FORM 10-KSB

U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the Fiscal Year Ended December 31, 2004

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES ACT OF 1934

For the Transition Period from  ________ to ________

Commission File #0-11078

                   THE AMERICAN EDUCATION CORPORATION
              --------------------------------------------
             (Name of Small Business issuer in its charter)

            Nevada                               73-1621446
-------------------------------    ------------------------------------
(State or other jurisdiction of    (I.R.S. Employer Identification No.)
incorporation or organization)

   7506 N. Broadway Extension, Suite 505, Oklahoma City, OK  73116
   ---------------------------------------------------------------
    (Address of principal executive offices ) (Zip Code)

                             (405) 840-6031
                       ---------------------------
                       (Issuer's Telephone number)

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.025 per share

     Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the 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.
                                                        YES  X  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 to this Form 10-KSB.  [  ]

     Revenues for the year ended December 31, 2004:       $10,399,865

     State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price
at which the common equity was sold, or the average bid and asked price
of such common equity, as of a specified date within the past sixty
days: $4,482,976 based on 7,471,627 shares at $.60 per share, the last
sale price of the common stock on March 10, 2005. (For purposes of
calculating this amount only, all the directors and executive officers
of the issuer have been treated as affiliates.)

     Number of shares of the issuer's common stock outstanding as of
March 10, 2005: 14,133,461

Transitional Small Business Disclosure Format      YES___NO X



TABLE OF CONTENTS TO FORM 10-KSB


PART I


                                                           Page Number


Item 1     Description of Business                               3
Item 2     Description of Property                              13
Item 3     Legal Proceedings                                    13
Item 4     Submission of Matters to a Vote of Security Holders  13



PART II


Item 5     Market for Common Stock and Related Stockholder
           Matters                                              14
Item 6     Management's Discussion and Analysis or Plan
           of Operation                                         15
Item 7     Financial Statements                                 18
Item 8     Changes In and Disagreements with Accountants on
           Accounting and Financial Disclosure                  18
Item 8A    Controls and Procedures                              18



PART III


Item 9     Directors, Executive Officers, Promoters, and
           Control Persons; Compliance with Section 16(a) of
           the Exchange Act                                     19
Item 10    Executive Compensation                               20
Item 11    Security Ownership of Certain Beneficial Owners
           and Management                                       22
Item 12    Certain Relationships and Related Transactions       23
Item 13    Exhibits and Reports on Form 8-K                     24
Item 14    Principal Accounting Fees and Services               25



THE AMERICAN EDUCATION CORPORATION


FORM 10-KSB


PART I
------

Item 1.  Description of Business.
------   ------------------------

The Company's Business
----------------------

The Company's primary business is the development and marketing of
educational software to elementary, middle and secondary schools, adult
literacy centers and vocational, junior and community colleges. The
Company develops software for Windows, registered, Macintosh, registered,
Unix, registered, and Linux, registered, operating systems.  From 1995 to
2001, the Company's revenues were primarily derived from the sale of its
principal product family, the A+dvanced Learning System, registered,
Version 2.15, a comprehensive courseware offering developed by the Company.
In early 2001, the Company released the A+nyWhere Learning System, registered,
V 3.0 ("A+LS", registered), a Java, trademark,-based program designed to
be the Company's future delivery platform for its extensive grade level
1-12 educational content and assessment tools.  The new A+nyWhere Learning
System, registered, V 3.0, and the browser-based version, A+nyWhere Learning
System, registered, V 4.0, accounted for over eighty percent of the Company's
total revenues at the close of fiscal 2004, while the A+dvanced Learning
System Version 2.15 accounted for less than twenty percent of the Company's
total revenues.  A significant body of historically generated data
demonstrates the educational effectiveness of the Company's products and
their instructional design.  In accordance with the No Child Left Behind Act
of 2001, the Company has conducted a series of formal effectiveness studies
to better inform its school customers of the potential performance of the
Company's products.  These studies, which have been independently reviewed,
have established that the Company's instructional design is effective in a
range of instructional settings and grade levels.  The Company is currently
engaged in additional scientifically-based research studies to continue to
compile data regarding the effectiveness of the Company's products as its
product offerings are upgraded and expanded.

The Company acquired two businesses in 1998, Projected Learning
Programs, Inc. ("PLP") and Learning Pathways, Limited ("LPL").  In
2001, management elected to wind down and ultimately discontinue the
catalog selling operations conducted through the PLP subsidiary as a result
of the marketplace moving to increasing use of the Internet and the cash
expenditures required to operate a catalogue sales business.  LPL, the
Company's Derby, United Kingdom subsidiary, was acquired in late 1998.
In the latter part of 2000, LPL substantially completed the process of
converting the Company's A+LS, trademark, curriculum content to a product
presentation suitable for British educators and schools.  LPL also undertook
the development of new UK-specific content that was focused on the UK's
new literacy and numeracy instructional requirements during 2001.
Significant portions of this new product offering were completed and
substantially released to the UK school market during the 2001 fiscal
year. From 2002 through the year ended December 31, 2004, the marketplace
in the UK became more competitive while receiving less funds for the
technology and products produced by LPL.  As a result, a pattern of
continuing and sustained losses were recorded.  Management has elected to
write-off the remaining goodwill and the Company's investment in this
subsidiary in fiscal 2004.  The Company is reviewing alternatives to
effect the sale, transfer or dissolution of this business.

The Company purchased Dolphin, Inc., ("Dolphin") in December 1999.
Dolphin is an established, 14 year-old developer of educational software
for many of the world's leading textbook and electronic publishers.  The
Company purchased Dolphin to provide additional depth to the Company's
development activities and, through its ongoing industry contacts, to assist
the Company in initiating partnering opportunities in the areas of content
development, marketing and business development with major textbook and
assessment testing publishers.

The Company internally develops software and content and licenses, to a
limited extent, software or content from third parties for inclusion in its
products for the school market. The Company utilizes an in-house programming
staff and limited, external contract services to develop software technology.
The Company is the primary developer of its curriculum content and employs
full-time educational professionals to assist in this electronic publishing
effort.  The Company also makes extensive use of contract services to secure
the specialized educator skills that are necessary to publish the wide range
of subject matter and grade level content required by the Company's
comprehensive product offering, and to ensure their correlation to state
and other educational standards.

The Company's products are sold through school dealers, an in-house
employee telephone sales force and through direct mail programs. The
Company's products are sold for use in elementary, middle and high
schools, libraries, adult learning centers, correctional institutions,
community colleges, universities, private industry, and to a limited
extent, for home-based schooling.

