and contained certain covenants relating 
                           to the Company's net worth and indebtedness, among   
                           others. This credit agreement was collateralized by  
                           substantially all the assets of the Company. At      
                           September 30, 1998, the Company was in default of    
                           certain of the loan agreement financial covenants. 
                           Additionally, the loan matured on October 26, 1998.  
                           The Company is presently negotiating a renewal of    
                           this loan.                                           

7.  SUBSEQUENT EVENTS      Subsequent to September 30, 1998, the Company        
                           acquired all the outstanding common stock of
                           its distributor located in the Ukraine. The purchase
                           price of this acquisition was valued at approximately
                           $1,050,000, the amount equal to the outstanding
                           amount due from the distributor to the Company. This
                           acquisition will be accounted for under the purchase
                           method, whereby the purchase price will be allocated
                           to the underlying assets and liabilities based upon
                           their estimated fair values.

                                       12
<PAGE>

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-QSB CONTAIN FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO
THE FOLLOWING: COMPETITION FROM OTHER MANUFACTURERS AND DISTRIBUTORS OF
CONNECTIVITY AND NETWORKING PRODUCTS BOTH NATIONALLY AND INTERNATIONALLY;
ECONOMIC CONDITIONS IN THE COMPANY'S MARKETS, THE BALANCE OF THE MIX BETWEEN
ORIGINAL EQUIPMENT MANUFACTURER ("OEM") SALES (WHICH HAVE COMPARATIVELY LOWER
GROSS PROFIT MARGINS WITH LOWER EXPENSES) AND RETAIL SALES (WHICH HAVE
COMPARATIVELY HIGHER GROSS PROFIT MARGINS WITH HIGHER EXPENSES) FROM PERIOD TO
PERIOD, AND THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING AND
ASSEMBLY OF PRODUCTS AND THE ABSENCE OF SUPPLY AGREEMENTS. THESE AND ADDITIONAL
FACTORS ARE DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 1997. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN INVOLVE
AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING), ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENT. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

RESULTS OF OPERATIONS

         The Company sells connectivity products in the following categories:
passive connectivity products; passive networking products; active networking
products; and OEM connectivity products. Passive connectivity products are
primarily computer and telecommunication cables, connectors, adapters, etc.
Passive networking products are networking oriented cables, connectors and
adapters, as well as raceways and wall plates, etc. Active networking products
are hubs, transceivers and network adapters, etc. The Company's connectivity
products are sold to retail customers in the United States, Sweden, Germany,
Norway and, effective October 1998, the Ukraine. The Company's OEM products are
primarily sold to U.S. OEM customers and consist primarily of custom cables and
custom cable assemblies. The Company also has an exclusive distributor in
Russia. The Company's customers include: computer and networking retailers;
computer and networking value added retailers (VARs); networking and
telecommunication installers; computer, networking, and telecommunication
oriented catalog houses; and OEM manufacturers.

      Net sales for the nine months ended September 30, 1998 were $16.0 million,
an increase of 10.0% compared to the net sales of $14.5 million for the nine
months ended September 30, 1997. This increase is due primarily to increases in
sales in Europe made through the Company's subsidiaries in Norway, Sweden and
Germany as well as sales made to the Company's exclusive distributors in Russia
and the Ukraine (the Company acquired its Ukranian distributor in October 1998).

                                       13
<PAGE>

      Net sales for the three months ended September 30, 1998 were $5.2
million, an increase of 4.3% compared to net sales of $5.0 million for the three
months ended September 30,1997. This increase is due primarily to increases in
net sales in Norway, Sweden and Germany, reduced in part by a reduction in sales
to the Company's Russian distributor. Sales to the Company's Russian distributor
were 12.3% of sales in the first nine months of 1998 and 11.2% of sales for the
first nine months in 1997.

      During the three and nine months ended September 30, 1998, sales of active
networking and OEM products increased to 18.6% and 19.1% respectively, of net
sales, compared to 12.5% and 10.6%, respectively, of net sales during the same
period in 1997. During the three months ended September 30, 1998, the Company's
worldwide sales of active networking and OEM products increased to 19.1% of net
sales, compared to 10.6% of net sales during the same period in 1997.

      Due to a severe economic downturn in Russia which became evident during
the third quarter of 1998, the Company ceased shipping products to its exclusive
distributor in Russia during the third quarter of 1998 and has written down both
the accounts receivable due to the Company from its Russian distributor as well
as the value of certain inventory which the Company was holding to sell to its
Russian distributor. This one-time charge of $2.1 million severely impacted
operating results for the three and nine month periods ended September 30, 1998.


