UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

             [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

        For the transition period from _______________ to _______________

                         Commission file number: 0-16310
                                                 -------

                       AMERICAN EDUCATIONAL PRODUCTS, INC.
                       -----------------------------------
             (Exact Name of Registrant as Specified in its Charter)

           Colorado                                             84-1012129
           --------                                             ----------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification number)

              6560 Gunpark Drive, Suite E, Boulder, Colorado 80301
              ---------------------------------------------- -----
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (303) 527-3230
                                                           --------------

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.05 par value
                          ----------------------------
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  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.
  X  Yes          No
----          ----


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment. [ ]

The   Registrant's   revenues  for  the  year  ended  December  31,  2000,  were
$16,192,000.

As of March 27,  2001,  the  aggregate  market  value of the Common Stock of the
Registrant based upon the closing prices of the Common Stock as quoted by NASDAQ
(symbol  "AMEP") held by  non-affiliates  of the  Registrant  was  approximately
$4,999,000.  As of March 27,  2001,  there were  1,212,740  shares of the Common
Stock of the Registrant outstanding.


<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant hereby incorporates herein by reference the following documents:

     Part III

Item 9. Directors and Executive Officers of the Registrant.

Item 10. Executive Compensation.

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

Item 12. Certain Relationships and Related Transactions.

     The  foregoing  are   incorporated  by  reference  from  the   Registrant's
     definitive Proxy Statement  relating to its annual meeting of stockholders,
     which will be filed within 120 days of December 31, 2000.



Forward-Looking Statements
--------------------------

In  addition  to   historical   information,   this   Annual   Report   contains
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995, which are thus prospective.  The  forward-looking
statements  contained herein are subject to certain risks and uncertainties that
could cause  actual  results to differ  materially  from those  reflected in the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to,  competitive  pressures,  changing economic  conditions,
factors discussed in the section entitled "Management's  Discussion and Analysis
of Financial  Condition and Results of Operations",  and other factors,  some of
which will be outside the control of  management.  Readers are  cautioned not to
place  undue  reliance  on  these  forward-looking  statements,   which  reflect
management's  analysis  only as of the date hereof.  The Company  undertakes  no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances  that arise after the date hereof.  Readers should refer to and
carefully review the information described in future documents the Company files
with the Securities and Exchange Commission.


                                     PART I

Item 1. Description of Business

Relocation
----------

Effective March 19, 2001,  American  Educational  Products,  Inc.  relocated its
office.  The new address is 6560 Gunpark Drive, Suite E, Boulder Colorado 80301.
The telephone number did not change. It is (303) 527-3230.


Background
----------

American Educational  Products,  Inc. ("AMEP" or the "Company") was organized in
1986 under the laws of the State of Colorado to pursue mergers and acquisitions.
That year, the Company  completed an initial public  offering and made its first
acquisition,  an educational  product  manufacturer named Scott Resources,  Inc.
("Scott").  Since that time,  the Company has focused on the education  industry
and the  development of hands-on  educational  materials and  consequently,  the
Company's core products  consist of a broad range of proprietary  materials that
are used to educate  students  in  pre-school  through  high  school (the "K-12"
market).

                                     Page 2
<PAGE>

From 1986 until 1999,  the Company  practiced an  acquisition  strategy that was
primarily  designed to enhance product lines and accelerate the Company's growth
rate. In recent years,  the once fragmented  education  industry has undergone a
period  of  considerable  consolidation.  This  overall  industry  consolidation
attached  additional  urgency to this acquisition  strategy.  The Company sought
acquisition  opportunities that, in addition to complementing existing business,
would strengthen AMEP's overall market position.

During  2000 AMEP  ceased  its  acquisition  activities  after  G.C.  Associates
Holdings Corp.  ("GC")  acquired a majority  position in AMEP's common stock. In
April 2000, the Board of Directors was  restructured and  representatives  of GC
were appointed to fill two of the three Board positions. In July 2000, the Board
agreed to merge AMEP with GC and a  Definitive  Merger  Agreement  was signed on
August 14,  2000.  Consummation  of the merger is subject to certain  conditions
including   completion   of   regulatory   filings  and   approval  by  minority
shareholders.  If the  merger  is  approved,  AMEP  will  become a wholly  owned
subsidiary of Nasco International,  Inc. ("Nasco").  In March 2001, Nasco became
the successor to GC's interest in the shares of AMEP previously  owned by GC and
it assumed all of GC's rights and obligations under the Merger Agreement.  Nasco
is one of AMEP's largest customers.

Terms of the  merger  provide  for all  shareholders  other  than  Nasco and its
affiliates  to receive  $10.00  cash for each share of AMEP  common  stock.  The
Company has prepared an  information  and  disclosure  statement  (Schedule  14A
Information  - Proxy  Statement  Pursuant  to  Section  14(a) of the  Securities
Exchange Act of 1934) and submitted it to the Securities and Exchange Commission
("SEC") for their review.  Upon completion of the SEC review, the statement will
be mailed to shareholders.

Effective  September  1,  1999,  AMEP  acquired  the  business  known as  To-Sew
("To-Sew") for a cash purchase price  aggregating  $1,270,000.  To-Sew is a mail
order  manufacturer  and  distributor  of sewing kits that are primarily used in
home  economics  or  family  consumer  science  classes.  Borrowings  under  the
Company's  working capital line of credit plus cash flow from operations  funded
the acquisition.

The  Company  completed  two  significant  acquisitions  during  1998,  National
Teaching  Aids ("NTA") and Summit  Learning  ("Summit").  NTA, who developed and
manufactures  the  Microslide(TM)  System,  was  acquired  in a  stock  purchase
transaction. The Microslide(TM) System consists of Microslide(TM) viewers, a low
cost alternative to traditional microscopes, and the accompanying Microslide(TM)
sets of 35mm  photographic  images produced under ideal  laboratory  conditions.
These  materials  are used along with NTA  lesson  plans in order to  illustrate
various scientific topics.

The sellers provided financing for the NTA purchase.  The terms of the financing
included,  among other things, a convertible  promissory note in the face amount
of  $950,000  bearing  interest  at 7.5% and  payable in four  annual  principal
payments of $237,500,  plus accrued  interest.  Under  certain  conditions,  the
Company can convert  all or part of the note into common  stock at a  conversion
value of $10 per share.

In an asset purchase transaction, the Company reacquired the assets of Summit, a
mail order  distributor  of math and  science  manipulative  products.  AMEP had
previously  owned and operated Summit but sold it in 1995 to raise capital.  The
seller  provided  financing for a portion of the purchase  price under a secured
promissory note in the principal amount of $1,182,000. The note required monthly
principal  payments of $125,000 plus accrued interest at 8.5%. The note was paid
in full in April 1999.

During 1994, 1995, and 1996, AMEP experienced significant net losses and did not
have capital available to make acquisitions. As a result, the Company focused on
its  original  core  function,   the  efficient   manufacture  of  high  quality
manipulative  products.  The Company's  subsequent  return to profitability  has
allowed  it to use some of its cash flow  from  operations  to fund  acquisition
activities.  If additional funds are required for a particular transaction,  the
Company pursues outside sources of capital.

                                     Page 3
<PAGE>

Industry
--------

AMEP operates as a supplier of supplemental educational materials. Specifically,
the Company manufactures and distributes  manipulative products designed to give
K-12 students a hands-on learning experience.


Tradenames and Products
-----------------------

AMEP uses  several  trade  names in its  marketing  and  product  identification
efforts. All of the names currently in use, Scott Resources, Hubbard Scientific,
National Teaching Aids, Summit Learning, and To-Sew, are believed to be valuable
company assets.

The Scott product line features mathematics and earth science products.  Most of
the math  products are  manipulatives,  which are  hands-on  devices that depict
specific  concepts via tangible  illustration  and  demonstration.  The thirteen
major math product lines manufactured under the Scott name are:

     Fraction Bars(R) - A comprehensive  series of manipulatives  that introduce
          and teach fraction concepts.

     Decimal Squares(R) - A program that teaches decimals and percents through a
          complete series of objectives, manipulatives, activities, and tests.

     Chip Trading(R) - An activities  program that uses  manipulatives  to teach
          the  basic  skills  of  addition,  subtraction,   multiplication,  and
          division.

     ScottGeoboards  - Wooden or plastic  tiles with pin arrays that teach basic
          geometric concepts.

     Pattern Blocks  and  Color  Cubes - Painted  wooden  or  plastic  blocks of
          various  shapes that teach  shapes,  counting,  and sorting to younger
          students, and angles, fractions, areas, and volumes to older students.

     ColorTiles - Plastic,  square tiles that demonstrate  basic operations with
          whole numbers for primary age learners and problem  solving skills for
          intermediate and middle school learners.

     Fraction  Interaction(R)  - A video series that  includes  three videos for
          teaching  fractions.  The  videos  are  developed  for  middle  school
          learners.  Videolabs,  a  package  that  combines  a video  and  Scott
          manipulatives  for  student  activities,  and  Teacher  Packs are also
          available.

     Clever Catch(R) - A series of beach balls that illustrate math,  geography,
          money, time, and phonics skills.

     Checks + Balances(R) - A kit designed to teach personal finance skills.

     Math Chase(R) - A set of three games that  reinforce and extend math skills
          at multiple levels.

     AlgeBits(TM) - A set of manipulatives for teaching  pre-algebra concepts to
          middle school learners.

     Stretch &  Shape(R)  - A  package  with  Geoboards  and  activities  for an
          introduction to geometry concepts.

     Terrific  Triangles(R) - An activities  program that uses  manipulatives to
          teach whole number  concepts and  operations at the  kindergarten  and
          early elementary levels.

Other math products  developed  under the Scott  tradename  include  mathematics
games,   reproducible  resource  books,  and  teaching  aids  such  as  overhead
materials.

In earth science, the Scott subsidiary offers a comprehensive  selection of over
250  different  varieties  of  rocks,  minerals,  and  fossils  that are sold to
customers in bulk  quantities  or as individual  specimens.  Other earth science
products include charts, classroom activity sets, and videolabs.

                                     Page 4
<PAGE>

The Company uses the Hubbard  tradename to market a  comprehensive  line of high
quality earth science,  life science,  and physical science classroom materials.
These products include  three-dimensional  models of animal and human anatomy; a
wide variety of astronomy  and earth  science  experiments  and models;  and the
Jewel line of plant mobiles,  animal cages,  and fresh and salt water aquariums.
Additionally, Hubbard is the largest U.S. producer of high quality raised relief
maps with approximately 300 different maps. These maps are marketed to consumers
through a number of sales  channels,  including map dealers,  specialty  stores,
independent sales representatives, and direct mail.

The  acquisition  of National  Teaching  Aids (NTA) in 1998 equipped the Company
with a new product line. The well established NTA Microslide(TM) system consists
of a durable  and easy to use  viewer  that  resembles  a  microscope,  over 150
different sets of  Microslides(TM)  for use with the viewer, and detailed lesson
plans and teacher guides for each of the slide sets.  Other NTA products include
a series of Science Made Easy(TM) Kits that demonstrate core concepts in organic
and inorganic  chemistry,  photosynthesis,  and various topics in human biology.
The NTA product  line also  includes a Human  Skeleton  Model that  students can
assemble and reassemble.

The  To-Sew  acquisition  provides  a product  line of sewing  kits used in home
economics or family and consumer science classes. To-Sew kits provide the sewing
student with all of the material needed to produce a completed product. The kits
include fabric, needles,  thread, buttons,  patterns, and instructions.  Most of
To-Sew's  sales are kits to produce  small  pillows  in the  shapes of  animals,
sports equipment,  cartoon characters,  or other youth-related designs. A few of
the kits  produce  tote bags such as gym bags or lunch bags and there are also a
few clothing designs.

The raw materials  and  components  that the Company uses are  purchased  from a
large number of domestic and foreign suppliers. There are a few vendors that the
Company considers critical to its operation.  If a disruption in supply from one
of these critical vendors occurred,  alternate vendors could be found.  However,
delays in  production  could  result.  Although the Company has not  experienced
significant  increases in cost for raw material  during the last two years,  the
increased  cost of  petroleum  and its  derivative  products in 2000 and 2001 is
expected to have an adverse impact on the Company's profitability.  The majority
of the impact is  expected to come in the form of higher raw  material  costs as
suppliers   pass   through   their   increased   manufacturing,   utility,   and
transportation costs.

The Company's  business is  inherently  seasonal.  There are wide  variations in
sales from month to month and as a result, accounts receivable, inventories, and
accounts payable also vary. The summer months are the most active as educational
institutions restock their supplemental materials for the next school year. Sale
terms are typically net 30 days and orders are normally filled within 14 days.