The use of computers, software and the Internet as educational and
instructional aids in the nation's schools is the major focus of the
Company's marketing strategy.  The Company's marketing plan calls for
separate promotional efforts to be directed toward the various segments
of the school market and channels of distribution that provide specialized
market access.  Currently, the Company utilizes an in-house employee sales
force and a national network of independent school dealers to market its
products to schools.  Each independent school dealer generally covers a
geographically limited territory such as a single state.  Other marketing
efforts are executed through business partners as well as direct mail to the
school and library markets.  The Company utilizes a direct company-employed
sales force and independent representatives to market its products in the
UK.

The Company is a technology-based business and is actively developing
diagnostic and prescriptive assessment testing and curriculum software
applications to facilitate the delivery of its assessment testing and
instructional content in a networked environment, which includes the
Internet.  A significant percentage of the Company's current revenues are
derived from product sales to schools that deliver curriculum content on a
local area network ("LAN") within a single school site.  The rapid adoption
of wide-area networks ("WAN") and increased Internet usage, or online
delivery of the Company's products, are growing as a percentage of the
Company's revenues.  In late 2000, the Company began the testing and delivery
of its content online.  As a result of the availability of the browser-
based version, A+nyWhere Learning System V4.0, the Company, at December
31, 2004, had 218 schools in 31 states using online curriculum content
for both school and home-based students.  Online delivery of content is
a rapidly growing element of the Company's business and the number of
institutions under contract to the Company grew from 27 schools in 2001
to 218 schools in 2004, a 707% increase. These users are largely supported
by company-maintained Tier 1 data facilities in Oklahoma City at the
Perimeter Technology Center, Inc., and at the Vericenter, Inc. facility
in Dallas, TX.  Management believes that it has in place the development
of technology and programs to allow it to capitalize on the forecasted,
rapid changes in the structure of the marketplace for the delivery of
electronic-based instruction that will be required by school districts in
future years.


Principal Products
------------------

Educational Software
--------------------

The Company engages in extensive efforts to develop new programming
technology as well as new instructional content and academic skills
assessment tools.  As a result of this effort, the Company now supports
all contemporary Macintosh, Windows, Novell, Unix and Linux operating
systems with one of the largest curriculum offerings in the core subject
areas for grade levels 1-12.  The Company now publishes under its various
A+, registered, brands 176 separate software titles and has another 14
titles in revision or development for release in 2005, including a
Kindergarten-level emergent reading program.  All of the Company's
currently released products all carry 2001 or later copyrights reflecting
the Company's commitment to the development of content, but also to
keeping its products up-to-date.

There is a growing use of LAN, WAN and Internet technologies in schools
and school districts to provide educational content to students and the
Company provides these schools with software designed to perform in these
environments. The Company's educational software for the elementary, middle
and high school markets is designed for use in classroom instruction and
provides an array of educator tools and resources to assist schools in
meeting performance improvement objectives.  The Company's products for
schools are designed for the professional educator and feature a management
function, which records assessment and student activity data for both
individual student and class performance measurement.  This management
function also provides for a wide range of performance reports, lesson
materials, tests and assignments that are required to meet the No Child
Left Behind Act of 2001 initiative of the Federal Government.  A hallmark
feature of the Company's products is a unique authoring tool, which allows
the educator to add, modify and expand the graphics, text and incorporate
the use of the Internet content to the curriculum coursework provided by the
Company.  The Company's software is correlated to over 96 major national and
state standards so that educators can develop specific lesson plans to assist
students with a course of study that is directly related to specific state or
national learning objectives, or to correct individual student skill
deficiencies.  The Company's computer software products are carefully
designed to be utilized by individuals without extensive computer
experience.

In an industry where there are in excess of 300 educational software
publishers, the Company has developed a distinctive niche in the form
of its content, delivery, instructional design and assessment tools.
This approach features high educational value and extensive content
that is highly correlated to the leading states' desired learning
outcomes, national educational objectives and major, adopted textbook
series.  The Company has concentrated on a design of its products that
offers educational content substance that is highly specific to grade
and age level.  The content is delivered to the student by a Learning
Management System ("LMS") that allows full educator control of the
content delivery rather than an approach controlled by the software.
Various software tools, such as the Company's products for assessment and
instruction, allow the use of the Internet as a source of content at the
school's or individual teacher's option.  It also provides educators with
the means to effectively utilize the Company's products as a comprehensive
supplemental instructional solution designed to address individual student
skill deficiencies that may be identified by the Company's assessment tools.
In addition, the Company's product design is modular so that each title
sold by the Company has an integral LMS function.  This management function
is shared so that new software titles purchased by a customer utilize
preexisting A+LS class and student records that have been previously
established.  This feature allows schools to add additional content and
titles or updated versions simply and easily.

The No Child Left Behind Act of 2001 initiative places significant
emphasis on spending federal funds on programs that have been shown to
work using "scientifically-based" research. The Company's A+ brands in
various versions are supported by a body of research that validates the
Company's instructional design. In 2003, the Company amplified its
ongoing efforts to establish programs to document through rigorous,
systematic and objective procedures the educational effectiveness of
its products.  The Company has published various white papers to
document completed studies of product performance in schools and has
engaged the Institute for the Advancement of Research in Education at
Appalachian Educational Laboratory, ("AEL"), Charleston, WV, to assist the
Company in continuing to refine its design for future scientifically-based
research, provide independent review of completed studies, and to publish
the results of these efforts.  A total of nine studies have been undertaken
and four have been published and submitted to various industry publications.

The majority of the Company's installed base is deployed in an LAN
environment as a LMS.  The LMS allows teachers and school administrators
to monitor and analyze student performance, which is increasingly important
in the wake of the No Child Left Behind Act of 2001 initiative which
emphasizes school accountability.  This approach provides complete
district, school and educator control of class and student lesson
assignments, an individualized path of study, skills assessment,
authoring, testing, reporting and the integration of third-party and
Internet-based content.  The A+LS product family's capabilities and its
range of reporting, and documentation of individual student performance
and progress, assist the educator in directing the use and understanding
the effectiveness of  instruction, while improving the efficiency of the
learning process.  Management believes that fewer than six companies in the
educational software industry provide a comprehensive, fully-managed
instructional LMS software solution that is comparable to the products
provided by the Company.


A+nyWhere Learning System, registered, Versions 3.0 and 4.0
-----------------------------------------------------------

The A+nyWhere Learning System makes use of standardized Structured
Query Language ("SQL") and Open Database Connectivity ("ODBC")
technology to ensure transferability of student data between the system
and the existing customer databases.  The powerful class and student
management features of this product provide the means to link and
transfer student data to most school and district central records.
These features also include the ability to dynamically assess student
capabilities against specific individual state standards, and to
prescribe individualized instructional plans based on such assessments.
The system can be an important element in providing the data needed to
measure Adequate Yearly Progress ("AYP") as required by No Child Left
Behind Act of 2001.

