UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended December 31, 2004
Commission File No. 000-12739

AESP, INC.

(Exact name of registrant as specified in its charter)

(305) 944-7710

SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

Common Stock $.001 Par Value

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 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 þ NO o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES o NO þ

     The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing bid price of the Company’s common stock, $.001 par value per share (the “Common Stock”) as of June 28, 2004 of $.33 per share (as reported on the NASDAQ SmallCap Market), was approximately $1,498,722. There is no non-voting stock.

     The number of shares of the Company’s Common Stock which were outstanding as of March 25, 2005 was 6,143,596.

DOCUMENTS INCORPORATED BY REFERENCE

     Certain exhibits listed in Part IV of this Annual Report on Form 10-K are incorporated by reference from prior filings made by the Registrant under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

AESP, INC.

TABLE OF CONTENTS

i

Forward-looking statements

     Unless the context otherwise requires, references to “AESP, Inc.,” “AESP,” “we,” “our” and “us” in this Annual Report on Form 10-K includes AESP, Inc. and its subsidiaries. The matters discussed in this annual report on Form 10-K contain or may contain forward-looking statements about such matters as our operations, our financial performance and our prospects within the meaning of Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. These forward-looking statements involve risks, uncertainties, and assumptions, including, in addition to those described below, in “Risk Factors Related to Our Operations,” in “Risk Factors Related to Our Financial Condition And Results Of Operations,” and elsewhere in this annual report on Form 10-K:

	•	our ability to refinance the Bendes and Chao term notes, which are currently due October 27, 2005 and December 31, 2005, respectively,
	•	competition from other manufacturers and distributors of computer networking products both nationally and internationally,
	•	our ability to generate sales of our products at sufficient gross margins to operate our business on a cash flow positive and profitable basis, which is something we have not done in several years,
	•	the balance of the mix between original equipment manufacturer sales (which have comparatively lower gross profit margins with lower expenses) and networking sales (which have comparatively higher gross profit margins with higher expenses) from period to period,
	•	our dependence on third parties for manufacturing and assembly of products, and
	•	the absence of supply agreements.

These and additional factors are discussed herein.

     You should carefully consider the information incorporated by reference, and information that we file with the Securities and Exchange Commission (“SEC”) from time to time. The words “may,” “will,” “expect,” “anticipate,” “believe,” “continue,” “estimate,” “project,” “intend,” and similar expressions used in this Form 10-K are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. You should also know that such statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may differ materially from those included within the forward-looking statements.

2

PART I

ITEM 1. BUSINESS.

THE COMPANY

     AESP, Inc. distributes products through its two U.S. based businesses, Signamax Connectivity Systems (“Signamax”) and Advanced Electronic Manufacturing (“AEM”). We also distribute our products through exclusive distributors in Russia and the Ukraine.

     During 2004, we sold our Swedish and Norwegian distribution operations and closed down our German based operations. With the sale of our Czech Republic subsidiary in March, 2005, we no longer operate our Western Europe operating segment which principally distributed Signamax products and other manufacturers’ product lines. The operations of our subsidiaries that formerly comprised our Western Europe operating segment are reported as discontinued operations in our Consolidated Financial Statements.

     We were incorporated in Florida in 1983. Our principal executive offices are at 1810 N.E. 144^th Street, North Miami, Florida 33181, and our telephone number is (305) 944-7710.

     Recent Developments

     On April 7, 2005, we announced that we are going to delist our common stock under the Securities Exchange Act of 1934. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Continuing Operations

Signamax Connectivity Systems

     Signamax is responsible for the worldwide design and development, as well as the North and South American marketing and sales of Signamax computer networking products. The Signamax mission is to provide for total end-to-end network connectivity needs, from the server to the user’s workstation. Signamax sells two product lines, Network Connectivity products (active networking line) and Premise Connectivity products (passive networking line).

     The Signamax Network Connectivity product line offers a wide range of high performance, cost-effective options for Ethernet applications, including media converters, KVM (keyboard, video & mouse) switches and other switches and network interface cards. This line focuses on the growing demand for high-speed, high bandwidth connectivity.

     The Signamax Premise Connectivity product line enables the user to build a network of wiring solutions meeting current industry standards for the equipment room, distribution cabling and cross-connects to work areas. This line includes patch panels, wall outlets, patch cords and accessories for a wide range of copper and fiber optic applications.

3

     The Network Connectivity and Premise Connectivity lines have been designed to work together as a team to offer complete solutions for most network needs.

     Industry professionals believe that market trends will lead to an increased demand for networking and computer connectivity products designed to maximize and enhance the functionality of computers, and thereby create a continuing substantial market for our products. Signamax’s goal is to design, manufacture and market computer networking products which can integrate any computer into any network at any time. Our primary focus is to anticipate technological advancements and consumer preference as far in advance as possible, develop new products and improved features to meet such market demands and transform ideas from concept to market as quickly as possible. Our strategic objective is to become a leader in the computer networking equipment market, and to make the brand name “Signamax” synonymous with state-of-the-art hardware in this segment.

Advanced Electronic Manufacturing

     Our AEM group manufactures custom, private labeled products, for U.S. companies primarily in the communications, computer and medical markets. AEM works closely with technical and sales personnel at our customers to transform conceptual designs into viable subassemblies or fully marketable end-products. Our goal is to become an extension of our customer’s technical, material acquisition and production departments, thereby enabling our customer to get to market faster with higher quality products.

     For our Signamax and AEM operations, we arrange with various manufacturers to manufacture and assemble our products using primarily industry standard design and manufacturing specifications provided by us in the case of Signamax and based on the requirements of our customers with respect to products sold by our AEM Group. Our manufacturers are located primarily in the Czech Republic and the Far East. We also assemble a small percentage of our products at our North Miami and Pennsylvania facilities. Typical customers are electrical, datacom and telecom distributors for Signamax and U.S. manufacturers for AEM. Our networking products are marketed under the name “Signamax Connectivity Systems” and our AEM products are private labeled under the customer’s name. We generally do not offer our products to end users.