As of December 31, 2000,  the Company had an order backlog of $88,000,  compared
to backlogs of $514,000 on December  31, 1999 and $800,000 on December 31, 1998.
Historically,  the order  backlog at year-end has not been  indicative of future
sales.


Markets and Marketing
---------------------

The Company  reaches its target market  primarily  through the 300  distributors
that include AMEP products in their  catalogs.  Hence,  effective  relationships
with the key dealers  among these  distributors  are  critical to the  Company's
success.  One of AMEP's  strengths  is its  flexibility  in meeting key dealers'
needs for custom  products and packaging.  The Company also sells through direct
mail catalogs and independent sales representatives.

Company  representatives  frequently visit national and regional trade shows and
teacher's  conferences  such as the National  Council of Teachers of Mathematics
(NCTM),  the National Science Teachers  Association  (NSTA), the National School
Supply and  Educators  Association  (NSSEA),  and the  Educational  Dealers  and
Suppliers  Association (EDSA).  Marketing efforts for maps include attendance at
the  International  Map Trade  Association  and  Outdoor  Retailer  Association.
Appearances  at these  exhibitions  increase  the  Company's  visibility  in the
market,  provide the  Company an  opportunity  to meet end users,  and allow the
Company to evaluate the competition.

                                     Page 5
<PAGE>

The  Company  believes  that  demand for  manipulative  educational  products is
increasing in several international locations. Although the Company does not own
or operate  any  overseas  facilities,  it has  established  relationships  with
certain  large foreign  educational  dealers and  approximately  5% of sales are
exports.  Europe, the Pacific Rim, and the Middle East account for a majority of
international sales.  Nevertheless,  the international marketplace is subject to
extremely competitive pricing and politically motivated decision making.


Competition
-----------

The  Company  faces  competition  from  businesses  that range in size from sole
proprietorships to large  corporations,  and the products  manufactured by these
competitors range from textbooks to manipulatives and models. Similarly to AMEP,
many of these entities  publish  catalogs and also list their products in dealer
catalogs.  Some  of the  competitors  are  larger  and  have  greater  financial
resources  than AMEP.  The  Company  believes  that its  competitive  advantages
include its extensive offering of proprietary  products,  its ability to deliver
custom orders and specialized products, and its distribution network.

During  the last  several  years,  there has been  increasing  competition  from
foreign  educational  product  manufacturers  whose  merchandise is often priced
lower than the  Company's.  While the Company can  provide  its  customers  with
better  delivery  schedules  and more  comprehensive  teacher  manuals,  foreign
competition could adversely affect the Company in the future.

The  Company's  math products  directly  compete with products such as Attribute
Blocks,  Cuisinaire Rods, and Base 10 Blocks. In earth science and geology,  the
principal   direct   competitors  in  the  market  are  Ward's  Natural  Science
Establishment  and  Geo-Science,  although some hobby outlets and science supply
houses have begun to enter this market.  In recent  years,  NTA's  Microslide(R)
System has been the target of direct competition from Learning Resources.

The Hubbard brand encounters a significant amount of direct competition for many
of its  classroom  products.  While  some of the  product  lines are  similar in
quality and price to items  manufactured  by others,  two product lines occupy a
special market niche. The Jewel product line of high quality  aquariums,  cages,
and botany  apparatus is designed to meet  extreme  requirements  of  scientific
experimentation  and demonstration.  The Company is not aware of any competitors
producing  comparable  quality items for the school  market.  These products are
priced significantly higher than lower quality alternatives.  Similarly, Hubbard
produces raised relief maps,  which provide a unique  cartographic  perspective.
However,  raised relief maps are significantly  more expensive than flat maps of
the same cartographic image.


Product Development
-------------------

To  maintain  and improve  its  position  in the market,  the Company has made a
commitment to develop new products. A key component to product development is to
conduct  regular  revisions of existing  products to keep them  up-to-date  with
changing educational standards.

When  developing  new  products,  the Company  uses both  internal  and external
sources.  External sources include independent contractors,  teachers, and other
educators who submit prototypes and suggestions for the Company's consideration.
The Company reviews the submissions,  obtains the rights to worthy products, and
pays royalties on product sales over the life of the contract.

                                     Page 6
<PAGE>

The product development process includes prototype  development and formal field
testing. The manufacturing  segment developed 18 new products in 2000, including
three new  Microslide(R)  sets, five science guide books,  two math guide books,
two new Clever Catch(R) balls, a motorized orrery,  Terrific Triangles(R) Second
Grade, two science charts, the "Spinosaur Tooth Box," and a raised relief map of
Banff. The distribution  segment developed 27 new products for its To-Sew brand,
including eight pillow kits,  three wall displays,  six clothing  products,  six
clothing decoration sewing kits, and four costumes.


Intellectual Property
---------------------

Copyrights,  trademarks,  and trade secrets are the principal protection sources
for the Company's  products.  The Company's published  materials,  which include
teachers' guides,  manuals,  game boards, and videos, are covered by copyrights.
Each  manipulative  and  model is  accompanied  by  published  material  of some
variety.  Approximately  one-half of these  copyrights are derived directly from
original works created by employees of the Company or by independent contractors
hired under agreement for a specific project.  The remaining copyrights are held
by the Company through licensing arrangements with the authors.

The Company owns  federally  registered  Trademarks  for the  following  product
names:  Fraction Bars(R),  Decimal Squares(R),  Chip Trading(R),  Math Chase(R),
Math in  Brief(R),  Clever  Catch(R),  Fraction  Interaction(R),  Earth  Science
VideoLab(R),  Nature  Finder(R),  Stretch &  Shape(R),  Checks and  Balances(R),
Terrific  Triangles(R),  and  Microslide(R).   The  Company  claims  common  law
trademark protection in all of its proprietary marks.

The Company  considers all of the  copyrights,  licenses,  and  trademarks to be
valuable property rights.  The Company believes that the protection  afforded by
these  intellectual  property  rights and the law of trade  secrets is  adequate
protection for its products. However, it is possible for a competitor to develop
near imitations of the Company's products without violating those rights.


Personnel
---------

The Company has 95  employees  in full time  regular  positions.  Personnel  are
located in Boulder,  Colorado;  Fort  Collins,  Colorado;  and  Chippewa  Falls,
Wisconsin.  There are 40 persons employed in direct manufacturing  positions; 12
persons  employed  in factory  supervisory,  clerical,  purchasing,  and product
development  positions;  9 persons employed in shipping and receiving positions;
15 persons employed in sales,  marketing and customer service positions;  and 19
persons  employed  in  accounting,  computer  operations,  and other  general or
administrative positions.

The Company is not part of any collective bargaining agreement.  There have been
no work stoppages and the Company believes its employee relations are good.


Item 2. Description of Property

The Company owns 3.5 acres of land and five  buildings on the north side of Fort
Collins,  Colorado.  This facility houses earth science  product  manufacturing,
customer  service,  marketing,  and accounting  operations.  The buildings total
18,500  square feet,  of which 14,200 are  manufacturing  and  warehousing.  The
remaining 4,300 square feet are office space. This property is subject to a lien
under the Company's borrowing arrangement.

The  Company  also leases  22,500  square feet of space on the east side of Fort
Collins,  Colorado to provide  additional  warehouse and office  space.  Monthly
lease payments approximate $12,000 and the lease expires in April 2002.

                                     Page 7
<PAGE>

The Wisconsin manufacturing facilities are located in Chippewa Falls, Wisconsin.
The main plant is  approximately  37,000 square feet and is leased at $8,250 per
month. The lease is subject to annual renewal. The smaller facility houses light
assembly and warehousing in a leased area comprising 10,000 square feet. Monthly
lease payments are $3,000 and the lease expires in September 2001.

The Company  leases space in Boulder,  Colorado for its corporate  headquarters.
This  property  consists of 1,065 square feet and is currently  leased at $1,400
per month, expiring March 2002.

The Company  believes  that each of its  facilities is adequate for its intended
purpose and does not plan any  significant  investment in additional  facilities
during the next year.


Item 3. Legal Proceedings

In connection with the Company's  proposed merger,  William Federman commenced a
civil  lawsuit  on July  13,  2000 in the  District  Court  in  Boulder  County,
Colorado, on behalf of himself and, purportedly,  all others similarly situated.
The complaint sought an order preventing AMEP from proceeding with the merger or
any other business  combination until an auction or other procedure  designed to
obtain the highest  possible price for  shareholders was held, and other relief.
GC and its parent company,  Geneve  Corporation,  and members of AMEP's Board of
Directors were named as defendants in the suit in addition to the Company.

Shortly  after the  Federman  suit was filed,  another  action  alleging  almost
identical  claims  was filed in the same  court by Dean  Shahinian  on behalf of
himself and all others similarly situated.  The two cases were consolidated into
one action.

On November 13, 2000, all parties  reached an  agreement-in-principle  to settle
the  lawsuit.  The Court has  granted  preliminary  approval  of the  settlement
agreement.  The Court provisionally  certified the lawsuit as a class action and
set  a  "Settlement  Fairness  Hearing"  for  May  2,  2001.   Shareholders  and
warrantholders of AMEP common stock are permitted to submit objections as to the
fairness of the  settlement to the Court.  Absent any  objections,  the order is
likely to be made final at the conclusion of the hearing on May 2, 2001.


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

The Company did not submit any matters to a vote of its security  holders during
the fourth quarter of its fiscal year ending December 31, 2000.

                                     Page 8
<PAGE>



                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Price Range of Common Stock
---------------------------

The Company's Common Stock trades on the NASDAQ SmallCap Market under the symbol
AMEP and on the Pacific Exchange under the symbol EP.

The following table summarizes the high and low bid quotations for the Company's
common  stock  during the last two fiscal  years.  The prices  represent  quotes
between  broker-dealers  and  do  not  include  retail  markups,   markdowns  or
commissions. The prices do not necessarily reflect actual transactions.

                                                  High          Low
                                                  ----          ----
        1999
        ----
        First Quarter                            $11.50        $9.25
        Second Quarter                            10.63          8.44
        Third Quarter                             10.69          8.50
        Fourth Quarter                            12.88         10.13

        2000
        ----
        First Quarter                             10.94          9.00
        Second Quarter                            10.69          8.25
        Third Quarter                             10.06          9.19
        Fourth Quarter                             9.50          8.88

        2001
        ----
        First Quarter (through March 27, 2001)     9.38          9.06

The bid price of the  Company's  common stock as of March 27, 2001 was $9.16 per
share.

As of March 27, 2001,  there were  approximately  200 shareholders of record and
approximately 500 beneficial shareholders.


Dividends
---------

On October  30,  2000,  the Company  paid a special  cash  dividend  aggregating
$781,000 (equivalent to $0.645 per share) to shareholders of record as of August
18, 2000. Funds for the dividend were provided by equity transactions, primarily
the exercise of stock options and warrants during the third quarter.  Other than
this special  dividend,  the Company has paid no cash dividends  during the last
two fiscal years.  Future  dividend  policy is subject to the  discretion of the
Board of Directors  and is dependent  on a number of factors,  including  future
earnings, capital requirements, and the financial condition of the Company.

                                     Page 9
<PAGE>


Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

The  following  discussion  addresses  the  financial  condition  and results of
operations for American Educational Products,  Inc. and its Subsidiaries ("AMEP"
or the  "Company").  AMEP  currently  uses several  tradenames  in marketing its
products,  including  Hubbard  Scientific  ("Hubbard"),  National  Teaching Aids
("NTA"),  Scott  Resources  ("Scott"),  Summit Learning  ("Summit"),  and To-Sew
("To-Sew").

In March  2000,  G.C.  Associates  Holdings  Corp.  ("GC")  acquired  a majority
interest in AMEP.  In July 2000,  the AMEP Board of Directors  approved a merger
between GC and AMEP.  On August 14,  2000,  a Definitive  Merger  Agreement  was
signed. In March 2001, Nasco International,  Inc. ("Nasco") became the successor
to GC's interest in the shares of AMEP previously owned by GC and assumed all of
GC's  rights  and  obligations  under the  merger  agreement.  If the  merger is
consummated,  Nasco will  acquire  all of the issued and  outstanding  shares of
common stock held by minority shareholders at a price of $10.00 per share. Nasco
is a subsidiary of Geneve Corporation.

Consummation of the merger is contingent on several factors,  including approval
by a majority of the votes cast by the minority shareholders.  The Company plans
to hold a special  meeting of  shareholders  to consider and vote on the merger.
Additional  information  will be mailed to  shareholders  with an  invitation to
attend the meeting.