From an educational content perspective, A+LS, Version 3.0 has been
designed as a comprehensive grade level 1-12 core curriculum solution.
It is a product family comprised of 176 subject titles that provide for
an interactive multimedia instructional environment with extensive
sound and graphics.  Major subject areas covered are: reading, writing,
mathematics, science, history, geography and language arts.  Each
ascending grade level subject title of the Company's content presents
increasingly more complex concepts that provide overlapping subject
matter reinforcement by grade level.  As a body of published work, it
is one of the most extensive in the industry for the elementary, middle
and secondary grade levels.  A+LS's content is divided into subject
titles, each containing a number of lessons.  Each lesson contains a
number of activities such as study, practice exercises, tests and essay.

These instructional activities are further supported by computer
adaptive skill assessment tests for all subject areas and lesson-
related activities.  This design facilitates the use of the advanced
A+LS class and student management system to pretest, posttest, record
academic gains, maintain academic performance data and to report on
individual student and class activities.  This capability is required
by schools to simplify and assist in the management and reporting of
student academic performance data to comply with certain aspects of the
No Child Left Behind Act of 2001.   Using tools embedded in the Company's
software, educators may select a series of specific lessons across all
subject areas to create a curriculum plan for a specific time period,
while specifying independent mastery levels for each lesson for a class,
group or an individual student.  They may also integrate third-party
publishers' materials into a specified course of study for enrichment or
remediation activities.  The product design also permits the development of
individualized courses of study as a result of diagnostic testing and
prescriptive capabilities designed into A+LS for the at-risk or special
education student, which might require specific emphasis to correct skill
deficiencies. Approximately 11,000 public and private schools, centers of
adult literacy and correctional institutions have adopted appropriate title
and subject area components of this product family since its introduction
in mid-1995.

During 2004 the Company continued to receive excellent marketplace
acceptance of A+nyWhere Learning System Version 4.0, the browser-based
version of Version 3.0.  This version has most of the features of
Version 3.0, but is designed to be delivered in standard Internet
browsers.  Importantly, Version 4.0 utilizes all of the assessment
testing resources of Version 3.0.  Version 4.0's browser-based delivery
can be used as an independent, stand-alone solution as well as in
combination with a Version 3.0 installation.  This design approach is a major
selling feature because it allows schools to deploy a common instructional
resource and performance-tracking technology from a single vendor throughout
a community or campus; which simplifies the use, training and data collection
processes.  In addition, the ability to deploy in LAN, WAN and Internet
configurations provides the school with a long-term solution to effectively
utilize computer and bandwidth resources as these are upgraded over time.

Throughout 2004, the Company has maintained active development efforts
in updating and expanding both its technology and curriculum offerings
for the A+LS product family.  During the year, a major new product
addition called State Snapshot Assessments was released. This product
allows administrators to schedule, report on, and prescribe from, frequent,
district wide pre- and post- assessments, in a highly automated fashion.
Through a relationship with CLEARVUE/eav, the Company also added full-motion
instructional video to 33 of its curriculum titles. Also, approximately 14
individual titles, reflecting offerings in both English and Spanish languages,
were developed and/or updated.  The Company expects this expanded, updated
curriculum offering to generate additional revenue opportunities with its
existing and future school customers.  In addition, during fiscal 2004
significant portions of the Company's current assessments and standards
database were expanded, updated and realigned to meet new or revised state
and national academic standards; in total, 35 state standard sets were revised
or added to keep pace with changes made by state departments of education.

These ongoing investments in new technology provide the Company with
the means to deliver its products in the highly connected, future
marketplace.  This capability should increase and enhance the Company's
competitive ability to expand its delivery alternatives to customers
and to secure new marketing and strategic business relationships.

A+ University, trademark
------------------------

A+ University, trademark, is a product training and staff development
product line, which is designed to instruct school administrators,
curriculum specialists and teachers in the use of the Company's various
products.  Initial release of this new product family occurred in the second
quarter of 2002 and revisions and updates were made throughout 2004 to
maintain currency to the Company's evolving product structure.  The Company
expects that this product family should become an important source of
incremental revenue from existing and new customers in future years.

A+dvancer Learning System, trademark
------------------------------------

In mid-2003, the Company completed the development of A+dvancer Learning
System, an online assessment and course of remedial study, which is aligned
to the College Board's ACCUPLACER, registered, postsecondary test. In 2004,
the Company secured orders from approximately 40 postsecondary institutions.
ACCUPLACER is utilized by two- and four-year institutions to screen incoming,
first-year students and their capabilities to be successful in college-level
studies.  ACCUPLACER tests are widely used by the nation's postsecondary
institutions for admissions screening and is thought to be the market's
leading admissions test in mathematics, reading, writing, language
comprehension and algebra.  ACCUPLACER is designed to render a single score
and provides the admissions department with little additional information
should the student fail to achieve college's minimum ACCUPLACER score.
A+dvancer's assessment test identifies for admissions personnel the specific
undeveloped skills that caused the student to fail the ACCUPLACER test,
while providing diagnostic guidance and a prescriptive recommendation for
a course of study to build college-level skills.  In addition to the
diagnostic/prescriptive test element, A+dvancer provides for comprehensive
online coursework to assist the student in a highly focused course of study
to develop or refresh the skills necessary to retake the ACCUPLACER test.
Controlled pilot studies on the effectiveness of A+dvancer indicates that
it provides both the postsecondary admissions department and students
seeking entry to these institutions an important new online resource to
simply and effectively deal with the needs of developmental testing and
instruction.  A significant percentage of graduating high school seniors
seeking admission, or individuals in the work force who are returning
to postsecondary institutions require remedial education programs to
secure entry into postsecondary institutions.

Third-Party Publishing, Marketing Affiliations and Partnerships
---------------------------------------------------------------

The Company is actively pursuing and is being pursued by third-party
publishing and marketing companies, which have curriculum content that
is complementary to the publications of the Company or have access to
specialized segments of the market.  Many of these companies do not
have the software management technology or distribution resources
of the Company.  These relationships are generally sought by the
Company to supplement and complement the content of existing and
planned A+LS subject matter or to enter new markets.   Management also
believes continued expansion of these types of relationships enhances
the value of the Company's products to educators and strengthens
the business relationships with its distributors and other business
partners.

In 2003, the Company licensed its proprietary database of state
academic standards and the associated intermediate skill sets necessary
to align content to the various state and national standards for
assessment testing to Educational Testing Services ("ETS"), Princeton,
NJ.  The term of this license is for two years and includes company
maintenance and updates of these standards.

During 2003, the Company licensed elements of content from GoKnow, Inc.
to primarily enhance its science content offerings and these product
enhancements were integrated into the Company's products offerings in
2003.  GoKnow's internet-based content provides A+LS with access to its
Artemis, registered, service, which makes controlled access to pre-
screened, educationally sound web sites available, and provides
technologies for efficiently using them. The Company subsequently
released three new science subject titles using the Artemis technology
in early 2004. These titles feature research-oriented science projects
and will help the Company round out its current award winning offerings
for science instruction to meet the national science standards.