Discontinued Operations

     In 2004, we made a strategic decision to fundamentally change our method of doing business in Europe. In light of continuing losses incurred by our European subsidiaries, we decided to exit our ownership positions by disposing of these operations, either through a sale or a winddown of operations. These subsidiaries sold their own branded and third party networking products, as well as Signamax branded products in their primarily local markets. Going forward, it is our intention to sign exclusive and non-exclusive distributor agreements with qualified European distributors to sell our Signamax line of products. To date, we have signed several such agreements and we are currently negotiating with additional distributor prospects.

     In May 2004, the management of Lanse AS, one of our Norwegian subsidiaries, informed us that they intended to terminate their employment relationship with Lanse. Thereafter, we entered into negotiations to sell Lanse to these managers. These negotiations were concluded in

4

July 2004 when Lanse signed an agreement to sell certain of its assets to a company jointly owned by the former managers of Lanse and several of Lanse’s major vendors. The assets sold were (1) a majority of Lanse’s inventory, with an original cost of approximately $157,000, sold at cost with the proceeds required to be used to retire current accounts payable due to the vendors and (2) the ownership of certain trade names sold for $237,000, payable $145,000 at closing in the form of additional credits from the vendors, $48,000 in cash due in one year and the remainder, $44,000 in cash due in two years. We are currently winding down the operations of Lanse, primarily through collection of accounts receivable and payment of remaining liabilities.

     In July 2004, we determined that our German subsidiary, AESP GmbH, which has recorded losses from operations for the last three years, most likely met the criteria for insolvency under German law. In response, an attorney designated by the German government met with the management of AESP GmbH and reviewed its financial position, specifically to assess its ability to pay bills when due and the level of shareholders’ equity. On September 1, 2004, the German court adjudged AESP GmbH to be insolvent and at that point, control of the assets and liabilities of AESP GmbH passed from us to the attorney, acting on behalf of the German government. As such, we have ceased consolidating AESP GmbH subsequent to August 31, 2004, due to our no longer controlling the entity. We have accrued $260,000 in costs associated with this insolvency, primarily related to creditor claims, bank debt and administration fees. While we anticipate that such amount is sufficient to allow us to settle all outstanding claims with the attorney (based on all currently available information), since the claims process is still ongoing, there can be no assurance that the final amount due and owing will not be higher.

     In August 2004, we signed an agreement with an unrelated third party to sell 100% of the outstanding common stock in our other Norwegian subsidiary, Jotec AS, for a nominal sum. In connection with this sale, we collected approximately $285,000 in overdue accounts receivable from Jotec and were relieved of any further liability under Jotec’s bank line of credit and its facility lease, which had approximately seven years remaining.

     In October 2004, we signed an agreement to sell 100% of the outstanding common stock in our Swedish subsidiary, AESP Sweden, for a nominal sum. In connection with this sale, we were relieved of any liability under AESP Sweden’s bank line of credit. As a condition to the sale, we will not collect approximately $130,000 in accounts receivable that AESP Sweden owed Jotec, which when paid by AESP Sweden, was to be transferred to us by the new owners of Jotec.

     In September 2004, we decided to phase out the operations of our second German subsidiary, Signamax GmbH, by transferring its customer base and sales operations, along with its inventory, to the operations of our Czech Republic subsidiary, Intelek. We are currently winding down the operations of Signamax GmbH, primarily through the collection of accounts receivable and the payment of remaining liabilities.

     In March 2005, we completed negotiations that had begun in December 2004 by signing an agreement to sell 100% of the outstanding common stock of our final European subsidiary, Intelek, in the Czech Republic. The stock was sold to a company controlled by the former owner of Intelek, who has served as its managing director since its acquisition in 2001. The stock was sold for $940,000. The initial payment of $375,000 was paid on March 23, 2005 and the balance is primarily due in eleven quarterly installments commencing July 1, 2005.

5

     As a result of these transactions, we have reflected the operating results of Lanse, AESP GmbH, Jotec, AESP Sweden, Signamax GmbH and Intelek as well as the estimated losses on disposal, as discontinued operations in the Consolidated Financial Statements for all periods presented.

RISK FACTORS RELATED TO OUR OPERATIONS

     In addition to other information contained in or incorporated by reference into this Form 10-K, you should understand the following risk factors related to our operations:

Our liquidity is limited, the outstanding balances of our Bendes and Chao term notes are due shortly and our auditors have placed a going concern modification on our consolidated financial statements at December 31, 2004

     We had net losses of $3.6 million, $2.7 million and $2.3 million in 2004, 2003 and 2002, respectively. We also have no working capital and a current ratio of .76 at December 31, 2004. Further, our term note in the amount of $631,000 due to Bendes Investment Ltd. (“Bendes”) is due on October 27, 2005 (a six-month extension to October 27, 2005 was signed on April 28, 2005) and our term note in the amount of $1,493,000 due to Chao Jui Hsia (“Chao”) is due December 31, 2005. We do not currently have the funding available to repay the Bendes and Chao term loans. Our failure to repay Bendes and Chao (or to obtain an extensions of the maturity dates of the term notes) or to have sufficient working capital to operate our business could have a material adverse impact on us. Our independent certified public accountants have included an explanatory paragraph in their report with respect to our consolidated financial statements at December 31, 2004. The paragraph states that our recurring losses from operations, working capital deficit, failure to maintain compliance with the financial covenants of our financing arrangements and maturities during 2005 of our outstanding debt raise substantial doubt about our ability to continue as a going concern. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and Item 7. “Management’s Discussion and Analysis of Financial Position and Results of Operations.”