      The Company is taking steps to both increase sales to make up for the
loss of sales relating to its Russian distributor and to reduce its costs where
appropriate. Additionally, the Company intends to continue to work closely with
its Russian distributor and if and when the Russian economy recovers, it hopes
to be able to again do business with its Russian distributor and to recover some
of the one-time charge.

      Cost of sales for the nine months ended September 30, 1998 was $9.5
million, an increase of 11.0% compared to cost of sales of $8.6 million for the
nine months ended September 30, 1997. Cost of sales for the three months ended
September 30, 1998 was $3.5 million, an increase of 16.3% compared to cost of
sales of $3.0 million during the three months ended September 30,1997.

      Gross profit margin for the nine months ended September 30, 1998 was
40.4%, a decrease of 0.5% compared to gross profit margin of 40.9% during the
nine months ended September 30, 1997. Gross profit margin for the three months
ended September 30, 1998 was 32.1%, a decrease of 7.0% compared to the gross
profit margin of 39.1% during the three months ended September 30,1997. The
gross profit margin decreases are due primarily to the product mix shift from
relatively high margin passive connectivity and networking products to the
relatively lower margin active networking and OEM products, and to the loss of
sales to the Company's Russian distributor, which sales historically had added
positively to gross profit margin.

      Selling, general and administrative ("SG&A") expenses for the nine months
ended September 30, 1998 were $6.3 million, which is an increase of 24.9%
compared to SG&A expenses of $5.1 million for the nine months ended September
30, 1997. SG&A expenses for the three months ended September 30, 1998 were $2.1
million, an increase of 17.1% compared to SG&A expenses of $1.8 million during
the three months ended September 30,1997. Increases in SG&A reflect increases in
costs relating to marketing, travel and advertising expenses necessary to launch
the Focus Networking product line; increases in salaries; increases in
depreciation and amortization, and increases in legal, accounting and consulting
fees.

                                       14
<PAGE>

      Due to the factors set forth above, losses from operations for the nine
month and three month periods ended September 30, 1998 were $2.0 million and
$2.5 million, respectively. Income from operations, exclusive of the one-time
charge taken by the Company, would have been approximately $125,000 and a loss
of approximately $383,000 for the nine and three month periods ended September
30, 1998, compared to operating income of $872,000 and $199,000, respectively,
for the 1997 nine and three month periods.

      Interest expense for the 1998 nine and three month periods was $199,000
and $73,000 respectively, which were increases of approximately 72.9% and 83.3%
when compared to interest expense during the same periods in 1997. The increase
in interest expense is primarily due to increases in net borrowings by the
Company from period to period.

      The Company incurred a net loss for the three and nine months ended
September 30, 1998 of $1.63 million ($.72 per basic and diluted share) and $1.24
million ($.54 per basic and diluted share), compared to net income of $77,000
($.04 per basic and diluted share) and $483,000 ($.25 per basic share and $.23
per diluted share) for the comparable 1997 periods. The net loss for the 1998
periods was caused by the factors described above, offset, in part, by income
tax benefits of $900,000.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

      During the first quarter of 1997, the Company completed a public offering,
in which the Company raised net proceeds of approximately $4.9 million ($4.4
million net of certain capitalized expenses in connection with the offering).

      At September 30, 1998, the Company's working capital was approximately
$6.3 million and its current ratio was 2.49:1 compared to working capital of
approximately $8.1 million and a current ratio of 3.30:1 as of December 31,
1997. At September 30, 1998, the Company's net book value per basic share was
$2.99 per basic share, compared to $3.50 as of December 31, 1997.

      As of September 30, 1998, cash balances had increased approximately
$245,000, or 57.8% when compared to cash balances on December 31, 1997. Trade
accounts receivable decreased approximately $1.0 million, or 20.1%, when
compared to trade accounts receivable balances on December 31, 1997, due
primarily to the one-time write-off of approximately $1.4 million in trade
accounts receivable due from the Company's exclusive distributor in Russia. At
September 30, 1998, inventories had decreased approximately $0.9 million, or
16.2% compared to inventory balances on December 31, 1997, due primarily to the
write-off of approximately $0.7 million of inventories held by the Company to
support sales to the Company's exclusive distributor in Russia.

      Net property and equipment decreased approximately $27,000, or 6.3% when
compared to net property and equipment balances on December 31, 1997. The
Company is in the process of installing a new management and accounting computer
system which it anticipates completing by the end of the fourth quarter of 1998.
Costs associated with the new system approximate $150,000.