In mid-2004, the Company entered into an agreement with the
Southeastern Kansas Educational Service Center of Greenbush, Kansas
("Greenbush") to jointly develop and market online, instructor-led course
offerings that would be eligible for academic credit.  This arrangement
would merge content and technology independently developed by both the
Company and Greenbush.  Development is in progress with an anticipated
release of an expanded online product offering in the Fall of 2005.

During 2004, the Company initiated discussions with U.S. and UK-based
publishers, hardware suppliers, and other organizations associated with
the educational marketplace.  The purpose of these discussions is to
license company technology, strengthen or to develop new channels of
access to the marketplace utilizing the Company's content and
technology.  A number of these arrangements were consummated in 2004
and have been announced in company or subsidiary press releases or
literature. Several other strategic partnering projects initiated in
2003 are still under development, or are currently subject to
confidential disclosure restrictions.

The Market For Educational Software Products
--------------------------------------------

The Company addresses five major market segments for its products; the
K-12 school, adult literacy, corrections, postsecondary and the home
markets.

The U.S. School Market

In calendar 2004, the U.S. school market for educational software showed
indications of recovery and that the market segment for the Company's
products evidenced a return to growth. Leading market research
organizations are forecasting continued growth of the educational
technology market segment through 2005.  The principal reasons for
this growth are increased availability of federal funding to schools,
a recovery or adjustment by individual states to their budget difficulties
and a growing priority of schools to purchase software with the assessment
data management capabilities similar to those offered by the Company to
permit them to deal with reporting requirements of the No Child Left Behind
Act of 2001 initiative. In the United States, future market growth is also
expected to be driven by record student enrollments in primary through
secondary schools projected through the year 2008.  The U.S. market is
currently comprised of 15,000 school districts that control 111,000 schools.
Many states in the South and Southwest with high population growth
projections are expected to have expansion of student populations exceeding
20% during the next several years.

This market is well documented by industry sources to be moving to
wider use of technology, access to the Internet and the increasing use
of online services, including.  The U.S. school market is closing on
the mark that 100% of the schools in the U.S. are connected to the
Internet.  Access to the Internet is expected to increase in schools as
more connections and greater bandwidth access are installed throughout
the nation's school buildings.  Importantly, it is believed that
increased home access to the Internet will open up the potential for
distributed learning and "e-learning" with the local school functioning
as the hub of a community-wide network to access educational resources.

Market growth is also expected to effect significant changes in the use
and increased adoption of technology to cope with teacher and physical
facility shortages in an attempt to gain increasing efficiency and to
secure more accountability for academic performance at the individual
school and district level.  To meet the future challenges, schools are
expected to embrace the increased use of a range of technologies
including the areas of database management, e-learning through the
Internet and its capabilities.  In addition the federal government's
initiatives such as the 21st Century and Reading First grant programs,
combined with the No Child Left Behind Act of 2001 initiative is expected
to provide additional impetus to market growth in 2004-2005 school years.

The Adult Literacy/Lifelong Learning Market

The Company believes it has designed its curriculum content delivery so
that it is both appealing and engaging to children and not offensive to
adult learners.  As a result, in 2004 the Company continued to have
success in this segment of the market.  The Company has installed its
software in state and municipal centers of literacy and the juvenile and
adult corrections market segments, including a state-wide deployment of
content in Kansas, Utah and Oklahoma in both the prison system and a number
of regional adult literacy centers.  Preliminary information from these
installations is that the Company's products are highly effective in
preparing adults for high school equivalency tests and other recognized
measurements of literacy.  The adult literacy and certain related market
segments are believed to be growing in excess of 20% per annum according to
industry sources.  In some cases, these market segments are served by
specialized distributors and the Company is seeking to secure additional
dealers to support its expansion efforts in this area.

The Postsecondary Market

This market segment includes both two- and four-year institutions, both
public and private, as well as the for-profit segment operated by
educational services companies.  The Company is focused on the first time
freshman student population with underperforming college level placement
efforts, which is comprised of both traditional students, those moving
directly from high school to college and non-traditional students, those
returning for postsecondary education following other life-changing
events; such as the termination of military service, or those seeking
additional skills to improve employment opportunities.  National
statistics from The American Association of Community Colleges indicate
that approximately forty percent of all graduating students are not
prepared to be successful in the postsecondary environment.  Current U.S.
Department of Education studies indicate approximately 27.7 million
students are eligible for graduation from high school in its recent
publications on the 2002-2003 school year.  The non-traditional student
component of this market is estimated by the Company to represent
approximately 500,000 students in the current school year.  The
combination of the graduating high school students and the population of
the non-traditional students returning to secure additional postsecondary
education skills requiring refresher and development of college entry
level skills is believed to represent a large target market for the
Company's product offerings designed specifically to support the
assessment and online instruction needs of this market segment.

The Home Market

The Company has not focused significant resources in marketing its
products to this market segment, which is believed to offer future
opportunities for growth and additional financial returns on the
Company's investment into educational content.  Management believes
that there is an opportunity to move into this segment of the market
with its current products and training materials that should be of
value to home educators utilizing online access.  The home education is
growing at rates exceeding 15% per year according to industry sources.
Many families are choosing to educate their children at home versus the
traditional school education channels or to be actively involved in
providing additional academic emphasis through home-supervised study.
Management believes that the Company's products are designed in a
manner to appeal to the home educator who is seriously involved in the
educational process of their children.  In addition, the Company has
invested heavily in the correlation of its products to most national
and state instructional objectives.  These correlations should provide
additional value-added support to the use of its products by the home
educator. The Company has and will continue to attempt to identify
marketing partners who have access to this market segment and the
financial and related resources to successfully penetrate this
marketplace.

Trade Names, Service Marks and Logo Types
-----------------------------------------

The Company's service mark for the A+ products was registered with the
United States Patent and Trademark Office on the Principal Register,
registration number 1,345,712, on July 2, 1985.  On April 18, 1989, the
AA+ trademark, for use with educational software, was registered with
the United States Patent and Trademark Office.  The Company was
notified that, as of May 12, 1997, the use of the A+ symbol is deemed
incontestable for use on educational software.  Other various
trademarks and logos associated with the Company's software products
have also been registered.

On June 16, 1995, the Company filed for the separate and expanded use
of its A+ registered mark as A+dvanced Learning System with its A+ logo
design to describe and identify this extensive family of educational
software products released in the latter part of fiscal 1995.  This
mark was registered with the United States Patent and Trademark Office
on Principal Register, registration number 2,038,215, on February 18,
1997.  On December 29, 1999, the Company filed for the trademark
A+Datalink which has been approved for registration by the United
States Patent and Trademark Office.