Our industry experiences rapid technological change which may decrease revenues

     In general, the computer industry is characterized by rapidly changing technology. We must continuously update our existing products to keep them current with changing technology and must develop products to take advantage of new technologies that could render existing products obsolete. Our personnel, through discussions with customers, attendance at trade and association meetings and industry experience, identify new and improved technologies and work closely with our vendors, who are responsible for the cost of developing and building these products. We do not directly spend significant funds on research and development but instead rely on our suppliers for developmental expertise. These products must be compatible with the computers and other products with which they are used. Our future prospects are dependent in part on our ability to develop new products with our vendors that address new technologies and achieve market acceptance. We may not be successful in these efforts. If we were unable, due to resource constraints or technological or other reasons, to develop and introduce such products in

6

a timely manner, this inability could have a material adverse effect on our revenues. In addition, due to the uncertainties associated with the evolving markets which we address, we may not be able to respond effectively to product demands, fluctuations, or to changing technologies or customer requirements and specifications, thereby decreasing our future revenues.

The computer networking industry is cyclical which could make our revenues more volatile

     The computer networking industry has been affected historically by general economic downturns, which have had an adverse economic effect upon manufacturers, distributors and retailers of computers and computer-related products. General economic downturns have traditionally had adverse effects upon the computer-related industry due to the restrictions on expenditures for products of this industry during recessionary periods. We may not be able to predict or respond to such cycles within the industry, which could have a material adverse effect on our future revenues.

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

     While the market for computer networking products is one of the fastest growing segments of the technology industry, the technology industry has historically experienced cyclical downturns. Any such downturns, unexpected changes in technology or shifts in the distribution channel for computer networking equipment could have a material adverse effect on our revenues and results of operations.

We are dependent on third parties for manufacturing and assembly; the lack of supply agreements could disrupt our delivery of inventory, which could materially increase our material costs and/or decrease our revenues

     We are dependent on a number of manufacturers, both domestic and foreign, for the manufacture and assembly of our products pursuant to our design specifications. Although we purchase our products from several different manufacturers, we often rely on an individual manufacturer to produce a particular line of products. Although we have several different product lines, and despite our efforts to minimize such reliance by having other manufacturers available should the need arise, these manufacturers are currently not bound by contract other than by individual purchase orders to supply us with our products. The loss of one or more manufacturers of our products may materially increase our material costs and/or decrease our revenues through an inability to deliver timely product to our customers. While most of the products sold by us are available from multiple sources, we may not be able to replace lost manufacturers of our products with others offering products of the same quality, with timely delivery and/or similar terms.

7

Over the past few years, we have progressively expanded our supplier base. Presently, we work with approximately 75 suppliers. For the years ended December 31, 2004, 2003 and 2002, three suppliers accounted for greater than 10% of consolidated cost of sales:

     We do not enter into supply or requirements contracts with our suppliers. We believe that purchase orders, compared to supply or requirement agreements, provide us with more flexibility in responding quickly to customer demand. Nevertheless, the loss of one or more of our suppliers could increase our product costs and negatively affect our revenues by delaying delivery times.

We utilize foreign suppliers and manufacturers which may increase our costs

     Most of the components we utilize in the manufacture and assembly of our products are obtained from foreign countries and a majority of our products are manufactured or assembled in foreign countries, such as the Czech Republic, the Republic of China and Taiwan. The risks of doing business with companies in these areas include potential adverse changes in the diplomatic relations of foreign countries with the United States, changes in the relative purchasing power of the United States dollar, hostility from local populations, changes in exchange controls and the instability of foreign governments, increases in tariffs or duties, changes in China’s or other countries’ most favored nation trading status, changes in trade treaties, strikes in air or sea transportation, and possible future United States legislation with respect to import quotas on products from foreign countries and anti-dumping legislation, any of which could result in delays in manufacturing, assembly and shipment and our inability to obtain supplies and finished products and/or commercially reasonable costs. Alternative sources of supply, manufacture or assembly may be more expensive. We utilize the services of an unaffiliated trading company with offices in China and Taiwan which assists us in working with our suppliers in the Far East. See Note 4 of Notes to Consolidated Financial Statements.

We are dependent on third parties for distribution; a loss of any key distributors could decrease our revenues

     Substantially all of our revenues are derived from the sale of our products through third parties. Domestically, our products are sold to original equipment manufacturer customers, wholesale distributors, value added resellers, mail order companies, computer superstores and dealers. Internationally, our products are sold through wholesale distributors and mail order companies, dealers, value added resellers, as well as to original equipment manufacturer customers. Accordingly, we are dependent on the continued viability and financial stability of our resellers. Our resellers often offer products of several different companies, including, in many cases, products that are competitive with our products. Our resellers may discontinue purchasing our products or providing our products with adequate levels of support. The loss of, or a significant reduction in sales volume to, a significant number of our resellers could have a material adverse effect on our revenues and results of operations.

8

We are dependent on significant customers, the loss of which could decrease revenues

     Our exclusive distributor in Russia, AESP Russia, accounted for 28% of our net sales for 2004, 24% of our net sales in 2003 and 20% of our net sales in 2002. We generally sell our products to our Russian distributor on a paid-in-advance basis. During these same periods, our top ten customers (including our Russian distributor) accounted for 64%, 65% and 64%, respectively, of our net sales. No customer (other than our Russian distributor) accounted for more than 10% of our net sales for the three years ended December 31, 2004. The loss of one or more significant customers could have a material adverse effect on our cash flow and results of operations.

We maintain significant inventory which puts us at risk for additional obsolescence write-offs

     Although we monitor our inventory on a regular basis, we need to maintain a significant inventory in order to ensure prompt response to orders and to avoid backlogs. We may need to hold such inventory over long periods of time and the capital necessary to hold such inventory restricts the funds available for other corporate purposes. Holding inventory over long periods of time increases the risk of inventory obsolescence. A significant amount of obsolete inventory could increase our expenses and have a material adverse effect on our revenues and our results of operations.