If the merger is  consummated,  AMEP will become a wholly  owned  subsidiary  of
Nasco and will be  delisted  from the NASDAQ  SmallCap  Market  and the  Pacific
Exchange.  Furthermore,  it is intended that  registration  of AMEP common stock
under the  Exchange Act will be  terminated.  Such  termination  will reduce the
information that is required to be furnished to shareholders.

If the merger is consummated,  Nasco intends to consolidate  certain  functions.
Nasco expects the  consolidation  to reduce AMEP's costs of operation.  AMEP and
Nasco have  entered  into an  agreement  in  principle  pursuant  to which it is
anticipated  that  Nasco  will  manage  Summit and To-Sew on behalf of AMEP from
Nasco's existing facilities.  Relocation of certain Summit and To-Sew operations
from Fort Collins, Colorado to Fort Atkinson, Wisconsin began in March 2001.

The  following  discussion  should  be read in  conjunction  with the  Company's
Consolidated Financial Statements, including the explanatory notes, beginning on
page F-1 in this annual report.


Liquidity and Capital Resources  December 31, 2000 Compared to December 31, 1999
--------------------------------------------------------------------------------

The  Company's  liquidity  and capital  resources  proved to be  sufficient  for
operations  during 2000 despite a net loss of ($473,000) in 2000 compared to net
income of $1,102,000 in 1999. Earnings before interest,  taxes, depreciation and
amortization  were $844,000 in 2000 and  $1,813,000 in 1999. The majority of the
decrease is due to special charges of $785,000.

During 2000, cash balances  increased to $223,000 from $94,000.  Cash flows from
operations of $322,000 and from  financing  activities of $132,000 were utilized
in investing activities  ($325,000).  During 1999, cash flows from operations of
$1,655,000 were utilized in investing  activities  ($1,658,000) and in financing
activities ($27,000).

During  2000,  cash  flow  from  operations  was  sufficient  to fund all of the
Company's operating cash requirements. In addition, 134,000 options and warrants
were  exercised,  providing  sufficient  funds to pay a  special  cash  dividend
aggregating $780,500 and to pay the special charges of $785,000.

Effective   September  1,  1999,  the  Company  acquired   To-Sew.   Capitalized
acquisition  costs  totaled  $1,417,000,  including  the  cash  purchase  price,
liabilities assumed,  and other acquisition  expenses incurred.  Funding for the
acquisition was available  under the Company's  borrowing  arrangement  with its
primary lender. Excess of cost over the fair value of assets acquired (goodwill)
of $617,000 is being amortized on a straight-line basis for fifteen years.

                                     Page 10
<PAGE>

In May 1998,  the  Company  purchased  all of the  common  stock of  Learning  &
Leisure,  Inc. and its wholly owned  subsidiary,  National  Teaching Aids,  Inc.
(collectively,   "NTA").   Capitalized  acquisition  costs  totaled  $1,984,000,
including the cash purchase price,  liabilities  assumed,  and other acquisition
expenses  incurred.  The sellers provided  financing for the transaction under a
$950,000  convertible  note  payable,  a  $400,000  licensing   agreement,   and
consultation / non-compete  agreements requiring aggregate payments of $300,000.
Excess of cost over fair value of assets  acquired  (goodwill)  of  $980,000  is
being amortized on a straight-line basis over 15 years.

Effective  July 1,  1998,  AMEP  acquired  certain  operating  assets  of Summit
Learning ("Summit"). Capitalized acquisition costs totaled $1,550,000, including
the cash purchase price,  liabilities  assumed,  and other acquisition  expenses
incurred.  The seller  provided  financing for the  acquisition in the form of a
promissory  note with a principal  amount of  $1,182,000.  In addition,  certain
assets acquired in the Summit  transaction  were sold in September 1998.  Summit
sold the assets that it had  previously  used in a  Christmas  season mail order
catalog  targeted at parents and  grandparents.  Sales  proceeds of $50,000 cash
plus a note receivable were used to reduce capitalized costs of the acquisition.
The  fair  value  of  assets  acquired   exceeded  the   acquisition   costs  by
approximately  $252,000  (negative  goodwill),  which  is being  amortized  on a
straight-line basis over 15 years.

The Company  consolidated  the  operations  of To-Sew into the Summit  facility.
These two businesses  comprise the distribution  segment.  The cash requirements
for  Summit  and To-Sew  peak in the first  quarter  of the year as  promotional
material  is  directly  mailed  to  educators.  The  cash  requirements  for the
manufacturing  segment  peak in the  second  quarter  as the  Company  increases
inventory prior to the summer sales peak.

The  Company's  working  capital  line of  credit  is an asset  based  financing
arrangement with U.S. Bank Business  Finance.  The arrangement  expires on April
30,  2002,  and  provides  for  borrowings  up to  $4,050,000.  Certain  amounts
available to be borrowed  under the agreement are derived from a borrowing  base
as defined  in the  agreement  relating  to  allowable  inventory  and  accounts
receivable.  Under the formula, the Company could have borrowed up to $3,074,000
as of December 31, 2000.  Borrowings are collateralized by substantially all the
Company's  assets.  Interest,  computed  at a floating  rate plus 1%, is payable
monthly. In addition,  the Company is required to make minimum monthly principal
payments of $36,000.

The borrowing  arrangement  contains a demand provision such that the lender can
demand  repayment at any time.  Accordingly,  the entire  balance of outstanding
borrowings  is reflected as a current  liability.  In  addition,  the  borrowing
arrangement  contains  both  positive and  negative  compliance  covenants.  The
Company is currently in violation of two  covenants.  One concerns  actions that
result in a change in control of the Company. The second requires the Company to
maintain a fixed  charge  coverage  ratio of 1.75 (as  defined).  Despite  these
failures, the lender has not demanded payment. Should such a demand be made, the
Company  would  not have the funds  available  to meet  such  demand.  There are
current negotiations with the lender to restructure the terms of the debt.

The Company  believes that the funds available to it in 2001 will be adequate to
meet its  operating  requirements.  The source of those  funds will be cash flow
from operations and additional  borrowings  available under the arrangement with
its lender.

The Company experienced a 2% working capital increase in the year ended December
31, 2000.  Current  assets of  $8,495,000  increased  $817,000 from December 31,
1999, and current liabilities  increased $746,000 from $4,348,000 to $5,094,000.
As a result,  working  capital  increased  from  $3,330,000 to  $3,401,000.  The
current ratio  (current  assets divided by current  liabilities)  decreased from
1.77 to 1.67.  Working capital improved because of funds generated by operations
and proceeds from the exercise of stock options and warrants.

                                     Page 11
<PAGE>

Accounts  receivable   decreased  from  $1,952,000  at  December  31,  1999,  to
$1,888,000 at December 31, 2000, a decrease of $64,000 or 3%.

Inventories  increased  from  $4,108,000  at December 31, 1999, to $4,949,000 at
December 31,  2000,  an increase of $841,000 or 20%.  This  increase is due to a
build  up  of  finished  goods  inventory  in  the   manufacturing   segment  in
anticipation of increasing year to year revenues. Instead, manufacturing segment
revenues fell 7%. In addition,  distribution  segment  inventories  increased to
accommodate both new product  introductions  and revised material  replenishment
programs.

Prepaid  advertising  costs of $1,213,000 at December 31, 2000  represent  costs
associated  with mailing the 2001 spring  catalogs.  The comparable  amount from
December 31, 1999 was $1,171,000.

Net property and equipment  decreased  from  $2,459,000 at December 31, 1999, to
$2,162,000  at December  31,  2000,  a decrease of $297,000 or 12%.  The Company
recorded  depreciation  expense of $637,000 for 2000. Capital  expenditures were
$340,000,  which  consisted of reproduction  masters for  proprietary  products,
production tooling, and new information system hardware and software.

The carrying value of the video and film library costs decreased from $94,000 at
December 31, 1999 to $0 at December 31,  2000.  All of the decrease  represented
normal  amortization  expense.  All of the costs  incurred in previous  years to
produce this  library of work have been fully  amortized.  However,  these works
continue to sell and are still considered active products. Fully amortized costs
will remain on the balance sheet until the videos are discontinued. In 2001, the
Company has initiated development of new videos.

Intangible and other assets  decreased from  $1,732,000 at December 31, 1999, to
$1,515,000  at December 31, 2000, a decrease of $217,000 or 13%. The decrease is
from normal goodwill and covenants amortization of $217,000.

Accounts  payable  increased from $1,349,000 at December 31, 1999, to $1,409,000
at December 31, 2000,  an increase of $60,000 or 4%. This increase is related to
spending on the 2001 catalog program.

Borrowings  under the Company's  working  capital line of credit  increased from
$2,227,000 at December 31, 1999, to $2,541,000 at December 31, 2000, an increase
of $314,000 or 14%.  The  increase  primarily  represents  spending on increased
inventories and increased catalogs.

Stockholders'   equity  decreased  from  $7,389,000  at  December  31,  1999  to
$7,384,000  at December 31, 2000,  a decrease of $5,000.  The decrease  resulted
from the  exercise of options and  warrants,  yielding  proceeds of  $1,110,000,
offset by the payment of a special cash dividend of $781,000 and the net loss of
$473,000.

During 1997, the Company issued a warrant dividend to existing shareholders. The
warrant  dividend  consisted of one warrant for each share of common stock owned
by shareholders  of record on June 5, 1997. Each warrant  entitled its holder to
purchase one additional share of the Company's common stock at an exercise price
of $10.00 per share.  No voting rights were attached to the warrant.  There were
50,000 warrants exercised in 2000 and the remaining outstanding warrants expired
in December 2000.

The  Company  engaged  the  services  of  an  investor  relations  firm  and  an
investment-banking firm to assist the Company in maximizing shareholder value in
2000. In connection  therewith,  the Company issued  warrants to purchase 75,000
shares of common stock at an exercise  price of $8.00 per share.  During  fiscal
year 2000, the Company recorded a charge of $120,000 reflecting the imputed cost
of these  warrants.  All of these  warrants were  exercised in August 2000.  The
Company received gross proceeds of $600,000 from this exercise.

                                     Page 12
<PAGE>

Other  than  the  foregoing,   management  knows  of  no  trends,   demands,  or
uncertainties  that are  reasonably  likely  to have a  material  impact  on the
Company's short-term liquidity or capital resources.


Results of Operations -- 2000 Compared to 1999 and 1998
-------------------------------------------------------

The  comparisons of operating  results for 2000 to 1999 and 1998 are affected by
the  acquisitions  made by the Company  during these periods.  Furthermore,  the
acquisitions have transformed a single segment  manufacturing  enterprise into a
multi-segment manufacturing and distribution enterprise. Although the Company is
highly integrated and shares many common components and expenses,  the Company's
information system provides separate reporting for the manufacturing  operations
(Hubbard,  NTA,  and  Scott)  that  sell  primarily  to  wholesalers,   and  the
distribution operations (Summit and To-Sew) that sell primarily to the end user.

The Company reported a net loss of ($473,000) for 2000 compared to net income of
$1,102,000  for 1999 and  $850,000  for 1998.  Net loss for 2000 was ($0.42) per
share, 1999 income was $1.03 per share, and 1998 income was $0.85 per share.

The Company's revenues in 2000 were $16,192,000, an increase of $1,228,000 or 8%
from prior year  revenues of  $14,964,000  and an increase of  $4,517,000 or 39%
above 1998. Sales for the manufacturing segment decreased primarily due to lower
industry  sales  in  science  products.  Manufacturing  revenues  in  2000  were
$9,708,000,  a decrease of $634,000 or 6% from 1999 revenues of $10,342,000  and
$554,000 or 6% more than 1998 revenues of $9,154,000.  Distribution segment 2000
revenues  increased  $1,862,000 or 40% to $6,484,000 from $4,622,000 in 1999 and
increased  $3,963,000 or 157% over  $2,521,000  in 1998.  To-Sew was acquired in
September 1999 and Summit Learning was acquired in July 1998, which accounts for
the  significant   increases  over  the  last  three  years.  See  the  proforma
comparisons in the footnotes to the financial statements.

The cost of goods sold for the year ended December 31, 2000 was  $9,836,000,  an
increase of 9% from the prior year figure of $8,992,000  and 44% more than 1998.
Cost of goods sold increased  because of the overall sales increase in 2000. The
Manufacturing segment cost of goods sold for 2000 was $5,811,000,  a decrease of
$359,000  or 6% from 1999 cost of  $6,170,000  and an increase of $293,000 or 5%
from 1998 cost of $5,518,000.  Manufacturing  cost of goods sold dropped because
of the drop in sales revenue.  Distribution  cost of goods sold of $4,025,000 in
2000 increased  $1,203,000 or 43% over $2,822,000 in 1999 and $2,700,000 or 204%
over  $1,325,000  in 1998.  To-Sew was  acquired  in  September  1999 and Summit
Learning was acquired in July 1998, which accounts for the significant increases
over the last three years. See the proforma  comparisons in the footnotes to the
financial statements.