The Company filed for additional separate and expanded use of its A+
registered mark for use as A+nyWhere Learning System and Adult Learning
System in the second quarter of 1999 and continued registration efforts
on these marks during 2000.  In 2001, the Company was notified of the
registration of the A+nyWhere trademark.  In addition, the Company
continued actions to file necessary documents in the United Kingdom to
ensure protection and preservation of its A+ brand in that country.
The A+LS mark was registered with the United Kingdom's Trade Marks
Office, registration number 2,194,275, on April 12, 1999.  The A+
design and A+dvanced Learning System has been approved for registration
in the United Kingdom.

In 2003 the Company filed for additional separate and expanded use of
its A+ registered mark as A+dvancer Learning System to describe this
new product family of educational software products for the postsecondary
marketplace.

The use of the Company's distinctive A+ logo is viewed as an integral,
distinctive brand element to the Company's product families and is
important to corporate recognition.

Production and Manufacturing
----------------------------

The Company purchases CD-ROM blanks from various sources.  The Company
owns commercial quality, high-speed software duplication equipment and
duplicates its software both internally and externally.  The Company
develops, with outside packaging developers, materials and packaging
concepts, and internally authors necessary product instructional
manuals.  The Company maintains duplication equipment that is suitable
for production of catalogs and manuals.  The Company secures product
packaging from external sources and performs quality control, final
assembly, inventory and distribution on most orders received.  Large
production runs of catalogs and sales literature are contracted to
outside printers.  The Company has no dependence on any individual
supplier.

The Company, with its release to schools of the A+nyWhere Learning
System, Version 3.0 in 2001 and version 4.0 in 2002 has the capability
to electronically deliver and install its products at customer
locations.  This capability should serve to further reduce the
Company's cost of publication of its products commencing in the year as
it reduces the need to produce its products and their extensive
documentation on CD-ROM discs.

Research and Development
------------------------

At December 31, 2004, the Company employed twelve (12) full-time
development and support personnel in its product development efforts.
These individuals are responsible for the development of new versions
of the Company's software technology and the support and refinement of
current versions of its software offerings.

The Company employs a staff of professional educators who are
responsible for the development and support of its curriculum content.
The Company also utilizes part-time educational consultants in the
design of its curriculum-based product offering.  These individuals
provide the curriculum design support on the development and
enhancement of Company products.  These consultants allow the Company
to effectively and efficiently address the specialized grade level and
diverse content needs of its A+LS product family.  Management believes
that it will continue to rely upon external sources for a portion of
its new product content.  However, the growing sophistication and
complexity of the interactive design of company products will require
continued expansion of in-house curriculum and graphics development
personnel resources.

At December 31, 2004, the Company employed ten (10) full-time education
professionals in support of this effort.  These individuals plan,
manage and coordinate the efforts of up to twenty independent
educational consultants and graphic designers.

Research and Development Costs
------------------------------

Costs incurred with product development are charged to research and
development expense until technological feasibility of a product is
established.  Thereafter, all software development costs are
capitalized and amortized on a straight-line basis over the product's
estimated economic life.  The Company capitalized $1,372,955 in
software research and development costs in 2004 and $1,289,693 in 2003.
Amortization of product development costs for the year ended December 31,
2004, was $1,572,654 as compared to $1,446,373 for the year ended
December 31, 2003.

Distribution and Sales Programs
-------------------------------

In marketing its products, the Company utilizes approximately 40 independent
school dealers to reach its school-based customers.  During 2004, the Company
hired and employed both field and in-house sales forces to provide support to
its dealers and to improve its access to school customers in rural areas not
easily reached by its dealers.  This sales team was comprised of four
individuals at December 31, 2004.

Internet Marketing and e-commerce
---------------------------------

The Company views the Internet as a channel for future sales growth and
means to develop new customer service and support programs.  In
addition, the Internet has become a valuable adjunct for improved
customer service and support on product use and technical matters.
During 2004, the Company invested substantial resources in improving
and expanding its Internet presence and e-commerce capabilities for all
business units. The Company employs full-time personnel to update,
functionally and graphically, its www.amered.com, www.dolphinsoft.com,
www.learnpath.com, www.apluslearn.com, www.aplusanywhere.com, and
www.advancerlearning.com URL's.  At the end of 2004, the Company has
six active Internet site facilities.

Backlog
-------

The Company's software products are normally shipped within five days
of receipt of the order.  The Company believes that a level of backlog
at any particular date may not be a meaningful indicator of future
performance, unless technical difficulties delay the fulfillment of
orders related to the release of new products.

Seasonality
-----------

Decisions by schools and individual consumers to purchase educational
software have most frequently been made at the beginning or near the
end of school periods.  The months of January and December generally
represent the lowest new order booking months for the Company and the
school market industry segment.  This seasonal cycle can directly
affect the Company's total revenues and earnings levels in both the
first and fourth quarterly reporting periods.

Significant Customers
---------------------

The Company sells its A+LS product family almost exclusively to schools
through various school dealers of educational materials.  No individual
customer accounted for more than 10% of total revenues in 2003 or 2004.

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

The educational software industry is highly competitive and subject to
rapid change. An increasing number of new publicly financed and
privately funded organizations have been identified that are
potentially competitive to the Company's current business and future
plans for electronically delivered content.  Many of these companies
are better known and have substantially greater financial, marketing
and technical resources than the Company.  Such participants are
textbook publishing companies and their software divisions and other
larger independent educational software and content developers, which
may compete directly with the Company.

The primary competitive factors applicable to the educational software
industry are product features (such as subject areas, graphics and
color), price, ease of use, suitability of the product offering for
Internet delivery, educational content, product reliability, sales
support and customer service.  Management believes through constant
analysis of its competitors and ongoing surveys that it sponsors at the
customer level that the Company is currently competitive and enjoys a
reputation as a quality organization and publisher of educational
material.

The Internet and the delivery of curriculum by electronic means may
have the capacity to alter the competitive environment and the current
means to content access for both the school and home customer.  The
Company, in the judgment of management, has the necessary programs
underway or planned to develop the technology to remain competitive in
the future marketplace environment.  Business development programs to
identify future partners and the means to exploit the Company's
investment in both technology and content are an ongoing process with a
number of companies that have a focus on the Internet, the education
marketplace and are seeking content partners.

Employees
---------

As of December 31, 2004, the Company had 63 full-time employees in its
domestic operations and 7 full-time employees in its UK subsidiary. The
Company believes that its relationship with employees is satisfactory.

Risk Factors Associated With the Business
-----------------------------------------

The Company faces a number of risks associated with the successful
continuation its business and its future competitiveness.  These
principally include, but are not limited to:  1) Increased competition
in a market segment where the Company competes with other organizations
with substantially more financial and organizational resources; 2) A
change in general economic conditions which may defer or delay funding
to schools; 3) The general financial condition of the Company must remain
strong enough to permit it to continue to invest in maintaining and
expanding its products; 4) The ability of the Company to secure additional
debt or equity capital; 5) The ability of the Company to provide statistical
or scientifically-based research to support its claims of its products
educational effectiveness to meet the demands of the No Child Left Behind
Act of 2001; and, 6) Retention of key personnel and the ability to secure
experienced industry managerial and technical talent.