     We recorded provisions for inventory obsolescence totaling approximately $366,000 in 2004, $0 in 2003 and $161,000 in 2002 primarily due to a decrease in demand for certain of our Signamax products because of rapid technological changes in the industry as well as eroding market prices. These provisions were calculated based on the carrying value of specific current inventory balances compared to current sales volumes and prices and estimated future sales price analysis prepared by our sales departments for our products.

Competitive conditions could increase our costs, reduce our revenues and otherwise adversely affect our results of operations

     We compete with many companies that manufacture, distribute and sell similar products. In our active networking product line, we compete with hundreds of companies, including Cisco, 3Com, Transition Networks and Allied Telesyn. In this market, the key competitive factors are service and value and a high performance to price ratio. In our passive networking product lines, we compete with approximately 30 – 50 companies, such as Ortronics, Tyco Electrical, Netconnect and Leviton. In these markets, we stress our breadth of products, service, price and performance. For our AEM products, we compete with hundreds of relatively small and several large companies worldwide, including Aim Electronics, ASKA Communications, Condor Power Supplies and AsiaLink International Technology. In this market, we seek to compete favorably on factors such as quality, product availability and design protection. While our competitors are largely fragmented throughout different sectors of the computer connectivity industry, many of our competitors have greater assets and possess greater financial and personnel resources than we do. Some of our competitors also carry product lines that we do not carry and provide services which we do not provide. Competitive pressure from these companies currently adversely affects our business and will likely continue to affect our business and financial condition in the future. A variety of other potential actions by our competitors, including

9

increased promotion and accelerated introduction of new or enhanced products, could also have a material adverse effect on our results of operations. There can be no assurance that we can compete successfully in our markets.

We rely on executive officers and key employees

     Our continued success is dependent to a significant degree upon the services of our executive officers and key employees throughout our organization and upon our ability to attract and retain qualified personnel experienced in the various phases of our business. Our ability to operate successfully could be jeopardized if one or more of our executive officers and key employees were unavailable and capable successors were not found.

Our principal shareholders may control us through the election of the entire board of directors

     Assuming no exercise of outstanding stock options, Messrs. Stein and Briskin own collectively 1,602,014 shares of our common stock, representing approximately 26% of our outstanding common stock. Since our articles of incorporation and bylaws do not provide for cumulative voting, as a result of their ownership of their shares of common stock, Messrs. Stein and Briskin are effectively able to control us through the election of our entire board of directors and the appointment of our officers.

Control by our principal shareholders may limit shareholders’ ability to receive a premium in a change of control transaction, which may adversely affect the market price of our common stock

     Because of their ownership of 26% of our common stock, it is unlikely that we could, without Messrs. Stein’s and Briskin’s approval, be able to consummate transactions involving the actual or potential change in our control, including transactions in which the holders of our common stock might otherwise receive a premium for their shares over then current market prices.

Our stock may be subject to great price volatility

     The market price of our common stock has fluctuated in the past and is likely to continue to be highly volatile and could be subject to wide fluctuations. In addition, the stock market generally, and technology-related securities in particular, may experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. Such fluctuations, and general economic and market conditions, may adversely affect the market price of our common stock.

Our stock has been delisted from the Nasdaq SmallCap Market and we intend to delist under the Securities Exchange Act of 1934

     In August 2004, our common stock was delisted from the Nasdaq SmallCap Market. Since then, our common stock has traded on the Over-the Counter Bulletin Board maintained by the N.A.S.D. (“OTCBB”). We have recently announced our intent to delist our common stock

10

under the Securities Exchange Act of 1934. Once we are delisted, which we expect will occur in May 2005, and we are no longer filing periodic and current reports with the S.E.C., our common stock will no longer be quoted on the OTCBB. While our common stock may continue to be quoted on the pink sheets, there can be no assurance that any trading market will continue for our common stock after delisting.

If our common stock is deemed a “penny stock”, its liquidity will be adversely affected

     During the past year, the market price for our common stock has remained below $1.00 per share, thereby causing our common stock to be deemed penny stock. As a penny stock, our shares are subject to rules that impose additional sales practices on broker-dealers who sell our securities. For example, broker-dealers must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Also, a disclosure schedule must be prepared before any transaction involving a penny stock and disclosure is required about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Monthly statements are also required to be sent disclosing recent price information for any penny stock held in the account as well as information on the limited market in penny stocks. Because of these additional obligations, some brokers may not handle transactions in penny stocks. These “penny stock” regulations can have an adverse effect on the liquidity of our common stock.

Anti-takeover provisions may discourage certain transactions

     Our articles of incorporation and by-laws contain provisions that may have the effect of discouraging certain transactions involving an actual or threatened change of control of us. In addition, our board of directors has the authority to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the preferences, rights and limitations of any such series without shareholder approval. The ability to issue preferred stock could have the effect of discouraging unsolicited acquisition proposals or making it more difficult for a third party to gain control of our company, or otherwise could adversely affect the market price of our common stock.

BUSINESS OPERATIONS

General

     The computer networking market consists of wholesale distributors and three resale categories: retail stores, catalog companies and web-based selling organizations. Our strategy is to market our Signamax branded products to all four of these customer groups.

     Distributors of computer networking products range in size from channel dominant companies with annual sales of over $1 billion to independent or specialized distributors with annual sales of $1-3 million. Small distributors dominate the channel, reflecting both the specialized nature of technology and the variety of original equipment manufacturers and end-user customers for networking hardware.