                                       15
<PAGE>

      On September 30, 1997 the Company acquired the assets of the networking
product line of Focus Enhancements, Inc. and accounted for the transaction as a
purchase of assets. Due to this accounting treatment the Company recorded an
intangible asset which balance as of September 30, 1998 was, net of
amortization, approximately $681,000.

      The Company had a $4.5 million revolving line of credit with a financial
institution (the "Credit Facility"), which line of credit matured on October 26,
1998. Borrowings under the Credit Facility bear interest at the rate of prime,
plus 0.25% per annum. Available borrowings under the Credit Facility are based
upon specific percentages of the Company's U.S.-based accounts receivable and
inventories. The Credit Facility is secured by a lien on the Company's
world-wide accounts receivable, inventory and all other assets of the Company.
The Company is currently in default under two of the financial covenants
contained in its Credit Facility. The Company is currently negotiating with its
lender for an extension of its credit facility and for a waiver of the covenant
defaults. While there can be no assurance, the Company expects to receive an
extension of its Credit Facility and a waiver of the covenant defaults. If the
Company's lender were to insist upon repayment of its facility at this time, it
would have a material adverse impact on the Company's financial condition and
business.

      The Company is currently negotiating both with its lender and with other
potential lenders to obtain a new line of credit which will allow the Company to
borrow additional funds. There can be no assurance that the Company will be
successful in obtaining additional funding. The Company's inability to obtain
increased financing would likely inhibit the Company's ability to further
develop its business.

      In that regard, the Company may need to raise additional capital in the
future to fund its operations and continued growth. The effect of any sales of
equity securities (or debt securities convertible into equity securities) by the
Company may be dilutive to the Company's existing shareholders. The Company
believes that its current cash available will allow the Company to meet its
requirements through the end of 1998.

      At September 30, 1998, the Company had borrowed approximately $1.9 million
on its Credit Facility, on average. Accounts payable and accrued expenses
decreased approximately $1.0 million, or 33.7% when compared to accounts payable
and accrued expenses balances on December 31, 1997.

      For the nine months ended September 30, 1998, approximately $1.4 million
of cash was used in operations. Operating cash, along with borrowings under the
Credit Facility, were used primarily to fund net losses and to reduce trade
accounts payable.

      The Company's management does not believe that inflation has had a
significant effect on the Company's operations during the last several years.



                                       16
<PAGE>

YEAR 2000 ISSUES

      The Company has substantially completed its assessment of the impact of
year 2000-related problems on the Company, including its information technology
systems (such as its computer systems) and its non-information technology
systems (such as its equipment and manufacturing process). With respect to the
Company's information technology systems, the Company believes that its computer
systems are presently year 2000 compliant. The Company is currently updating its
computer system, at a cost of approximately $150,000, in order to have the
computer systems required for the future growth of its business. The Company
anticipates that the new updated computer system will also be year 2000
compliant. Beyond the measures described above, the Company does not anticipate
requiring any material remediation programs with respect to its non-information
technology systems. The Company is also currently assessing whether Year 2000
related problems of its customers and suppliers will adversely impact the
Company, although the Company has not yet reached any conclusions on these
issues.

                                       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

      The Company is currently in default of certain financial covenants under
its Credit Facility. See Note 6 of Notes to Condensed Consolidated Financial
Statements (Unaudited) and "Management's Discussion and Analysis or Plan of
Operation-Financial Condition, Liquidity and Capital Resources."

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

      None.

ITEM 5.    OTHER INFORMATION

      In October 1998, the Company acquired its exclusive distributor in the
Ukraine for approximately $1,050,000, which is an amount equal to the
outstanding receivables due to the Company from its distributor. This
acquisition is not expected to significantly increase revenues, but should
provide the Company with control over the distribution of its products in the
Ukrainian market.

                                       18
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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits

                  27.1              Financial Data Schedule

         (b)      Reports on Form 8-K

                  No reports on Form 8-K were filed during the quarter
ended September 30, 1998. On October 19, 1998, the Company filed a Report on
Form 8-K reporting that the Company would take a one-time charge relating to
the condition of the Russian economy and the effect it is having on the
Company's Russian distributor.

                                       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: November 16, 1998          By: /S/ RANDALL N. PAULFUS      
                                    ----------------------------------------
                                 Randall N. Paulfus, Chief Financial Officer

                                       20
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT     DESCRIPTION
-------     -----------
  27.1      Financial Data Schedule