Investors should consider the risk associated with ownership of the
Company's common stock which has a history of price volatility, limited
trading volume activity and liquidity associated with the OTCBB market
status of these securities. Considering these factors, the value of the
Company's securities, as well as their liquidity, may be adversely
affected by the risk factors cited above as well as general market
conditions.


Item 2.  Description of Property.
------   ------------------------

The Company leases approximately 17,600 sq. ft. of contiguous office
and light warehouse space in Oklahoma City, Oklahoma, under an
agreement that expires in December 2005. The monthly rent under this
lease is $12,587.

Dolphin, Inc., a wholly owned subsidiary, leases 3,750 sq. ft. of
office space in Voorhees, New Jersey, under a lease agreement expiring
May 31, 2009.  Monthly lease expense is $4,922.

Learning Pathways, Limited, a wholly owned subsidiary, leases
approximately 3,500 sq. ft. of office space in Derby, United Kingdom.
The monthly lease expense approximates $1,580. The lease renews each
month for a period of ninety days.

Total corporate cost of leased facilities was $263,691 for 2004 for the
Company's Oklahoma, New Jersey and Derby, UK facilities.  Cost of
leased facilities for 2003 was $280,363.


Item 3.  Legal Proceedings.
------   ------------------

None.


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

There were no matters submitted for a vote of the security holders
during 2004.


PART II
-------


Item 5.  Market for Common Equity and Related Stockholder Matters.
------   ---------------------------------------------------------

As of December 31, 2004, there were approximately 2,300 record holders
of the Company's common stock. The Company's common stock trades on the
OTC Bulletin Board under the ticker symbol AEDU.  The following is a
summary of the high and low bid quotations for each of the 2004 and 2003
quarters.

                                        2004               2003
                                  HIGH        LOW    HIGH        LOW
                                  ---------------    ---------------

Quarter Ending March 31          $0.52      $0.35    $0.20     $0.07


Quarter Ending June 30           $0.57      $0.36    $0.45     $0.10

Quarter Ending September 30      $0.55      $0.28    $0.51     $0.22

Quarter Ending December 31       $0.51      $0.26    $0.70     $0.35

The above information was obtained from the OTC Bulletin Board website.
The quotations reflect inter-dealer prices, without retail mark-up,
markdown, or commission and may not represent actual transactions.

Dividends
---------

The Company has never declared a cash dividend on the Common Stock and
does not anticipate declaring any dividends on the Common Stock in the
foreseeable future. The Company intends, at this point, to retain any
future earnings to support the Company's growth.  Any payment of cash
dividends in the future will be dependent upon the amount of funds
legally available and is contingent upon the Company's earnings,
financial condition, capital requirements, and other factors which the
Board of Directors deem relevant.

Securities Authorized for Issuance Under Equity Compensation Plans
------------------------------------------------------------------

                                 (a)             (b)            (c)
                                                               Number of
                                                              securities
                                                               remaining
                              Number of        Weighted-    available for
                            securities to       average    future issuance
                           be issued upon      exercise      under equity
                             exercise of       price of      compensation
                             outstanding     outstanding   plans (excluding
                              options,         options,        securities
                              warrants        warrants        reflected in
    Plan Category            and rights      and rights       column (a))
------------------------- --------------- --------------- ---------------
Equity compensation plans
 approved by security
 holders (1)                   2,219,999         $   .28         449,031
Equity compensation plans
 not approved by security
 holders (2)                   1,362,576         $   .34               0
                               ---------         -------         -------
Total                          3,582,575         $   .30         449,031
                               =========         =======         =======

(1) Consists of the 1998 Employee Stock Option and the Director Stock
Option Plan.

(2) Consists of the 1996 Non-Qualified Stock Option Plan.


Item 6.  Management's Discussion and Analysis or Plan of Operation
------   ---------------------------------------------------------

Overview
--------

The American Education Corporation is a developer of instructional
content, computer adaptive testing software, and software management
technology specifically designed to manage the delivery of content to
schools and institutions and to record the results of student progress in
schools and other institutions.  Java-based technology, the A+nyWhere
Learning System Versions 3.0 and 4.0 of educational software products,
provides a research-based, integrated curriculum offering of software for
grade levels 1-12 for Reading, Mathematics, Language Arts, Science, Writing,
History, Government, Economics and Geography.  In addition, the Company
provides assessment testing and instructional content for the General
Educational Development (GED) test.  All company products are designed
to provide for LAN, WAN and Internet delivery options. The Company has
developed computer adaptive, companion academic skill assessment testing
tools to provide educators with the resources to more effectively use the
Company's curriculum content, which is aligned to important state and national
academic standards.  Spanish-language versions are available for Mathematics
and Language Arts for grade levels 1-8.  The Company's curriculum content is
aligned to the other third party digital resources such as the World Book
Multimedia Encyclopedia, ETS's e-rater online essay grading technology and
GoKnow's scientifically based, Internet accessible curriculum and reference
materials, which may be accessed directly from A+LS lessons.

The A+LS comprehensive family of educational software is now in use in
over 11,000 schools, centers of adult literacy, colleges and
universities, and correctional institutions in the U.S., UK and other
international locations.  A+dvancer, the Company's new diagnostic,
prescriptive test and online developmental curriculum offering, is
aligned to ACCUPLACER OnLine, the leading college admissions test for
students requiring developmental support to enroll in full credit
secondary coursework in mathematics, reading, algebra and writing.

The Company is a technology-based publishing enterprise.  To remain
competitive it must constantly invest in the development of programming
technology to keeping its product offering up-to-date and ensure that
its products maintain compatibility with constantly changing and revised
database and operating system platforms sold to schools by other developers.
The Company must also update its content and underwrite content revisions
to realign its content with new, or updated state and national educational
standards to remain competitive.  To accomplish this essential, ongoing
corporate function requires retention and recruitment a highly skilled
professional workforce.  These investments are essential, recurring cost
of doing business and impact the Company's operating cost and margin
structures.

The Company's business is subject to risks or uncertainties.  Among these
uncertainties are a dependency on funding for school technology purchases,
lengthy sales cycles, seasonal demand cycles and a dependency on retention
of key personnel.  Certain matters discussed herein (including the documents
incorporated herein by reference) may contain forward-looking statements
intended to qualify for the safe harbors from liabilities established by
the Private Securities Litigation Reform Act of 1995.  These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "plans,"
"intends," "anticipates," "expects," or words of similar import.  Similarly,
statements that describe the Company's future plans, objectives, estimates,
or goals are also forward-looking statements.  Such statements address future
events and conditions concerning capital expenditures, earnings, litigation,
liquidity, capital resources and accounting matters. Actual results in each
case could differ materially from those currently anticipated in such
statements as a result of factors such as future economic conditions, changes
in customer demands, future legislative, regulatory and competitive
developments in markets in which the Company operates and other
circumstances affecting anticipated revenues and costs.  Accordingly,
investors should be alert to the possibility that factors beyond the control
of management may have impact on the short or long-term operations of the
business.