11

     In general, the computer networking industry is characterized by rapidly changing technology. We must continuously update our existing products to keep them current with changing technology and we must develop new products to take advantage of new technologies that could render existing products obsolete. Our personnel, through discussions with customers, attendance at trade and association meetings and industry experience, identify new and improved technologies and work closely with our vendors, who are responsible for the cost of developing and building these products. We do not directly spend significant funds on research and development but instead rely on our suppliers for development expertise. These products must be compatible with the computers and other products with which they are used. Our future prospects are dependent in part on our ability to develop new products that address new technologies and achieve market acceptance. We may not be successful in these efforts. If we were unable, due to resource constraints or technological or other reasons, to develop and introduce such products in a timely manner, this inability could have a material adverse effect on our future results of operations. In addition, due to the uncertainties associated with the evolving markets which we address, we may not be able to respond effectively to product demands, fluctuations, or to changing technologies or customer requirements and specifications. See “Risk Factors Related to our Operations.”

     The computer networking industry has been affected historically by general economic downturns, which have had an adverse economic effect upon manufacturers, distributors and retailers of computers and computer-related products. General economic downturns have traditionally had adverse effects upon the computer-related industry, due to the restrictions on expenses for products of this industry during recessionary periods. We may not be able to predict or respond to such cycles within the computer industry.

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

     While the market for computer networking hardware has historically been one of the fastest growing segments of the technology industry, the technology industry is currently recovering from a cyclical downturn. If this recovery stalls, or if there are unexpected changes in technology or shifts in the distribution channel for computer networking equipment, these developments could have a materially adverse effect on us.

     Our AEM products are generally sold to U.S. manufacturers who require superior pricing at equal to or better quality than they are currently receiving from their U.S. vendors. These customers normally range in annual sales from $5 million to $100 million. Due to a wider range of industries served, our AEM business is less dependent on the health of any one industry and is, therefore, less affected by any particular industry cycle.

12

Products and Services

     Our product line consists primarily of two main categories: Signamax computer networking products and AEM custom, private label products.

     Computer networking products are products which connect a computer to another computer, a network server, the Internet, a public switched telephone network or another enterprise. Networking products are divided into two sub-categories: active and passive. Active networking products include network interface cards, media converters and switches. Passive networking products include patch panels, patch cables and wall outlets.

     We are constantly expanding and changing our product line within the aforementioned categories to expand the total number of products we can offer customers, to attract new customers, to penetrate new geographic and vertical markets and to increase gross sales.

     In order to provide assistance to our customers and to be competitive with other companies in our industry, we offer our customers several services. These services include: enhanced packaging; custom packaging; technical and design support (where the customer receives advice from us on which product or design specification is appropriate for a particular situation); assembly support (where a customers relies on us to assemble the component parts the customer traditionally had done itself); training (where the customer receives training from us on the different capabilities and applications of our products); and quality control.

     AEM custom, private label products are normally made in partnership with our customers, whereupon we work closely with technical and sales personnel at our customers to transform conceptual designs into viable subassemblies or fully marketable end-products.

Manufacturing and Suppliers

     All our products have been manufactured to our specifications. Those specifications are derived either from specifications provided to us by our AEM customers or from industry standard specifications, in the case of Signamax products.

     Due to the high volume and labor intensive nature of manufacturing computer networking products, most of the products we sell are manufactured outside the United States in such countries as Taiwan, the Republic of China and the Czech Republic. We utilize the services of an unaffiliated trading company with offices in Taiwan and China which assists us in working with our suppliers in the Far East. The trading company acts as a manufacturers’ representative by coordinating our orders and shipments with our Far East suppliers in exchange for payment based on a percentage of orders invoiced to us. We have made no long-term commitment to the trading company and are able to terminate the arrangement on short notice. However, a principal of the trading company, Chao Jui Hsia, has in the past advanced payments on our behalf to one or more of our vendors, and we recently executed a $1.5 million note to Ms. Chao in that regard. See Note 4 of Notes to Consolidated Financial Statements. We also assemble a small percentage of our products at our North Miami, Florida and Pennsylvania facilities.

13

     For the production of each specific type of product, we usually maintain an on-going relationship with several suppliers to insure against the possibility of problems with one supplier adversely impacting our business. For the production of AEM products, we usually use a single supplier for each product, with other factories providing competitive price quotes and being available to supply the same product if a primary supplier fails to supply us with the required product for reasons outside our control. However, we may not be able to easily replace a sole source of supply if required. In an effort to produce defect-free products and maintain good working relationships with our suppliers, we keep in contact with our suppliers, regularly inspecting the manufacturing facilities of our suppliers and implementing quality assurance programs in our suppliers’ factories.

Over the past few years, we have progressively expanded our supplier base. Presently, we work with approximately 75 suppliers. For the years ended December 31, 2004, 2003 and 2002, three suppliers accounted for greater than 10% of consolidated cost of sales:

     We do not enter into supply or requirements contracts with our suppliers. We believe that purchase orders, as opposed to supply or requirement agreements, provide us with more flexibility in responding quickly to customer demand. Nevertheless, the loss of one or more of our suppliers could have an adverse impact on us.

     Most of the components we utilize in the manufacture and assembly of our products are obtained from foreign countries and a majority of our products are manufactured or assembled in foreign countries, such as the Republic of China, the Czech Republic, and Taiwan. The risks of doing business with companies in these areas include potential adverse changes in the diplomatic relations of foreign countries with the United States, changes in the relative purchasing power of the United States dollar, hostility from local populations, changes in exchange controls and the instability of foreign governments, increases in tariffs or duties, changes in China’s or other countries’ most favored nation trading status, changes in trade treaties, strikes in air or sea transportation, and possible future United States legislation with respect to import quotas on products from foreign countries and anti-dumping legislation, any of which could result in delays in manufacturing, assembly and shipment and our inability to obtain supplies of finished products. Alternative sources of supply, manufacture or assembly may be more expensive. Although we have not encountered significant difficulties in our transactions with foreign suppliers and manufacturers in the past, we may encounter such difficulties in the future. See “Risk Factors Related to Our Operations.”