Consolidated gross profits for 2000 were $6,356,000,  an increase of $384,000 or
6% from the prior year gross profit of $5,972,000, and an increase of $1,524,000
or 32% above 1998. As a percentage of sales, the gross margin decreased from 40%
in 1999 to 39% in 2000.  Manufacturing 2000 gross margin of $3,897,000 decreased
$275,000 or 7% from $4,172,000 in 1999 and increased $261,000 or 7% over 1998 of
$3,636,000.  The 2000 decrease is due to lower sales. The  Distribution  segment
2000 gross margin of  $2,459,000  increased  $659,000 or 37% from  $1,800,000 in
1999 and  increased  $1,263,000  or 106% over  $1,196,000  in 1998.  To-Sew  was
acquired in September 1999 and Summit Learning was acquired in July 1998,  which
accounts  for the  significant  increases  over the last  three  years.  See the
proforma comparisons in the footnotes to the financial statements.

The advertising component of marketing costs increased $453,000 or 29% from 1999
and increased  $1,326,000 or 197% from 1998. The 2000 increase is from expansion
of the catalog programs and the acquisition of To-Sew. The increase over 1998 is
mainly  the  result  of the  Summit  Learning  acquisition  in 1998  and  To-Sew
acquisition  in 1999.  Year 2000 was the first full year of operations  for both
companies with a full year of catalog spending incurred.

                                     Page 13
<PAGE>

Other  marketing  costs  increased  by $83,000 or 6% from 1999 and  increased by
$286,000  or 25% from 1998.  The  increased  costs are  primarily  a function of
increased  business  activity.  As a percentage  of sales these costs were 9% in
2000, 9% in 1999, and 10% in 1998.

General and  administrative  expenses  increased  by $44,000 or 2% from 1999 and
increased by $470,000 or 26% from 1998. General and administrative expenses as a
percentage of sales were 14% in 2000 compared to 15% in 1999 and 1998.

Operating income was $681,000 in 2000, $877,000 in 1999, and $1,239,000 in 1998.
As a percent of sales,  operating  income was 4% in 2000, 6% in 1999, and 11% in
1998.  Lower  industry  sales in  science  products  had a  negative  impact  on
operating income. Certain advertising  expenditures,  especially in the recently
acquired To-Sew operation, did not produce the expected revenue increase.

During 2000,  AMEP incurred  certain costs  classified as special charges in the
accompanying statement of operations. These costs include approximately $350,000
related to the redemption of stock options held by directors, $98,000 related to
the  redemption  of  stock  options  held  by  employees,  $250,000  related  to
shareholder litigation,  and $87,000 of various legal, accounting and regulatory
fees incurred as a result of the pending merger.

Interest expense  increased from $350,000 in 1999 (27% increase) and $358,000 in
1998 (24%  increase) to $445,000 in 2000.  The increase is primarily  due to the
variable  rate line of credit  interest rate changing from 9.5% in 1999 to 10.5%
in 2000 and higher loan balances.

The Company recorded an income tax benefit of $76,000 as of December 31, 2000 to
reflect the  carryforward of the current year net loss.  During 1994,  1995, and
1996,  the Company also reported net operating  losses ("NOL") for tax purposes.
The accumulated  losses can be carried forward and used to offset future taxable
income.  During 1997,  1998, and 1999, the Company utilized a portion of its NOL
carryforwards  to offset taxable income  reported in those years. As of December
31, 2000,  the remaining NOL  carryforwards  totaled  $2,300,000.  Under the Tax
Reform Act of 1986, the amounts of and the benefits from NOL  carryforwards  are
subject  to  certain   limitations.   Thus,  ultimate  realization  of  the  NOL
carryforward is not guaranteed.  Nevertheless,  the Company  believes that it is
more  likely than not to be able to utilize  the NOL  carryforwards  before they
expire in 2009, 2010, and 2011. The NOL carryforward is the largest component of
the net deferred tax asset.

Inflation did not have any material effect on the Company's  operations for 2000
and 1999.  During 2000,  there was an increase in the cost of petroleum  and its
derivative  products.  Those cost increases resulted in increased surcharges for
incoming  freight and  shipping.  These  charges did not  materially  impact the
financial  statements  for  2000.  However,  increased  costs of  petroleum  and
utilities  have  continued  into 2001.  They may have an  adverse  impact on the
Company's  future  profitability  in the form of higher  raw  material  costs as
suppliers   pass   through   their   increased   manufacturing,   utility,   and
transportation  costs. While the Company attempts to mitigate the impact of cost
increases,  there are no guarantees that future cost increases would not have an
adverse impact.

The Company  historically has experienced  significant  seasonality in its sales
primarily due to the purchasing  cycle of educational  institutions.  Historical
trends  indicate  that the first and fourth  fiscal  quarters will each generate
approximately  20% of annual sales and the second and third fiscal quarters will
each generate approximately 30% of annual sales.

Other  than  the  foregoing,   management  knows  of  no  trends,   demands,  or
uncertainties  that are  reasonably  likely  to have a  material  impact  on the
Company's results of operations.

                                     Page 14
<PAGE>


Impact of Recently Issued Accounting Standards
----------------------------------------------

Statement  of Financial  Accounting  Standards  133  Accounting  for  Derivative
Instruments  and Hedging  Activities  (SFAS 133) was recently  issued.  SFAS 133
establishes   accounting  and  reporting  standards  for  derivative   financial
instruments and for hedging activities. The Company does not currently engage in
any activities that would be covered by SFAS 133.


Item 7. Financial Statements

The following financial statements are filed as part of this report beginning on
page F-1:

     1.   Independent Auditor's Report

     2.   Consolidated  Balance Sheets as of December 31, 2000, and December 31,
          1999

     3.   Consolidated Statements of Operations for the years ended December 31,
          2000, 1999, and 1998

     4.   Consolidated  Statement  of  Stockholders'  Equity  for the  period of
          January 1, 1998 through December 31, 2000

     5.   Consolidated Statements of Cash Flows for the years ended December 31,
          2000, 1999, and 1998

     6.   Notes to Consolidated Financial Statements


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

There were neither changes in accountants nor disagreements of the type required
to be  reported  under  this  Item  between  the  Company  and  its  independent
accountants,  Hein + Associates  LLP, during the fiscal years ended December 31,
2000, December 31, 1999, or December 31, 1998.

                                     Page 15
<PAGE>

                                    PART III


Item 9. Directors and Executive Officers of the Registrant.


Item 10. Executive Compensation.


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


Item 12. Certain Relationships and Related Transactions.

     The  foregoing  are   incorporated  by  reference  from  the   Registrant's
     definitive Proxy Statement  relating to its annual meeting of stockholders,
     which will be filed within 120 days of December 31, 2000.


Item 13. Exhibits and Reports on Form 8-K

Exhibits          Exhibit No        Title
--------          ----------        -----
   1.                 3.1           Articles of Incorporation

   1.                 3.2           Articles of Amendment to Articles of
                                    Incorporation

   1.               3.2(b)          Articles  of  Amendment to Articles of
                                    Incorporation dated April 21, 1987

   2.               3.2(c)          Articles of Amendment to Articles of
                                    Incorporation dated February 19, 1990

   1.                 3.3           By-Laws

   2.                 4.1           American  Educational  Products,  Inc. 1987
                                    Incentive Stock Option Plan, together with
                                    Option Agreement

   2.                 4.2           American Educational Products, Inc. 1990
                                    Incentive Stock Option Plan, together with
                                    Option Agreement

   2.                 4.3           American Educational Products, Inc. 1990
                                    Employee Stock Purchase Plan, together
                                    with Subscription Agreement

   3.                 4.4           American Educational Products, Inc. 1997
                                    Stock Incentive Plan, together with
                                    Option Agreement

   9.                 4.5           Form of Warrant Agreement (including
                                    form of warrant)

   4.                 2.1           Asset Purchase Agreement dated  March 1,
                                    1994, with Churchill Films, Inc.

   5.                 2.2           Asset Purchase  Agreement  dated
                                    December 20, 1995, with Steck-Vaughn
                                    Publishing Corporation relating to the sale
                                    of Summit Learning, Inc. assets


   6.                 2.3           Asset Purchase Agreement dated June 17,
                                    1997, with New SVE, Inc. relating to
                                    the sale of AEP Media Corporation assets


   7.                 2.4           Stock Purchase Agreement dated April 13,
                                    1998, with National Teaching  Aids, Inc.,
                                    et al  relating to the purchase of
                                    National Teaching Aids, Inc.

   8.                 2.5           Asset Purchase and Sale Agreement dated
                                    August 4, 1998, with SV  Distribution
                                    Company  relating to the purchase of
                                    operating assets known as Summit Learning

  10.                 2.6           Asset Purchase and Sale Agreement dated
                                    September 1, 1999 with  To-Sew, Inc.
                                    relating to the purchase of operating
                                    assets known as To-Sew

  13.                10.1           Indemnification Agreement and Release
                                    between the Registrant and its Directors

  14.                 2.7           Agreement and Plan of Merger between G.C.
                                    Associates Holdings Corp. and American
                                    Educational Products, Inc. dated as of
                                    August 14, 2000

  15.                99.1           Press  release issued by AMEP on August 14,
                                    2000 entitled "American Educational
                                    Products, Inc. Executes Definitive Merger
                                    Agreement, Commences Defense of Merger
                                    Related Lawsuit, and Announces Second
                                    Quarter Results"

                                     Page 16
<PAGE>

    1. Incorporated by reference from the Registrant's  Post-Effective Amendment
         No. 5 to Registration Statement on Form S-18 filed with the Securities
         and Exchange  Commission  and which was declared  effective on July 1,
         1987.

    2. Incorporated by reference from the Registrant's Registration Statement on
         Form S-8 filed with the Securities and Exchange  Commission  which was
         declared effective on August 4, 1992.

    3. Incorporated by reference from the Registrant's Registration Statement on
         Form S-8 filed with the  Securities  and Exchange  Commission on March
         17, 1998.

    4. Incorporated by reference  from the  Registrant's  Current Report on Form
         8-K dated  March 11, 1994 and filed with the  Commission  on March 24,
         1994.

    5. Incorporated by reference  from the  Registrant's  Current Report on Form
         8-K dated  December 20, 1995 and filed with the  Commission on January
         4, 1997.

    6. Incorporated by reference  from the  Registrant's  Current Report on Form
         8-K dated  June 17,  1997,  and filed with the  Commission  on July 3,
         1997.

    7. Incorporated by reference  from the  Registrant's  Current Report on Form
         8-K dated  April 17,  1998,  and filed with the  Commission  on May 1,
         1998.

    8. Incorporated by reference  from the  Registrant's  Current Report on Form
         8-K dated August 4, 1998,  and filed with the Commission on August 17,
         1998.

    9. Incorporated  by  reference  from  the  Registrant's  Statement  on  Form
         S-3/A-2,  Securities and Exchange  Commission File No.  333-67401,  as
         filed with the Commission on January 21, 1999.

    10. Incorporated by reference from the  Registrant's  Current Report on Form
         8-K dated September 1, 1999 and filed with the Commission on September
         14, 1999.

    11. Incorporated by reference from the Registrant's  Registration  Statement
         on Form S-3 filed with the Securities and Exchange Commission on March
         24, 2000.

    12. Incorporated by reference from the  Registrant's  Current Report on Form
         8-K dated  April 20, 2000 and filed with the  Commission  on April 24,
         2000.

    13. Incorporated by reference from the  Registrant's  Current Report on Form
         8-K dated April 28, 2000 and filed with the Commission on May 4, 2000.

    14. Incorporated by reference from the  Registrant's  Current Report on Form
         8-K dated August 14, 2000 and filed with the  Commission on August 29,
         2000.

    15. Incorporated by reference from the Registrant's  Proxy Statement on Form
         14A filed with the Securities and Exchange  Commission on December 29,
          2000.


Reports on Form 8-K
-------------------
The  Registrant  filed no Current  Reports on Form 8-K during the fourth quarter
ended December 31, 2000.

                                     Page 17
<PAGE>

              AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS







                                                                       PAGE

INDEPENDENT AUDITOR'S REPORT F-2

CONSOLIDATED BALANCE SHEETS - December 31, 2000, and 1999               F-3

CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended
December 31, 2000, 1999, and 1998                                       F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -
From January 1, 1998 through December 31, 2000                          F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years
Ended December 31, 2000, 1999, and 1998                                 F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-7

                                       F-1
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT




Board of Directors
American Educational Products, Inc.
Boulder, Colorado


We have  audited  the  accompanying  consolidated  balance  sheets  of  American
Educational  Products,  Inc. and  Subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period  ended  December  31, 2000.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of American Educational
Products,  Inc.  and  Subsidiaries  as of December  31,  2000 and 1999,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  2000,  in  conformity  with  generally  accepted
accounting principles.