Results of Operations

Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended
-----------------------------------------------------------------
December 31, 2003
-----------------

Net consolidated revenues for the twelve months ended December 31, 2004
totaled $10,399,865 compared to net revenues of $8,598,868 for the year
ended 2003.  This represents an increase of 21% in net consolidated
revenues over the prior fiscal year, but is attributable to a combination
of a substantial increase of 27% in orders at AEC, offset by sales
decreases at Learning Pathways.  Sales at Dolphin were relatively unchanged
in 2004 compared to 2003.  As a result of the continued sales decreases at
Learning Pathways, among other considerations, the Company has elected to
recognize an impairment loss in 2004 and has written down the carrying
value of Learning Pathway's assets to net realizable value.  AEC's
revenue increase over 2003 is a result of the continuation of increases
in governmental education funding and as a result of billing more schools
directly as a condition of certain contract awards.

Cost of goods sold as a percentage of sales revenue for the year ended
December 31, 2004 decreased to 13% from 16% of net revenues for the same
period in 2003.  This improvement is primarily due to the smaller
contribution of Dolphin-related revenues to consolidated corporate net
revenues.  The Company's principal product families, A+nyWhere Learning
System, registered, and A+dvanced Learning System, registered, ("A+LS"),
provided gross profit margins of 97% in 2004.  Cost of goods sold represents
the actual cost to produce the software products and includes certain
allocated overhead costs.

Total operating expenses recorded for the year ended December 31, 2004
(excluding the impairment of subsidiary write-down) were $8,657,045 or 83%
of net revenues, compared to $6,692,057 or 78%, for the previous fiscal
year.  The increase in the 2004 operating expenses is largely
attributable to the 54% increase in selling and marketing expenses from
$2,390,498 to $3,679,956 caused by changes in sales mix, which resulted
in increased sales commissions paid as the Company billed direct to
school customers a higher percentage of period orders.  Operations
expenses increased from $435,999 to $501,401 as a result of an increase
in costs for essential technical support for the Company's customers.
General and administrative expenses increased from $2,419,187 to
$2,903,034 or by 20%.  This increase is attributable to increased
Internet operating costs resulting from an increasing percentage of the
Company's net revenues being delivered online and the increases in bad debt
expense at the Company's UK subsidiary.

Costs incurred in conjunction with product development are charged to
research and development expense until technological feasibility is
established.  During fiscal 2004, the Company capitalized $1,372,955 of
product development costs, and net of accumulated amortization had
capitalized software costs of $3,815,680 at December 31, 2004.
Amortization of product development costs (excluding the impairment of
product development costs at Learning Pathways) was $1,572,654 for 2004,
a 9% increase over the $1,446,373 amortized in 2003.  During 2004, the
Company made substantial progress in development efforts on revised,
updated and expanded curriculum offerings.  The increase in amortization
expense is a result of this increases in capitalized development costs
associated with these essential investments in the Company's future and
competitive position.

Interest expense was $61,058 in 2004 compared to $68,556 in 2003
reflecting the lower amount of debt in 2004 offset by rising interest
rates during the year.  The income tax benefit recorded differs from the
normal U.S. tax rates due to the ability to deduct impairment losses
created by the U.K. subsidiary where previous losses in that subsidiary
resulted in a less than normal tax benefit.  The Company had a net loss
of $(343,260) in 2004 compared to a net income of $173,577 in 2003 as a
result of the impairment of the investment in Learning Pathways noted
above.  There was a loss of $(.02) per share in 2004 compared to earnings
of $.01 in 2003.


Liquidity and Capital Resources
-------------------------------

The Company has invested significantly in the development of new
products and the acquisition and licensing of new products to improve
the ability of the organization and its published products to meet the
needs of the marketplace.  These changes were required to update,
expand and keep current the Company's extensive curriculum product
offerings and to position the Company for long-term growth.  To finance
the business, management has utilized secured bank revolving credit
lines, bank financed equipment loans and lease financing sources.

As of December 31, 2004 the Company's principal sources of liquidity
included cash and cash equivalents of $549,343, net accounts receivable
of $2,146,264 and inventory of $14,485. The Company's net cash provided
by operating activities during the year ended December 31, 2004 was
$2,132,957 compared to $1,613,460 for the same period in 2003. Net cash
used in investing activities for the year ended December 31 increased
by 6% from $1,346,872 in 2003 to $1,426,219 in 2004, and was comprised
primarily of investment in capitalized software development costs.
During the year ended December 31, 2004, debt due to financial
institutions was reduced by $379,071 or 50%, reflecting bank
indebtedness of $371,862 at December 31, 2004.  In April 2003, the
Company borrowed $305,880 from major shareholder affiliates, which is
subordinated to the debt owed the Company's senior lender. In September
2004, the maturity of the debt was extended from April 2005 to
September 2006. The debt bears interest at a rate of 8% per year and is
convertible into the Company's common stock at $.40 per share. The proceeds
from the subordinated debt were used to reduce accounts payable and accrued
liabilities.

At December 31, 2004, the Company had working capital of $1,097,949
compared to $782,983 at December 31, 2003. The Company's term loan with
its bank will be fully paid in November and the Company and its lender
recently agreed to extend the maturity of its revolving line of credit
until March 2006. The Company is continuing to discuss future borrowing
arrangements with its currrent lender and several other financing sources.

With the expansion of the Company's product lines, the addition of new
products and markets and the increase in school spending that the
Company expects to see in 2005, management believes that the Company
will return to a pattern of growth similar to that demonstrated in
prior years. Management believes that it can undertake this expansion
with most of the Company's working capital requirements secured from
its operating cash flows.  If successful, the Company should be able to
enhance the liquidity of the business and the overall strength of the
Company's balance sheet and financial position.

Additional working capital beyond that available within the Company has
been and may be required to expand operations.  Management has and will
consider options available in providing such funding, including debt
and equity financing.

Off-Balance Sheet Arrangements
------------------------------

The Company does not have any off-balance sheet arrangements.