Quality Control

     Our goal is to provide our customers with defect-free products. Working with our primary manufacturers and often with our manufacturers of various component parts, we have instituted quality control measures at five stages throughout the manufacturing process. At the first stage, we work with our primary manufacturers to institute a general quality control check

14

upon the entry of the various component parts into the primary manufacturers’ factory (a.k.a. the incoming inspection). At the second stage, the primary manufacturer checks to ensure that the component parts function properly. The third and fourth stages of quality control occur after each molding process, with the final product being subject to quality control at the time of shipment to us. The fifth and final stage of quality control occurs at one of our distribution warehouses. At this final stage of quality control, we test a certain percentage of each shipment of products we receive to ensure the products meet our quality standards.

     In 1998, we were certified as being in compliance with the “ISO 9001” standard. The ISO 9001 standard is an international manufacturing standard which is becoming more prevalent across numerous industries. Almost all of our current suppliers are either ISO 9001 compliant or in the process of implementing ISO 9001 procedures.

Customer Base

     Our customer base is divided into two primary categories: AEM customers and Signamax computer networking customers. AEM customers are generally manufacturers of computers and computer-related equipment, communications equipment and medical devices, which use our products as part of their finished products. Signamax computer networking customers are local and regional resellers, value-added resellers and distributors, educational institutions, web-based selling organizations and catalog houses. The resale mass merchandising market represents a significant growth area for us. We generally do not offer our products directly to end-users.

     Substantially all of our revenues are derived from the sale of our products through third parties. Domestically, our products are sold to end users primarily through AEM customers, wholesale distributors, value added resellers, mail order companies, computer superstores and dealers. Accordingly, we are dependent on the continued viability and financial stability of our resale customers. Our resale customers often offer products of several different companies, including, in many cases, products that are competitive with our products. Our resale customers may not continue to purchase our products or provide us with adequate levels of support. The loss of, or a significant reduction in sales volume to, a significant number of our resale customers could have a material adverse effect on our results of operations. See “Risk Factors Related to Our Operations.”

     Sales to our exclusive distributor in Russia, AESP-Russia, accounted for 28% of our net sales for 2004, 24% of our net sales for 2003 and 20% of our net sales for 2002. We generally sell our products to our Russian distributor on a paid-in-advance basis. Our top 10 customers (including AESP-Russia) accounted for approximately 64%, 65% and 64% of our net sales for the years ended December 31, 2004, 2003, and 2002, respectively. Other than AESP-Russia, no customer accounted for more than 10% of our net sales in 2004, 2003 or 2002. International sales are a significant portion of our consolidated worldwide sales.

     We believe that due to the nature of the computer networking industry, it is likely that some customers who are significant customers in one period may become insignificant customers in future periods and vice versa. However, the loss of one or more significant customers during any particular period could have a material adverse impact on our future business and results of operations.

15

Marketing and Sales

     In the U.S. our Signamax marketing and sales efforts are directed by our Sales and Marketing department. From a marketing perspective, this department is responsible for, among other things, publishing our catalogs for each product line, assisting our sales group in preparing for sales shows, advertising our products in industry publications, working with mail-order catalogs to prepare advertising space in such catalogs, and providing designs for packaging our products. From the sales perspective, this department is responsible for, among other things, contacting potential customers with information and prices for our products, managing our roster of manufacturing representatives, following leads from trade shows, providing customer support and visiting customers on a regular basis. The department is divided in responsibility by product line and/or geographic location.

     AEM sales are handled by salespersons located in our headquarters in North Miami, Florida as well as through key independent sales representatives. Our AEM sales force is responsible for preparing company brochures, marketing and sales campaigns, generating and responding to customer leads and requests, providing customer support and visiting customers on a regular basis.

     All AEM customers receive their shipments from our North Miami warehouse, California third party warehouse or directly from the factory manufacturing their products. Signamax sales are generally handled from our headquarters in North Miami, Florida.

Competition

     In our Signamax products, we compete with many companies that manufacture, distribute and sell computer networking products. In our active networking product line, we compete with hundreds of companies worldwide, including Cisco, 3Com, Transition Networks and Allied Telesyn. In this market, the key competitive factors are service and value and a high performance to price ratio. In our passive networking product lines, we compete with approximately 30 to 50 companies worldwide, such as Ortronics, Tyco Electrical, Netconnect and Leviton. In these markets, we stress our breadth of products, service, price and performance. For our AEM products, we compete with hundreds of relatively small and several large companies worldwide, including Aim Electronics, ASKA Communications, Condor Power Supplies and AsiaLink International Technology. In this market, we seek to compete on factors such as quality, product availability and design protection. While our competitors are largely fragmented throughout different sectors of our industries, many of our competitors have greater assets and possess greater financial and personnel resources than we do. Some of our competitors also carry product lines which we do not carry and provide services which we do not provide. Competitive pressure from these companies may materially adversely affects our business and financial condition in the future. A variety of other potential actions by our competitors, including increased promotion and accelerated introduction of new or enhanced products, could also have a material adverse effect on our results of operations. There can be no assurance that we can compete successfully in our markets. See “Risk Factors Related to Our Operations.”

16

Strategy to Increase Signamax Networking Products & AEM Customer Base

     We intend to increase our revenues and income in the networking and original equipment manufacturer markets by continuing to broaden our customer base in existing markets and by expanding into new markets. In order to increase our national and international customer base, we intend to continue to market to large distributor catalog companies, to increase both our product lines and inventory and to expand our sales reach in the U.S., Europe and Latin America, the Middle East and Africa. To expand our original equipment manufacturer customer base, we intend to expand our business with computer product and networking hardware manufacturers, and to solicit manufacturers in other fast-growing vertical markets, such as networking, telecommunications, medical instrumentation and cable television.