/s/ HEIN + ASSOCIATES LLP
--------------------------
HEIN + ASSOCIATES LLP



Denver, Colorado
March 9, 2001

                                       F-2
<PAGE>


<TABLE>

              AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        as of December 31, 2000, and 1999
<CAPTION>

                                                                            2000            1999
                                                                        ------------    ------------
                                ASSETS

CURRENT ASSETS
<S>                                                                     <C>             <C>
      Cash                                                              $    223,000    $     94,000
      Trade receivables, net of allowance of $146,000 and $95,000          1,888,000       1,952,000
      Inventories                                                          4,949,000       4,108,000
      Prepaid advertising costs                                            1,213,000       1,171,000
      Other                                                                  222,000         353,000
                                                                        ------------    ------------
           TOTAL CURRENT ASSETS                                            8,495,000       7,678,000

PROPERTY AND EQUIPMENT, net                                                2,162,000       2,459,000

INTANGIBLE ASSETS, net                                                     1,515,000       1,732,000

DEFERRED TAXES, net                                                          651,000         575,000

VIDEO LIBRARY, net                                                                 -          94,000

OTHER ASSETS                                                                  83,000          93,000
                                                                        ------------    ------------

TOTAL ASSETS                                                            $ 12,906,000    $ 12,631,000
                                                                        ============    ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Note payable                                                      $  2,541,000    $  2,227,000
      Current maturities of long-term debt                                   420,000         430,000
      Accounts payable                                                     1,409,000       1,349,000
      Accrued expenses                                                       724,000         342,000
                                                                        ------------    ------------
           TOTAL CURRENT LIABILITIES                                       5,094,000       4,348,000

LONG - TERM DEBT, less current maturities                                    428,000         894,000

COMMITMENTS (Note 5)

STOCKHOLDERS' EQUITY
      Preferred stock; $0.01 par value; 50,000,000 shares authorized;
           none issued or outstanding                                              -               -
      Common stock; $0.05 par value; 100,000,000 shares authorized;
           1,212,740 and 1,076,070 shares issued and outstanding              60,000          54,000
      Additional paid in capital                                           7,677,000       7,215,000
      Retained earnings (accumulated deficit)                               (353,000)        120,000
                                                                        ------------    ------------
           TOTAL STOCKHOLDERS' EQUITY                                      7,384,000       7,389,000
                                                                        ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY                             $ 12,906,000    $ 12,631,000
                                                                        ============    ============
</TABLE>
           See accompanying notes to consolidated financial statements

                                       F-3
<PAGE>

<TABLE>

              AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              for the Years ended December 31, 2000, 1999, and 1998
<CAPTION>


                                            2000            1999            1998
                                        ------------    ------------    ------------
INCOME:
<S>                                     <C>             <C>             <C>
     Net sales                          $ 16,192,000    $ 14,964,000    $ 11,675,000
     Cost of goods sold                    9,836,000       8,992,000       6,843,000
                                        ------------    ------------    ------------

         Gross profit                      6,356,000       5,972,000       4,832,000

OPERATING EXPENSES:
     Advertising and catalog costs         2,000,000       1,547,000         674,000
     Other marketing                       1,421,000       1,338,000       1,135,000
                                        ------------    ------------    ------------
         Total marketing                   3,421,000       2,885,000       1,809,000
     General and administrative            2,254,000       2,210,000       1,784,000
                                        ------------    ------------    ------------
         Total operating expenses          5,675,000       5,095,000       3,593,000
                                        ------------    ------------    ------------

OPERATING INCOME                             681,000         877,000       1,239,000

SPECIAL CHARGES                             (785,000)              -               -
INTEREST EXPENSE, net                       (445,000)       (350,000)       (358,000)
                                        ------------    ------------    ------------

INCOME (LOSS) BEFORE INCOME TAXES           (549,000)        527,000         881,000

         Income tax benefit (expense)         76,000         575,000         (31,000)
                                        ------------    ------------    ------------

NET INCOME (LOSS)                       $   (473,000)   $  1,102,000    $    850,000
                                        ============    ============    ============

Basic earnings (loss) per share         $      (0.42)   $       1.03    $       0.85
                                        ============    ============    ============

Diluted earnings (loss) per share       $      (0.42)   $       0.95    $       0.79
                                        ============    ============    ============
</TABLE>


           See accompanying notes to consolidated financial statements

                                       F-4
<PAGE>

<TABLE>

              AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    January 1, 1998 through December 31, 2000
<CAPTION>


                                        COMMON STOCK
                                  --------------------------    Additional       Retained
                                    Number                         Paid          Earnings
                                     of           Common            in          (Accumulated
                                   Shares          Stock          Capital         Deficit)         Total
                                  ----------     -----------   -------------    ------------   -------------

<S>                               <C>            <C>           <C>              <C>            <C>
Balance as of January 1, 1998        922,872     $  46,000     $   6,504,000    $ (1,832,000)  $   4,718,000

Sale of common stock under the
   employee stock purchase plan        1,367             -             7,000               -           7,000
Exercise of options                   43,285         2,000           229,000               -         231,000
Exercise of warrants                  78,000         4,000           341,000               -         345,000
Net income                                 -             -                 -         850,000         850,000
                                  ----------     -----------   -------------    ------------   -------------

Balance as of December 31, 1998    1,045,524        52,000         7,081,000        (982,000)      6,151,000

Sale of common stock under the
   employee stock purchase plan        1,731             -            13,000               -          13,000
Exercise of options                   28,815         2,000           121,000               -         123,000
Net income                                 -             -                 -       1,102,000       1,102,000
                                  ----------     -----------   -------------    ------------   -------------

Balance as of December 31, 1999    1,076,070        54,000         7,215,000         120,000       7,389,000

Sale of common stock under the
   employee stock purchase plan        2,362             -            19,000               -          19,000
Exercise of options                    9,300             -            30,000               -          30,000
Exercise of $10.00 warrants           50,008         2,000           478,000               -         480,000
Expense of warrant issue                   -             -           120,000               -         120,000
Exercise of $8.00 warrants            75,000         4,000           596,000               -         600,000
Special cash dividend                                               (781,000)              -        (781,000)
Net loss                                   -             -                 -        (473,000)       (473,000)
                                  ----------     -----------   -------------    ------------   -------------

Balance as of December 31, 2000    1,212,740     $  60,000     $   7,677,000    $   (353,000)  $   7,384,000
                                  ==========     ===========   =============    ============   =============
</TABLE>

           See accompanying notes to consolidated financial statements

                                       F-5
<PAGE>

<TABLE>

              AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 2000, 1999, and 1998
<CAPTION>


                                                              2000             1999          1998
                                                            -----------    -----------    -----------
 CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                         <C>            <C>            <C>
     Net Income (loss)                                      $  (473,000)   $ 1,102,000    $   850,000
     Expenses not requiring cash outlays:
         Depreciation                                           637,000        620,000        603,000
         Amortization                                           311,000        316,000        275,000
         Bad debt expense                                        95,000         93,000         67,000
         Provision for inventory obsolesence                     84,000         78,000         78,000
         Imputed interest expense                                39,000         54,000         37,000
         Imputed cost of warrants issued                        120,000              -              -
         Provision for deferred taxes                           (76,000)      (575,000)             -
     Changes in working capital items:
         Trade receivables                                      (31,000)      (208,000)        81,000
         Inventories                                           (925,000)        48,000       (242,000)
         Prepaid advertising costs                              (42,000)         3,000       (888,000)
         Accounts payable                                        60,000        148,000        492,000
         Accrued expenses                                       382,000         22,000       (109,000)
         Other                                                  141,000        (46,000)       (35,000)
                                                            -----------    -----------    -----------
         Net cash provided by operating activities              322,000      1,655,000      1,209,000

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisitions, net cash paid                                      -     (1,417,000)      (550,000)
     Installment proceeds from sale of assets                         -        165,000        118,000
     Purchase of property and equipment                        (325,000)      (406,000)      (351,000)
                                                            -----------    -----------    -----------
         Net cash provided (used) by investing activities      (325,000)    (1,658,000)      (783,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from notes payable and long term debt             766,000      1,170,000        550,000
     Payments on notes payable and long term debt              (982,000)    (1,333,000)    (1,618,000)
     Proceeds from common stock transactions                  1,129,000        136,000        583,000
     Special cash dividend                                     (781,000)             -              -
                                                            -----------    -----------    -----------
         Net cash provided (used) by financing activities       132,000        (27,000)      (485,000)
                                                            -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH                                 129,000        (30,000)       (59,000)

Cash, at beginning of period                                     94,000        124,000        183,000
                                                            -----------    -----------    -----------

Cash, at end of period                                      $   223,000    $    94,000    $   124,000
                                                            ===========    ===========    ===========
</TABLE>


           See accompanying notes to consolidated financial statements

                                       F-6
<PAGE>

              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------

1.   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
     -------------------------------------------------------

Nature of Business
------------------
American  Educational  Products,  Inc.  (AMEP or the Company) was organized as a
Colorado corporation in 1986. During 2000, G.C. Associates Holdings Corp. ("GC")
purchased a majority of AMEP's  outstanding  common  stock.  AMEP and GC entered
into a merger agreement (see Note 2). In March 2001, Nasco  International,  Inc.
("Nasco") became the successor to GC's interest in the shares of AMEP previously
owned by GC and  assumed  all of GC's  rights and  obligations  under the merger
agreement.  Sales to Nasco were $889,000 in 2000, $932,000 in 1999, and $697,000
in 1998.

The Company sells a wide variety of educational  products through multiple sales
channels. The Company's products include those developed and manufactured by the
Company,  as well as products  manufactured  by other  companies.  The Company's
customers include educational institutions,  wholesalers,  individual educators,
and consumers.  Approximately 95% of the Company's 2000 sales were in the United
States and the remainder was exported to various locations throughout the world.

The  Company  utilizes  several  trade  names in its  marketing  efforts.  Scott
Resources (Scott)  specializes in manufacturing  math products and earth science
(geology) products.  Hubbard Scientific  (Hubbard)  specializes in manufacturing
science  products for teaching life science (biology and chemistry) and physical
science  (physics and astronomy).  National  Teaching Aids (NTA)  specializes in
manufacturing  Microslide(TM)  Viewers and the related  Microslides(TM).  Summit
Learning  (Summit)  distributes  a wide  array  of  math  and  science  products
primarily  through the use of direct mail  advertising.  To-Sew (To-Sew) designs
sewing kits that are sold via direct  mail  advertising  to family and  consumer
science educators.

Principles of Consolidation
---------------------------
The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries.  All significant  intercompany  accounts and transactions have
been eliminated in consolidation.

Use of Estimates
----------------
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting  principles requires the Company's management
to make  estimates  and  assumptions  that affect the amounts  reported in these
financial  statements and accompanying notes.  Estimates that have a significant
impact are a) future value of deferred tax assets, b) future sales to be derived
from  catalog  mailings,   c)  useful  life  of  intangible  assets,  d)  future
recoverability  of all long-lived  assets, e) net realizable value of inventory,
f) future collectability of accounts receivable,  and g) useful life and salvage
value of  property  and  equipment.  Actual  results  could  differ  from  those
estimates.

Revenue Recognition
-------------------
Sales  are  recorded  at time of  shipment  and an  allowance  is  provided  for
estimated future returns.

Cash Equivalents
----------------
Short-term investments with an original maturity of three months or less are
considered to be cash equivalents.

Inventories
-----------
Inventories  are  valued  at the  lower  of cost  [using  costing  systems  that
approximate a first-in,  first-out  (FIFO) basis] or market,  and consist of the
following:

                                             DECEMBER 31,
                                  ------------------------------------
                                       2000                1999
                                  ----------------    ----------------
Raw material                        $  2,245,000        $  2,068,000
Work in process                            4,000              29,000
Finished goods                         3,108,000           2,437,000
Less valuation allowance                (408,000)           (426,000)
                                  ----------------    ----------------
                        TOTAL       $  4,949,000        $  4,108,000
                                  ================    ================

                                       F-7
<PAGE>

              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


Property and Equipment
----------------------
Property  and  equipment  are stated at cost.  Depreciation  is  computed by the
straight-line  method over estimated useful lives ranging generally from 3 to 32
years. Depreciation expense was $637,000,  $620,000, and $603,000, for the years
ended December 31, 2000, 1999, and 1998, respectively.

Maintenance  and  repairs  are  charged  to  expenses  when  incurred.  Property
replacements  and  betterments  that  extend  the  life  of  assets,   including
reproduction   masters  for  significant,   non-routine  product  updates,   are
capitalized and subsequently  depreciated.  During 1998, the Company implemented
the provisions of AICPA  Statement of Position No. 98-1 Accounting for the Costs
of Computer  Software  Developed or Obtained for Internal Use ("SOP 98-1").  SOP
98-1  specifies  the types of costs that must be  capitalized  and the types for
costs that must be expensed during the development and implementation  phases of
software installation.

Property and equipment consist of the following:

                                                     DECEMBER 31,
                                               2000                1999
                                          ---------------     ---------------
Reproduction masters                       $  3,645,000        $  3,517,000
Plant machinery and equipment                 2,150,000           1,994,000
Office furniture and equipment                  291,000             287,000
Land and buildings                              738,000             738,000
Information systems                           1,147,000           1,095,000
Vehicles and other                               36,000              36,000
                                          ---------------     ---------------
                                              8,007,000           7,667,000
Less accumulated depreciation                (5,845,000)         (5,208,000)
                                          ---------------     ---------------
                                           $  2,162,000        $  2,459,000
                                          ===============     ===============


Video Library
-------------
The  Company   capitalizes   costs  incurred  relating  to  the  development  of
educational video products.  These costs are amortized over the estimated future
unit sales of the video  products on an  individual  film  forecast  computation
method.  Estimated  future  unit sales of each  video  represent  a  significant
estimate and are reviewed  quarterly by the Company.  All development costs were
fully amortized  during 2000 in accordance  with the Company's sales  estimates.
Actual sales have continued  beyond the estimated end of life.  Fully  amortized
costs will  remain on the  balance  sheet  until the  videos  are  discontinued.
Amortization  expense was  $94,000,  $123,000,  and $142,000 for the years ended
December 31, 2000, 1999, and 1998, respectively.

As of December 31, 2000 and 1999 the video library consists of:

                                           2000                 1999
                                      -----------------    ----------------
Production costs - completed videos       $  940,000          $  940,000
Accumulated amortization                    (940,000)           (846,000)
                                      -----------------    ----------------
                               TOTAL                -         $   94,000
                                      =================    ================


Intangibles
-----------
In the  various  acquisitions  made  by the  Company,  the  purchase  price  was
allocated to individual assets,  including  intangible assets,  based upon their
estimated fair market value. If any portion of the overall purchase price cannot
be  allocated  to  specific  assets,  that  portion is  allocated  to  goodwill.
Copyright costs are amortized over the shorter period of the estimated remaining
lives  of the  products  or the  estimated  remaining  lives  of  their  related
copyrights. The lives range from 2 years to 6 years.

                                       F-8
<PAGE>

              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


Costs  allocated to  "non-compete"  covenants are amortized over the contractual
lives of the  non-competition  agreements,  generally  ranging  from four to six
years.

Goodwill  is  amortized   over  fifteen   years.   Evaluation  of  the  goodwill
amortization period is highly subjective and is periodically analyzed based upon
changing  conditions.  The Company believes that the actual economic life of its
various  goodwill  amounts  will  ultimately  exceed the fifteen  years used for
accounting purposes.

As of December 31, 2000 and 1999, intangible assets consist of:

                                            2000
                 -----------------------------------------------------------
                                         ACCUMULATED
                      COST              AMORTIZATION               NET
                 ---------------    ----------------------    --------------
Copyrights         $    650,000             $   (650,000)                 -
Covenants             1,189,000                 (837,000)       $   352,000
Goodwill              1,345,000                 (182,000)         1,163,000
                 ---------------    ----------------------    --------------
                    $ 3,184,000             $ (1,669,000)       $ 1,515,000
                 ===============    ======================    ==============

                                            1999
                 -----------------------------------------------------------
                                         ACCUMULATED
                      COST              AMORTIZATION               NET
                 ---------------    ----------------------    --------------
Copyrights          $   650,000             $   (607,000)     $      43,000
Covenants             1,189,000                 (753,000)           436,000
Goodwill              1,345,000                  (92,000)         1,253,000
                 ---------------    ----------------------    --------------
                    $ 3,184,000             $ (1,452,000)       $ 1,732,000
                 ===============    ======================    ==============

Prepaid Advertising Costs
-------------------------
Substantially  all of the  Company's  advertising  is  through  the  mailing  of
catalogs.  The printing and mailing  costs of catalogs are recorded as a current
prepaid cost.  These costs are amortized to expense based upon  individual  cost
pools using actual and estimated  future  revenues for each  catalog.  All other
advertising costs are expensed when the advertising first takes place.

Long-Lived Assets and Intangibles
---------------------------------
Management  periodically  assesses  recoverability  of  all  long-lived  assets,
including  intangibles.  The  assessment  for  impairment is performed  whenever
events or changes in  circumstance  indicate that the carrying value of an asset
may not be recoverable. The assessment compares the carrying value of the assets
to the estimated future cash flows of the assets,  exclusive of interest.  If an
impairment  is  indicated,  a provision  is made to reduce the asset's  carrying
value to its estimated fair value.

Fair Value of Financial Instruments and Concentration of Credit Risk
--------------------------------------------------------------------
The carrying  value of the Company's  trade  receivables  and trade payables are
considered to  approximate  fair value due to their short  maturities.  The fair
value of the Company's  notes payable are considered to  approximate  fair value
because  the  effective  interest  rates  on  the  obligations  approximate  the
Company's current cost of borrowing.

The Company has a concentration of credit risk because substantially all of its
sales are either direct to educational institutions or to distributors who sell
to educational institutions. Management believes that the allowance for doubtful
accounts is sufficient to cover the related credit risk.

Stock-Based Compensation
------------------------
Statement of Financial  Accounting  Standards No. 123 Accounting for Stock-Based
Compensation  ("SFAS  123")  requires  disclosure  of the fair  value  and other
characteristics  of stock options granted to employees.  Under the provisions of
SFAS 123, the Company has elected to continue  using the intrinsic  value method
of  accounting  for  employee   stock-based   compensation  in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock  Issued to
Employees ("APB 25").

                                       F-9
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------

Income Taxes
------------
The Company  accounts for income taxes under the  liability  method of SFAS 109.
Deferred  income taxes reflect the effect of temporary  differences  between the
tax basis of assets and  liabilities  and the carrying value of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net operating  loss  carryforwards.  Tax effects are computed using
the tax rates and laws enacted as of the balance sheet date.

Earnings Per Share
------------------
The  earnings  per share is  presented  in  accordance  with the  provisions  of
Statement of Financial  Accounting  Standards No. 128, Earnings Per Share ("SFAS
128").  SFAS  128  specifies  the  method  of  computation,   presentation,  and
disclosure for earnings per share ("EPS").  It requires the  presentation of the
two EPS amounts,  basic and  diluted.  Basic EPS is  calculated  by dividing net
income by the  weighted  average  number of common  shares  outstanding  for the
period.  Diluted EPS includes the dilution that would occur if outstanding stock
options  and  other   dilutive   securities   were   exercised.   Under  certain
circumstances,   the  calculation   results  in  an  anti-dilutive   impact.  An
anti-dilutive impact means that the calculation  increases earnings per share or
reduces  losses per  share.  All  securities  with an  anti-dilutive  impact are
excluded from the diluted EPS calculation.

Supplemental Disclosures of Cash Flow Information -
-------------------------------------------------

                                                        DECEMBER 31,
                                            ---------------------------------
                                              2000      1999          1998
                                            --------   ---------   ----------
Cash payments for:
Interest                                    $408,000   $318,000    $  297,000
                                            ========   =========   ==========
Income Taxes                                       -   $ 20,000    $   21,000
                                            ========   =========   ==========

Non-cash investing and financing activities:
Capital leases incurred in exchange for
     equipment purchases                     $16,000   $ 72,000    $  186,000
                                            ========   =========   ==========
Acquisition of companies with debt                 -          -    $2,609,000
                                            ========   =========   ==========


Impact of Recently Issued Accounting Standards
------------------------------------------------
In June 1998, Statement of Financial Accounting Standards No. 133 Accounting for
Derivative  Instruments and Hedging Activities ("SFAS 133") was issued. SFAS 133
establishes   accounting  and  reporting  standards  for  derivative   financial
instruments and for hedging activities. The Company does not currently engage in
any activities that would be covered by SFAS 133.

Reporting Comprehensive Income
------------------------------
Statement of Financial  Accounting  Standards No. 130,  Reporting  Comprehensive
Income ("SFAS 130") became effective during 1998. SFAS 130 establishes standards
for  reporting  and  display  of  comprehensive   income,   its  components  and
accumulated balances.  Comprehensive income is defined to include all changes in
equity except those resulting from  investments by owners and  distributions  to
owners.  Since its inception,  the Company has not entered into any transactions
that meet the  definition of  comprehensive  income other than net income or net
loss. Accordingly,  the balance of accumulated  comprehensive income at December
31,  2000 was nil and total  comprehensive  income  (loss) for each of the three
years ending  December 31, 2000 was equal to the net income (loss)  reported for
the year.

2.  PENDING MERGER AND SPECIAL CHARGES:
    -----------------------------------

                                      F-10
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


On July 10,  2000,  the Board of  Directors  of AMEP agreed in  principle to the
terms of a merger proposal from G.C.  Associates Holdings Corp. ("GC"). In March
2001, Nasco International,  Inc. ("Nasco") became the successor to GC's interest
in the shares of AMEP previously  owned by GC and assumed all of GC's rights and
obligations under the merger agreement.  Under the terms of the agreement,  AMEP
will become a wholly owned subsidiary of Nasco and all  shareholders  other than
Nasco and its  affiliates  will  receive  $10.00 in cash for each  share of AMEP
stock that they own. The merger agreement is subject to shareholder approval and
other  conditions.  Merger  related  documents have been submitted to regulatory
agencies  for review and the  shareholder  vote will be held  shortly  after all
approvals are received.

During 2000,  AMEP incurred  certain costs  classified as special charges in the
accompanying statement of operations. These costs include approximately $350,000
related to the redemption of stock options held by directors, $98,000 related to
the  redemption  of  stock  options  held  by  employees,  $250,000  related  to
shareholder litigation,  and $87,000 of various legal, accounting and regulatory
fees incurred as a result of the pending merger


In connection with the pending  merger,  the Board of Directors has committed to
repurchase  common stock and stock  options owned by four senior  managers.  The
cost to the  Company  will  approximate  $400,000 to be incurred at the time the
merger closes.

3.   ACQUISITIONS:
     -------------

Effective  September 1, 1999, AMEP acquired  certain  operating  assets known as
To-Sew.  The purchase  price was  $1,270,000.  Certain  other costs  incurred in
connection  with  the  acquisition   resulted  in  total  capitalized  costs  of
$1,417,000.  Funding  for the  acquisition  was  available  under the  Company's
financing arrangement with its primary lender.

To-Sew assembles and distributes sewing kits used as teaching aids in the family
and consumer science curriculum.  Several times per year, To-Sew mails catalogs,
posters,  and other  solicitation  material  directly to  educators.  The To-Sew
acquisition  was  recorded  using  the  purchase  method of  accounting  and the
operating  results  were  included  in the  Company's  consolidated  results  of
operations commencing September 1, 1999.

In May 1998,  the  Company  purchased  all of the  common  stock of  Learning  &
Leisure,  Inc. and its wholly owned  subsidiary,  National  Teaching Aids,  Inc.
(collectively,  "NTA") for a purchase price of $1,835,000.  The sellers provided
financing for the  transaction  under a $950,000  convertible  note  payable,  a
$400,000  licensing  agreement,   and  consultation  /  non-compete   agreements
requiring  aggregate  payments of $300,000.  In addition,  AMEP assumed  certain
liabilities  and  incurred  other  expenses  that  increased  total  capitalized
acquisition costs to $1,984,000.

NTA produces the  Microslide(TM)  System.  Microslides(TM)  are 35mm photographs
taken  through a  microscope.  Each set of  photographs  is  designed to teach a
specific scientific concept. The 35mm images are viewed through a Microslide(TM)
Viewer, a specially designed plastic device that resembles a microscope.

The NTA  acquisition  has been recorded using the purchase  method of accounting
and the operating  results of NTA were  included in the  Company's  consolidated
results of operation commencing June 1, 1998.