Corporate Organization

     Our operations are divided into five departments: (1) the Sales and Marketing Department, (2) the International Sales Department, (3) the Purchasing Department, (4) the Operations Department (including shipping, warehouse and quality control and production groups), and (5) the Finance/Accounting Department (including MIS). The Sales and Marketing Department covers sales in the United States, Canada, and Latin America. Account Managers and Customer Service Representatives service this department from our North Miami, Florida headquarters. The International Sales Department covers sales to our exclusive distributors in Europe, Russia and Ukraine.

Employees

     As of December 31, 2004, we employed personnel at the following locations:

     Company wide, 16 employees work in administration/accounting, 28 employees work in sales and marketing, and 28 employees work in operations. None of our employees are covered by collective bargaining agreements. We believe that our relationship with our employees is good.

     Our Czech Republic operations were sold in March 2005. See Note 2 of Notes to Consolidated Financial Statements.

Government Regulation

     We are not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally, and there are currently few laws or regulations directly applicable to networking and computer connectivity products. There can be no assurance

17

that laws or regulations adopted in the future relating to our business will not adversely affect our business.

License Agreement with Developer of Battery Restoration Technology

     In December 2003, we entered into a license agreement with Daidone-Steffens, LLC, an entity affiliated with Terrence Daidone, one of our directors. The license permitted us to use battery restoration technology being developed to revitalize used cell phone batteries and other battery products and market the restored batteries exclusively in the southeastern United States and on a non-exclusive basis worldwide. No fees were ever paid with respect to this license.

     To date, the licensor has been unable to develop its technology to a point where it is commercially feasible. As a result, on May 3, 2005, we signed an agreement with Daidone-Steffens terminating this license agreement. In that regard, the ten year option that we granted to the licensor to purchase 300,000 shares of our common stock at an exercise price of $.90 (vesting 100,000 shares once a production line was in place and thereafter ratably over a four-year period) has been cancelled.

ITEM 2. PROPERTIES

     Our executive offices are located in North Miami, Florida. The table set forth below identifies the principal properties we currently utilize as of December 31, 2004. All properties are leased, are in good condition and are adequate for our present requirements. RSB Holdings, Inc., a related party, owns our corporate headquarters, product assembly and central warehouse, and leases such property to us. See Note 9 of Notes to Consolidated Financial Statements for information regarding the financial terms of our leases.

The leases for the two Czech Republic locations were transferred to the buyer as part of the sale of the Czech Republic operations in March 2005. The lease on the German location, which is in the name of Signamax GmbH, expires on June 30, 2005 and will not be renewed.

18

ITEM 3. LEGAL PROCEEDINGS

     As of the date of this Form 10-K, we were not a party to any material legal proceedings, nor, to our knowledge, are any such proceedings threatened.

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

     No matters were submitted to a vote of our shareholders during the fourth quarter of the 2004 fiscal year.

19

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

     Our common stock has been quoted on the OTCBB since August 19, 2004 under the symbol “AESP”. Previously, since February 12, 1997, our stock was quoted on the NASDAQ Small Cap Market. The following table sets forth the high and low bid prices for our common stock for each quarter during our two most recent fiscal years, as reported by OTCBB and NASDAQ:

     At March 29, 2005, the number of holders of record of our common stock was 63.

Intent to Deregister Common Stock

     On April 7, 2005, we announced that we intend to deregister our common stock under the Securities Exchange Act of 1934. We are eligible to deregister because we have less than 300 stockholders of record.

     We expect to file a Form 15 with the S.E.C. on or about May 13, 2005. Upon the filing of the Form 15, our obligation to file reports, including Forms 10-K, 10-Q and 8-K will immediately be suspended. We expect that the deregistration of our common stock will be effective 90 days after we file the Form 15 with the S.E.C.

     We anticipate that once we file the Form 15, our common stock will no longer be quoted on the OTCBB. While we expect that our common stock will continue to be quoted on the pink sheets after we deregister, there can be no assurance of this fact. There can also be no assurance

20

as to whether any brokerage firms will make a market in our common stock after the deregistration. We therefore cannot assure you as to whether there will be any market for our common stock after we deregister.

No Dividends

     We have never paid any dividends on our common stock and we do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to reinvest our earnings, if any, in the growth and expansion of our business. Other than limitations imposed on us by our financing arrangements, there are no restrictions that limit our ability to pay dividends.

ITEM 6. SELECTED FINANCIAL DATA

     The following table represents our selected consolidated financial information. The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and notes thereto and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations which contains a description of the factors that materially affect the comparability from period to period of the information presented herein.

21

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RISK FACTORS RELATING TO OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     In addition to the other information contained in or incorporated by reference into this Form 10-K, you should carefully consider the following risk factors related to our financial condition and results of operations:

Our operating results are uncertain and losses may continue; going concern

     Our loss from continuing operations for the 2004, 2003 and 2002 fiscal years was $1.7 million, $1.3 million and $1.6 million, respectively. Further, our net (loss) for the 2004, 2003 and 2002 fiscal years was $3.6 million, $2.7 million and $2.3 million, respectively. We cannot assure you that we will achieve or sustain profitable operations in the future.

     Our independent registered public accounting firm has included an explanatory paragraph in their report with respect to our consolidated financial statements at December 31, 2004. The paragraph states that our recurring losses from operations, working capital deficit, failure to maintain compliance with the financial covenants of our financing arrangements and maturities during 2005 of our debt raise substantial doubt about our ability to continue as a going concern.

Our working capital requirements may increase and future required funding may not be available

     We operate our business using working capital derived from our operations (during periods when our operations are cash flow positive) and from funds available from our financing sources. We have made efforts to improve our cash flow through cost reductions, collections of accounts receivable and reductions in our inventory. We have also, in the past, raised working capital through private placements of our securities. We owe $631,000 under a term promissory note which is due on October 27, 2005. We also owe $1,493,000 to Michelle Chao under a promissory note relating to our trade credit, which is due on December 31, 2005. We are continuing to incur losses and we cannot assure you as to if or when our business will become cash flow positive and profitable. We cannot assure you that either promissory note will be extended.