Effective  July 1,  1998,  AMEP  acquired  certain  operating  assets  of Summit
Learning.  Summit  distributes math and science  supplemental  teaching aids via
direct mail catalogs.  The purchase price was  $1,482,000.  The seller  provided
financing for the  acquisition in the form of a promissory note with a principal
amount of $1,182,000. In addition, AMEP assumed certain liabilities and incurred
other expenses that increased total capitalized acquisition costs to $1,550,000.
Some of Summit's catalogs were targeted toward the consumer market. That portion
of the business was sold in September 1998. Sales proceeds consisting of $50,000
cash plus a note  receivable  of  $150,000  were used to reduce the  capitalized
costs of the acquisition.

                                      F-11
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


The Summit  acquisition was recorded using the purchase method of accounting and
the  operating  results of Summit were  included in the  Company's  consolidated
results of operations commencing July 1, 1998.

The  following  pro-forma  presentation  has  been  prepared  as if  all  of the
acquisitions had occurred on January 1, 1998.
<TABLE>
<CAPTION>

PRO-FORMA (unaudited)                                 YEAR ENDED DECEMBER 31,
                                            2000               1999               1998
                                       ---------------    ---------------    ----------------
<S>                                       <C>                <C>                 <C>
Net sales                                 $16,192,000        $16,029,000         $16,607,000
Net income (loss)                          ($473,000)         $1,067,000            $363,000
Basic earnings (loss) per share               ($0.42)              $1.00               $0.40
Diluted earnings (loss) per share             ($0.42)              $0.92               $0.34
</TABLE>

The pro-forma amounts presented above include  adjustments to historical amounts
for  interest on  acquisition  debt  incurred,  amortization  of  goodwill,  and
depreciation of revalued furniture and equipment.  The pro-forma  information is
not necessarily  indicative of the results of operation of the combined  company
had these events occurred on January 1, 1998. Furthermore, AMEP made substantial
changes  to  the  operations  of  each  acquired  enterprise  subsequent  to the
acquisition  date.  Specifically,  a duplicative  facility acquired with NTA was
closed and the  operations  were  relocated  to  Chippewa  Falls,  Wisconsin.  A
duplicative  facility  acquired with To-Sew was closed and the  operations  were
relocated to Fort  Collins,  Colorado.  The number of catalogs and costs thereof
mailed by Summit were substantially reduced. None of these changes are reflected
in the pro-forma amounts above.  Therefore,  the amounts presented above are not
indicative of future results.


4.   NOTES PAYABLE AND LONG-TERM DEBT:
     --------------------------------

The Company has a revolving line of credit pursuant to an asset-based  financing
agreement that expires April 30, 2002. Borrowing under this line of credit bears
interest at a floating  rate plus 1% (totaling  10.5% as of December 31,  2000).
Interest is payable  monthly.  The principal  balance was $2,541,000 at December
31, 2000. The agreement  provides for maximum  borrowings up to $4,050,000.  The
actual  amount  available  to be  borrowed  at any one  time is  derived  from a
borrowing  base  formula as  defined  in the  agreement  relating  to  allowable
inventory and accounts  receivable.  As of December 31, 2000, the borrowing base
formula  would have  limited  borrowings  to  $3,074,000.  The line of credit is
collateralized  by substantially  all of the Company's  assets. As the financing
agreement contains a subjective  "due-upon-demand" clause, the entire balance is
classified  as a current  liability.  In  addition,  the  borrowing  arrangement
contains  both  positive  and  negative  compliance  covenants.  The  Company is
currently in violation of two covenants.  One concerns  actions that result in a
change of control of the Company.  The second requires the Company to maintain a
fixed charges  coverage ratio of 1.75 (as defined).  Despite these  violations,
the lender has not demanded  payment.  There are current  negotiations  with the
lender to restructure the terms of the debt.  Scheduled  principal  payments are
$36,000 per month.

                                      F-12
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


<TABLE>
<CAPTION>

The Company's long-term debt consisted of the following:

                                                                               2000              1999
                                                                           -------------     --------------
<S>                                                                           <C>                <C>
Note Payable to the sellers of NTA, principal due in four annual              $464,000           $687,000
    installments of $237,500.  At the option of the Company, can be
    converted into common stock at a rate of $10 per share.
    Collateralized by intellectual property.

License agreement, due in four annual installments of $100,000.
    Collateralized by intellectual property.                                   182,000            257,000

Capital lease obligations, due in monthly installments of $13,000
    with varying maturities.  Collateralized by information system
    hardware and manufacturing equipment.                                      202,000            321,000

Other                                                                                -             59,000
                                                                           -------------     --------------

Total                                                                          848,000          1,324,000
Less current maturities                                                       (420,000)          (430,000)
                                                                           -------------     --------------
Long-term debt                                                                $428,000           $894,000
                                                                           =============     ==============
</TABLE>


At December 31, 2000, the future minimum principal payments on long term debt
and capitalized lease obligations were as follows:

     2001              $  420,000
     2002                 400,000
     2003                  19,000
     2004                   9,000
                   ---------------
    Total              $  848,000
                   ===============

The note payable to the sellers of NTA bears  interest at a stated rate of 7.5%,
payable annually.  For financial  reporting  purposes,  the note was assigned an
additional 2.5% of imputed interest (total interest rate of 10%). The face value
of the note was $475,000 at December 31, 2000 and $712,000 at December 31, 1999.
The license agreement is non-interest bearing. For financial reporting purposes,
the license was assigned an imputed  interest rate of 10%. The face value of the
license  payable was  $200,000 at December 31, 2000 and $300,000 at December 31,
1999.


5.   COMMITMENTS:
     -----------

The Company  leases office space,  equipment,  and  warehouse  facilities  under
noncancellable operating leases. Total rental expense for each of the last three
years was  $338,000 in 2000,  $322,000  in 1999,  and  $240,000 in 1998.  Future
minimum rental commitments at December 31, 2000 are as follows:

                                      F-13
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


                  2001                      $ 200,000
                  2002                        167,000
                  2003                        163,000
                  2004                        168,000
                  Thereafter                   41,000
                                         -------------
                  Total                     $ 739,000
                                         =============

The  Company  has  certain  royalty  agreements  with  third  parties on various
products. Total royalty expense for each of the last three years was $135,000 in
2000, $156,000 in 1999, and $115,000 in 1998.

6.   SHAREHOLDER LITIGATION:
     -----------------------

In connection with the Company's  proposed merger,  William Federman commenced a
civil  lawsuit  on July  13,  2000 in the  District  Court  in  Boulder  County,
Colorado, on behalf of himself and, purportedly,  all others similarly situated.
The complaint sought an order preventing AMEP from proceeding with the merger or
any other business  combination until an auction or other procedure  designed to
obtain the highest  possible price for  shareholders was held, and other relief.
GC and its parent company,  Geneve  Corporation,  and members of AMEP's Board of
Directors were named as defendants in the suit in addition to the Company.

Shortly  after the  Federman  suit was filed,  another  action  alleging  almost
identical  claims  was filed in the same  court by Dean  Shahinian  on behalf of
himself and all others similarly situated.  The two cases were consolidated into
one action.

On November 13, 2001, all parties  reached an  agreement-in-principle  to settle
the  lawsuit.  The Court has  granted  preliminary  approval  of the  settlement
agreement.  The Court provisionally  certified the lawsuit as a class action and
set  a  "Settlement  Fairness  Hearing"  for  May  2,  2001.   Shareholders  and
warrantholders of AMEP common stock are permitted to submit objections as to the
fairness of the  settlement to the Court.  Absent any  objections,  the order is
likely to be made final at the conclusion of the hearing on May 2, 2001.


7.   STOCKHOLDERS' EQUITY:
     ---------------------

Preferred Stock
---------------
The Company has authorized  50,000,000  shares of preferred stock.  These shares
may be issued in series with such rights and preferences as may be determined by
the Board of Directors. None of the shares are issued and outstanding.

Common Stock
------------
The Company has authorized 100,000,000 shares of $0.05 par value common stock.

During 1997, the Company issued a warrant dividend to existing shareholders. The
warrant dividend consisted of one warrant for each share of common stock owned
by shareholders of record on June 5, 1997. Each warrant entitled its holder to
purchase one additional share of the Company's common stock at an exercise price
of $10.00 per share. No voting rights were attached to the warrant.

A registration  statement  under the securities act of 1933 was filed  regarding
the  warrants  and  was  declared  effective  by  the  Securities  and  Exchange
Commission  in December  1997.  The  warrants  were issued and began  trading on
December 5, 1997 on the NASDAQ Small Cap Market  System under the symbol  AMEPW.
NASDAQ informed the Company that, in its opinion, the ex-dividend date for these
warrants should be December 5, 1997, the day that trading commenced. As a result
of the delayed  ex-dividend  date, the Company  determined  that it should issue
additional warrants to disenfranchised shareholders who sold shares between June
5, 1997 and December 5, 1997. The additional  warrants were issued in 1999 after
the  Securities  and  Exchange  Commission  declared  the  amended  registration
statement effective.  All of these warrants,  amounting to 992,000,  were issued
and  outstanding  at December  31,  1999.  During  2000,  50,000  warrants  were
exercised. All remaining warrants expired on December 1, 2000.

                                      F-14
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------

Warrants
--------
During 2000, the Company issued 75,000 warrants to its investor  relations firm.
Each warrant  entitled its holder to purchase one share of the Company's  common
stock at an exercise price of $8.00 per share. No voting rights were attached to
the warrants.  The Company recorded an imputed cost of $120,000 related to these
warrants, all of which were exercised in August 2000.

                                      F-15
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


Earnings per Share
------------------

The following is a reconciliation of basic and diluted earnings per share:

<TABLE>
<CAPTION>

                                                           For the year ended December 31, 2000
                                                           ------------------------------------
                                                       Income             Shares             Per Share
                                                     (Numerator)       (Denominator)          Amount
                                                    --------------    ----------------
Basic EPS
<S>                                                    <C>                  <C>               <C>
  Income available to common shareholders              ($473,000)           1,134,139         ($0.42)
                                                                                           ==============
Effect of dilutive securities
  Stock options                                                                     -
  Convertible debt                                              *                   *
Diluted EPS
                                                    --------------    ----------------
  Income   available  to  common   stockholders
   plus assumed conversions                            ($473,000)           1,134,139         ($0.42)
                                                    ==============    ================     ==============
</TABLE>

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

* - Additional income of $55,397 and additional shares of 55,397 would be
    anti-dilutive
<TABLE>
<CAPTION>

                                                           For the year ended December 31, 1999
                                                           ------------------------------------
                                                       Income             Shares             Per Share
                                                     (Numerator)       (Denominator)          Amount
                                                    --------------    ----------------
Basic EPS
<S>                                                    <C>                  <C>               <C>
  Income available to common shareholders              $1,102,000           1,071,000         $1.03
                                                                                           ==============
Effect of dilutive securities
  Stock options                                                                65,000
  Warrants                                                                     25,000
  Convertible debt                                              *                   *
Diluted EPS
                                                    --------------    ----------------
  Income   available  to  common   stockholders
   plus assumed conversions                            $1,102,000           1,161,000         $0.95
                                                    ==============    ================     ==============
</TABLE>

--------------------------------------------------------------------------------
* -  Additional  income of  $79,000  and  additional  shares of 79,000  would be
     anti-dilutive

<TABLE>
<CAPTION>

                                                           For the year ended December 31, 1998
                                                           ------------------------------------
                                                       Income             Shares             Per Share
                                                     (Numerator)       (Denominator)          Amount
                                                    --------------    ----------------
Basic EPS
<S>                                                      <C>                <C>                    <C>
  Income available to common shareholders                $850,000           1,000,000              $0.85
                                                                                           ==============
Effect of dilutive securities
  Stock options                                                                64,000
  Warrants                                                                     11,000
  Convertible debt                                         47,000              63,000
Diluted EPS
                                                    --------------    ----------------
  Income   available  to  common   stockholders
   plus assumed conversions                              $897,000           1,138,000              $0.79
                                                    ==============    ================     ==============
</TABLE>

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

                                      F-16
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


Options to purchase  123,000 shares of common stock were outstanding at December
31, 2000. All of them had an anti-dilutive effect on the 2000 earnings per share
calculation.   Furthermore,   the  Company  has  committed  to  redeem   certain
outstanding  options held by key employees.  During 2000, the Company recorded a
cost of $98,000 reflecting its commitment.

Options to purchase  183,300 shares of common stock were outstanding at December
31,  1999.  All of them had a  dilutive  effect on the 1999  earnings  per share
calculation.  For  purposes of  calculating  diluted  EPS,  outstanding  options
resulted  in 65,000  incremental  shares  determined  using the  treasury  stock
method.

The Company  also had  warrants  outstanding  at  December  31, 1999 to purchase
992,000 shares of common stock at an exercise price of $10.00 per share. For the
purposes of calculating  diluted EPS,  outstanding  warrants  resulted in 25,000
incremental shares using the treasury stock method.