     We believe that our cash flow from operations and amounts made available under our factoring agreement with Marquette Commercial Finance, as described below, will be sufficient to fund our current operations for the next twelve months, assuming we can successfully extend the maturity date of the notes referred to above. If we are unable to extend the maturity date of our debt (or otherwise refinance that debt in an acceptable manner), our financial condition and results of operations will be materially and adversely affected.

22

Our financing agreement with Marquette Financial and our term note due to Bendes impose restrictions and we are not in compliance with some of the restrictions; Our agreement with Marquette Financial could be terminated if waivers of financial covenants are not obtained

     On October 31, 2003, we signed an agreement with Marquette Commercial Finance, Inc. (formerly KBK Financial, Inc.) (“Marquette”). The funding from Marquette was used to fund a permanent reduction in our former line of credit with a financial institution. The remaining balance under the bank line of credit was paid in full on April 26, 2004 through the proceeds received under a term loan agreement with Bendes Investment Ltd. (“Bendes”). See Note 4 of Notes to Consolidated Financial Statements for information regarding the terms of these agreements. Under the Marquette factoring agreement, we sell Marquette, without recourse, accounts receivable and obtain funding (up to $2 million at any one time) for those receivables. At December 31, 2004, we had $871,000 of uncollected receivables outstanding against payments to us of $714,000 from Marquette. The Marquette factoring agreement is also guaranteed, on a limited basis, with respect to matters related to the existence and validity of the purchased receivables, by our principal shareholders. The Bendes loan is guaranteed by our principal shareholders.

     We are obligated to meet certain affirmative, negative and financial covenants under our financing agreements. Affirmative covenants include a requirement that we deliver quarterly and annual financial statements and other reports to our funding sources within prescribed time periods and provide prompt notice of any material legal proceeding that is brought against us. Negative covenants include an obligation that our funding sources approve any change of control including mergers, any disposition of pledged collateral, any additional indebtedness for borrowed money or any acquisitions over a certain limit, any liens on assets or any loan guarantees and any transfers of assets or loans and advances to an affiliate that would have a material adverse effect. Financial covenants under the Marquette agreement require our operations to meet a minimum current ratio and tangible net worth and not exceed a certain dilution percent on our accounts receivable at the end of each month.

     We were not in violation of any of the non-financial affirmative covenants at December 31, 2004. However, we were in violation at December 31, 2004 of the negative covenant regarding prohibition on additional indebtedness under the Bendes note, as it related to the Chao note signed in November 2004. In April 2005, in conjunction with the First Amendment under the Bendes note, Bendes waived the covenant violation and consented to the Chao note. In addition to the waiver, the First Amendment also extended the due date of the Bendes note to October 27, 2005. Further, we were in violation at December 31, 2004 of the minimum current ratio and tangible net worth covenants under the Marquette agreement, and such violations have been waived by Marquette. Further, we have, in a significant number of recent quarters violated one or more of the required financial covenants, and anticipate that we may continue to violate such financial covenants in future quarters if our results of operations do not substantially improve. While there can be no assurance, we believe that our funding sources will continue to waive such future financial covenant violations during future periods. If our funding sources don’t waive such future covenant violations, and seek to foreclose on the assets securing the borrowings, it would have a material and adverse effect on our business.

23

     Our independent registered public accounting firm has included an explanatory paragraph in their report with respect to our consolidated financial statements at December 31, 2004. The paragraph states that our recurring losses from operations, working capital deficit, failure to maintain compliance with the financial covenants of our financing arrangements and maturity during 2005 of our Bendes and Chao loans raise substantial doubt about our ability to continue as a going concern.

Our operating results may be adversely affected by many factors

     Our quarterly and annual operating results are impacted by many factors, including the timing of orders, the availability of inventory to meet customer requirements and inventory obsolescence. A large portion of our operating expenses are relatively fixed. Since we typically do not obtain long-term purchase orders or commitments from our customers, we must anticipate the future volume of orders based upon the historic purchasing patterns of our customers and upon our discussions with our customers as to their future requirements. Cancellations, reductions or delays in orders by a large customer or a group of customers and inventory obsolescence could have a material adverse impact on our revenues and results of operations.

Our operating results may be adversely affected due to the risks inherent in international sales

     For the years ended December 31, 2004, 2003 and 2002, international sales from continuing operations accounted for approximately 34%, 28% and 23%, respectively, of our revenues. Primarily all of these sales were to our Russian and Ukrainian distributors. We anticipate that international sales to our Russian and Ukrainian distributors will continue to account for a significant portion of our sales. Our operating results are subject to the risks inherent in international sales, including, but not limited to, regulatory requirements, political and economic changes and disruptions, geopolitical disputes and war, transportation delays and potentially adverse tax consequences. These risks could have a material adverse effect on our future international sales and, consequently, on our operating results.

Impact of fluctuations in interest rates could negatively affect our results

     We are exposed to market risk from changes in interest rates.

     Our earnings are affected by changes in short-term interest rates as a result of our financing agreements. If short-term interest rates averaged 2% more in 2004, 2003 and 2002, our interest expense and loss before taxes would have increased by $36,000, $30,000 and $34,000, respectively.

24

We will not pay dividends on our common stock even if we are profitable, which could adversely affect the marketplace for our common stock

     We can make no assurances that our future operations will be profitable. Should our operations be profitable, it is likely that we would retain our earnings in order to finance future growth and expansion. Further, our U.S. financing agreements contain restrictions on the payment of dividends, including lender approval. Therefore, we do not presently intend to declare or pay cash dividends on our common stock, and it is not likely that any dividends will be paid in the foreseeable future. This policy could have an adverse effect on the market price of our common stock.

Critical Accounting Policies

     Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U