Options to purchase  172,450 shares of common stock were outstanding at December
31,  1998.  All of them had a  dilutive  effect on the 1998  earnings  per share
calculation.  For  purposes of  calculating  diluted  EPS,  outstanding  options
resulted  in 64,000  incremental  shares  determined  using the  treasury  stock
method.

The Company  also had  warrants  outstanding  at  December  31, 1998 to purchase
916,000 shares of common stock at $10 per share. The 916,000  warrants  resulted
in 11,000  incremental  shares.

ESPP
----
Substantially all of the Company's  regular full-time  employees are eligible to
participate in an employee stock purchase plan (ESPP),  except those owning more
than 5% of the  Company's  common  stock or more  than  $25,000  in value of the
Company's common stock.  Stockholders  have authorized  issuance of up to 60,000
shares under the ESPP.  Under the ESPP,  employees may purchase shares at 85% of
the NASDAQ quoted market value on either the beginning or ending date of the six
month enrollment period, whichever is less. The number of shares purchased under
the ESPP for each of the three years ending December 31 was 2,362 in 2000, 1,731
in 1999, and 1,367 in 1998. Expenses related to the ESPP are not material.

Stock Options
-------------
On June 2, 1997, the  shareholders  approved the 1997 Stock  Incentive Plan. The
1997 Stock Incentive Plan (the "1997 Plan")  superseded the previously  existing
plan, the 1990 Incentive  Stock Option Plan, and all activity under the 1990 was
merged  into the 1997  Plan.  The 1997 Plan was  created  to  conform  to recent
changes  in  securities  and tax  laws and  regulations  and to  conform  to new
requirements of the NASDAQ Stock Market.

The 1997 Plan authorizes the Board of Directors to issue incentive stock options
to executive officers and key employees and to grant non-qualified stock options
and/or  stock  purchase  rights  to  officers,   employees,   former  employees,
directors,  and consultants.  The options are generally  granted for a five-year
period,  with the exercise  price based upon the market  price of the  Company's
freely traded common stock on the date of the grant. The total number of options
authorized for issuance under the Plan is 179,300.

All 36,000  incentive stock options  outstanding at December 31, 2000 were fully
vested and exercisable.  The incentive stock options had exercise prices ranging
from $3.875 to $7.125.

At December 31, 2000,  there were 16,485 shares  authorized for future grants of
incentive stock options under the existing Plan.

The Company has issued  non-qualified  stock options under the terms of the 1997
Plan  (and its  predecessor  plan).  During  1998,  the  Company  issued  59,000
non-qualified stock options to its employees and directors at 100% of fair value
at the date of the grant.  During 1999, the Company issued 46,500  non-qualified
stock  options to its  employees and directors at 100% of fair value at the date
of the grant. No options were issued in 2000. All 87,000  non-qualified  options
outstanding  at December  31, 2000 were  exercisable.  The  non-qualified  stock
options had exercise prices ranging from $3.875 to $9.125.

                                      F-17
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


The following is a summary of the number of shares under option:

<TABLE>
<CAPTION>

                                              NUMBER OF SHARES
                            -----------------------------------------------------
                                  INCENTIVE               NON-                          WEIGHTED
                                      STOCK          QUALIFIED                           AVERAGE
                                     OPTION              STOCK                          EXERCISE
                                       PLAN            OPTIONS          TOTAL              PRICE
                            ------------------ -----------------  ---------------   -------------


<S>                                  <C>                <C>           <C>                  <C>
Balance, Jan. 1, 1998                78,700             83,000        161,700              $4.40

   Options granted                        -             59,000         59,000              $8.00
   Options exercised                 (7,385)           (29,000)       (36,385)             $4.50
   Options terminated                (1,865)           (10,000)       (11,865)             $5.20
                            ------------------ -----------------  ---------------

Balance, Dec. 31, 1998               69,450            103,000        172,450              $5.59

   Options granted                        -             46,500         46,500              $9.13
   Options exercised                (25,850)            (3,000)       (28,850)             $4.86
   Options terminated               ( 1,800)            (5,000)        (6,800)             $8.61
                            ------------------ -----------------  ---------------

Balance, Dec. 31, 1999               41,800            141,500        183,300              $6.49

   Options granted                        -                  -              -                  -
   Options exercised                 (5,300)            (4,000)        (9,300)             $3.23
   Options terminated                (  500)           (50,500)       (51,000)             $4.98
                            ------------------ -----------------  ---------------

Balance, Dec. 31, 2000               36,000             87,000        123,000              $7.23
                            ================== =================  ===============   =============
</TABLE>

For all options granted during the last three years, the weighted average market
price of the Company's  common stock on the grant date was equal to the weighted
average exercise price.

Pro Forma Stock-Based Compensation Disclosures
----------------------------------------------
The Company applies APB Opinion 25 and related interpretations in accounting for
its stock options that are granted to employees and directors.  Accordingly,  no
compensation  cost has been  recognized for grants of options where the exercise
price is not less than the quoted market value of the Company's  common stock on
the grant date. Had compensation cost been determined based on the fair value at
the grant dates for awards under those plans  consistent with the method of SFAS
123, the  Company's  net income and earnings per share would have changed to the
pro forma amounts indicated in the following table:

                                      F-18
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


                                       YEAR ENDED DECEMBER 31,
                               2000               1999              1998
                          ---------------    ---------------    -------------
Net income
     As reported             ($ 473,000)        $ 1,102,000        $ 850,000
     Pro forma               ($ 473,000)        $   946,000        $ 512,000
Basic earnings per
   common share
     As reported                 ($0.42)              $1.03            $0.85
     Pro forma                   ($0.42)              $0.88            $0.51
Diluted earnings per
   common share
     As reported                 ($0.42)              $0.95            $0.79
     Pro forma                   ($0.42)              $0.81            $0.49

These pro forma amounts may not be  representative  of future  disclosures since
the  estimated  fair value of stock  options is  amortized  to expense  over the
vesting period and additional options may be granted in future years.

The fair value of each  option  granted  was  estimated  as of the date of grant
using the Black - Scholes  option  pricing  model  with the  following  weighted
average assumptions:

                                             YEAR ENDED DECEMBER 31,
                                         2000         1999          1998
                                        --------    ----------    ---------
Estimated fair value / share of
     options granted                        N/A         $4.62        $4.41
Expected volatility                         N/A           59%          58%
Risk free interest rate                     N/A          5.8%         5.2%
Expected dividends                          N/A         $0.00        $0.00
Expected term (in years)                    N/A           4.0          5.0


8.   INCOME TAXES:
     -------------

The composition of income tax benefit (expense) for the years ended December 31
was as follows:

                                  2000         1999         1998

                              ------------- ------------ ------------
Current                                  -            -   $( 31,000)
Deferred                         $  76,000    $ 575,000           -
                              ------------- ------------ ------------
Total                            $  76,000    $ 575,000   $( 31,000)
                              ============= ============ ============

Generally,  the difference  between the Company's current effective tax rate and
the Federal  statutory rate of 34% is primarily  caused by the addition of state
taxes (2% - 4%) offset by changes to the deferred tax  valuation  allowance  and
permanent  differences for non-deductible  expenditures.  In 2000, certain costs
related to the  shareholder  litigation  and which were  recorded for  financial
reporting purposes may not be deductible for tax purposes. The net effect of the
non-deductible items reduced the effective tax rate by approximately 20%.

In previous years, the Company incurred net operating  losses.  Internal Revenue
Service  regulations  allow the Company to carryforward its net operating losses
and offset them against future taxable income,  if any. As of December 31, 2000,
the NOL carryforwards approximate $2,300,000 and expire in the years 2009, 2010,
and  2011.   Current  tax  regulations   impose  a  number  of  limitations  and
restrictions on the usage of net operating loss carryforwards. Specifically, the
Company  must earn  future  taxable  income such that the NOL's can be used as a
deduction.  A change in control of the Company could limit the usage of the NOL.
Thus,  there  is no  guarantee  that the  Company  will be able to  utilize  the
carryforwards before they expire. Nevertheless,  the Company believes that it is
more likely  than not that it will  utilize  the NOL  carryforwards  before they
expire.

                                      F-19
<PAGE>


              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------


The tax benefit reported in 2000 represents  recognition of a deferred tax asset
for the net loss incurred.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes  and  the  amounts  used  for  income  tax  purposes.  The  significant
components  of  deferred  tax assets and  liabilities  as of December 31 were as
follows:

                                            2000              1999
                                       --------------     -------------
Deferred tax assets (liabilities):
Current
    Accounts receivable                 $    51,000       $    31,000
    Inventories                             124,000           132,000
    Prepaid advertising costs              (452,000)         (434,000)
    Accrued Expenses                         80,000
    Net operating losses                    197,000           271,000
Long-term
    Property, plant and equipment           (40,000)         (113,000)
    Net operating losses                    691,000           688,000
                                       --------------     -------------
Net deferred tax asset                  $   651,000       $   575,000
                                       ==============     =============

The  Company  has  determined  that it was more likely than not that it would be
able  to  offset  future   taxable   income   against  the  net  operating  loss
carryforwards.  Accordingly,  no  valuation  allowance  has been  provided.  The
Company will  periodically  review the net realizable  value of its deferred tax
asset.  Should  the  deferred  tax  asset  become  impaired  in the  future,  an
appropriate valuation allowance will be provided.


9.   CONSOLIDATED SEGMENT DATA:
     -------------------------

The  Company  follows  Statement  of  Financial  Accounting  Standards  No. 131,
Disclosures  About  Segments of an  Enterprise  and Related  Information  ("SFAS
131"),  which  established  standards for the way companies  report  information
about their  operating  segments.  Prior period  amounts  have been  restated to
conform to the requirements of this new statement.

The Company's  reportable  segments are  integrated  business units that design,
develop,  assemble and distribute  similar products.  The difference between the
two segments is the type of customer.  The manufacturing segment sells primarily
to  wholesalers.  The  distribution  segment  sells  primarily  to the end user.
Although all segments are managed as part of an integrated enterprise,  they are
reported herein in a manner  consistent with the internal  reports  prepared for
management.

Transactions between reportable segments are recorded at cost. Substantially all
general and administrative  services are provided by the Company to the segments
without  charge.   Acquisition  related  expenses,   including  amortization  of
acquisition  costs,  are  considered a corporate  expense.  All of the Company's
assets are located in the United States of America.

AMEP is operated as an integrated  enterprise and the segment  amounts  reported
herein would not necessarily be indicative of operating  results if the segments
were operated independently.

                                      F-20
<PAGE>

              AMERICAN EDUCATIONAL PRODUCTS, INC., AND SUBSIDIARIES
              -----------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    -----------------------------------------

<TABLE>
<CAPTION>


   Description      Year   Manufacturing   Distribution    Corporate          Total
------------------ ----   --------------   -----------     ------------    ------------
<S>                <C>    <C>              <C>             <C>             <C>
Net Sales          2000   $  9,708,000     $  6,484,000               -    $ 16,192,000
                   1999     10,342,000        4,622,000               -      14,964,000
                   1998      9,154,000        2,521,000               -      11,675,000

Operating          2000   $  2,549,000     $    171,000    ($ 2,039,000)   $    681,000
Income             1999      2,868,000          226,000      (2,217,000)        877,000
                   1998      2,439,000          584,000      (1,784,000)      1,239,000

Interest Expense   2000   $    247,000     $     86,000    $    112,000    $    445,000
                   1999        170,000           39,000         141,000         350,000
                   1998        204,000           19,000         135,000         358,000

Assets             2000   $  7,739,000     $  2,766,000    $  2,401,000    $ 12,906,000
                   1999      7,661,000        2,367,000       2,603,000      12,631,000
                   1998      8,242,000        1,484,000       1,476,000      11,202,000

Capital
Acquisitions       2000   $    220,000     $     91,000    $     29,000    $    340,000
                   1999        181,000          256,000          46,000         483,000
                   1998        374,000           72,000         101,000         547,000


Depreciation       2000   $    548,000     $     70,000    $    330,000    $    948,000
And                1999        578,000           28,000         330,000         936,000
Amortization       1998        628,000                -         250,000         878,000

</TABLE>


10.  SUBSEQUENT EVENTS (unaudited):
     -----------------------------

In March 2001, AMEP reached an agreement-in-principle  with its affiliate, Nasco
International,  Inc.  ("Nasco"),  pursuant to which it is anticipated that Nasco
will  manage  Summit  and  To-Sew  on  behalf  of  AMEP  from  Nasco's  existing
facilities.  Relocation  of  certain  Summit  and  To-Sew  operations  from Fort
Collins, Colorado to Fort Atkinson, Wisconsin began in March 2001.

                                      F-21