Contractual Cash Obligations
----------------------------

The following is a summary of the Company's significant contractual
cash obligations for the periods indicated that existed as of December
31, 2004 and is more fully disclosed in Notes 4 and 5 of the Notes to
Consolidated Financial Statements (amounts in thousands of dollars):

                                        Year ended December 31
                                2005    2006    2007    2008    2009
                                ----    ----    ----    ----    ----

Long and short term debt        $372    $306    $ --    $ --    $ --
Operating leases                 274     113      88      67      28
                                ----    ----    ----    ----    ----
Total contractual obligations   $646    $419     $88    $ 67    $ 28
                                ====    ====    ====    ====    ====

Critical Accounting Policies
----------------------------

Management is responsible for the integrity of the financial
information presented herein.  The Company's financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America.  Where necessary, they
reflect estimates based on management's judgment.  Significant
accounting policies that are important to the portrayal of the
Company's financial condition and results, which in some cases require
management's judgment, are summarized in the Notes to Financial
Statements which are included herein in Item 7.

Item 7.  Financial Statements.
------   ---------------------

Financial Statements and Financial Statement Schedules - See Index to
Consolidated Financial Statements and Schedules immediately following
the signature page of this report.


Item 8.  Changes In and Disagreements With Accountants on Accounting
         and Financial Disclosure.
------   -----------------------------------------------------------

Steakley, Gilbert & Morgan, P.C. has audited the Company's financial
statements for the years ending December 31, 1994 through 2004.  There
are no disputes with the independent accountants regarding matters of
accounting or reporting.


Item 8A.  Controls and Procedures
-------   -----------------------

It is the responsibility of the Chief Executive Officer and the Chief
Financial Officer to ensure that the Company maintains disclosure
controls and procedures designed to provide reasonable assurance that
material information, both financial and non-financial, and other
information required under the securities laws to be disclosed is
identified and communicated to senior management on a timely basis.
The Company's disclosure controls and procedures include mandatory
communication of material events, automated accounting processing and
reporting, management review of monthly results and an established
system of internal controls.

As of December 31, 2004, management, including the Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14
as of the end of the period covered by this report.  Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded the disclosure controls and procedures currently in
place are adequate to ensure material information and other information
requiring disclosure are identified and communicated in a timely
fashion.  There have been no significant changes in internal controls,
or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.


PART III
--------


Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16 (a) of the Exchange Act.
------   -------------------------------------------------------------

The directors and executive officers of the Company are set forth
below.  All directors hold office until the next annual meeting of
stockholders, or until their death, resignation, retirement, removal,
disqualification, and until their successors have been elected and
qualified. Vacancies in the existing board are filled by a majority
vote of the remaining directors.


Name                  Age     Position            Director Since
-----------------------------------------------------------------
Jeffrey E. Butler     63      President, Director,           1989
                              Chief Executive Officer

Thomas A. Shively     51      Executive Vice President and
                              Chief Operating Officer

Neil R. Johnson       54      Vice President and
                              Chief Financial Officer

Monty C. McCurry      59      Director                       1989

Newton W. Fink        68      Director                       1991

Stephen E. Prust      60      Director                       1992

Business Experience
-------------------

JEFFREY E. BUTLER became a director of the Company in August 1989 and
was elected Chief Executive Officer and President in March, 1990. From
1985 to 1990, Mr. Butler was a management consultant to businesses in
the biotechnology, computer science, software, educational and
entertainment video industries. Mr. Butler served as a director of
Video Professor Industries, Inc., a publicly held corporation, from
February 1, 1989 to October 31, 1990. Prior to establishing his
management consulting business, Mr. Butler was the Chief Executive
Officer and President of Infomed Corporation, which provided computer
diagnostic equipment and management services to hospitals, corporations
and physicians.  Prior to 1985, Mr. Butler was employed by Sandoz,
Ltd., Corning, Inc. and Becton Dickinson Corporation in middle and
senior management positions.

THOMAS A. SHIVELY joined the Company as Executive Vice President in
September 1991.  From 1990 to 1991, Mr. Shively was Vice President and
General Manager of AVID Home Entertainment, a division of LIVE Inc.,
with headquarters in Denver, Colorado.  From 1989 to 1990, he was Vice
President and General Manager of the Richie Resource Group with
headquarters in Minneapolis, Minnesota.  From 1978 to 1988, he was
employed by Gelco Corporation, Minneapolis, Minnesota, a $2 billion
NYSE firm that was purchased by General Electric Corporation in 1988.
During the first five years of his career with Gelco, he was Director
of Corporate Planning and from 1983, he served as a staff Vice
President and as a Vice President of various Gelco operating divisions.
Upon graduation from the Wharton School of Finance and Commerce in
1976, Mr. Shively began his business career with the 3M Corporation,
Minneapolis, Minnesota.

NEIL R. JOHNSON has been employed by the Company since August 1998.
Immediately prior to being employed by the Company, Mr. Johnson was an
independent business consultant. From 1994 to 1997, Mr. Johnson was
Chief Financial Officer and Treasurer for Unit Parts, Inc., an Oklahoma
City based remanufacturer of automotive parts. From 1985 to 1994, Mr.
Johnson was Vice President of Corporate Finance and Treasurer of
Doskocil Companies, Inc., a diversified food products manufacturer.
Prior to those positions, Mr. Johnson spent twelve years with the
public accounting firm of Coopers & Lybrand. Mr. Johnson graduated from
Valparaiso University in 1972 with a BS in Business Administration.

MONTY C. McCURRY was elected to the Board of Directors in April 1989.
Since 1985, Mr. McCurry has been the President of Executive Resource
Management, an executive search firm headquartered in Aurora, Colorado.
From 1969 to 1985, Mr. McCurry was employed by Paul M. Riggins and
Associates, an executive search firm where he was associate general
manager.

NEWTON W. FINK, Ed.D. was elected to the Board of Directors in January
1991.  Dr. Fink is currently an Adjunct Professor of Educational
Leadership at National Louis University, Tampa, Florida.  From 1998 to
2003, Dr. Fink was the Superintendent of Schools in Manteno, IL. From
1994 to 1998 he was Superintendent of the VIT Schools in Table Grove,
IL. Prior to 1994, Dr. Fink was the President of Computer Instructional
Services, Inc., a privately held corporation providing computer
educational services to individuals, schools, corporations and
institutions. Additionally, he has been employed as a teacher and an
elementary/middle school principal earlier in his career.  Dr. Fink has
also published and lectured extensively on the use of computers in
education.

STEPHEN E. PRUST was elected to the Board of Directors in April 1992.
Since 1992, Mr. Prust has provided business consulting services,
including advice on equity and debt transactions, mergers and
acquisitions, to a variety of companies, ranging from entertainment
concerns, Internet start-ups and industry consolidators.  From 1990 to
1992, Mr. Prust was the President of AVID Home Entertainment, a
division of LIVE Entertainment, Inc.  From 1981 to 1990, Mr. Prust was
a consultant to companies in the entertainment industry.  In 1975, Mr.
Prust founded Dominion Music, Inc., a joint venture with K-Tel Records,
Inc.  He served as President of Dominion Music until 1981.

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and holders of
more than 10% of the Common Stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes
in ownership of the Common Stock.  Based solely upon a review of Forms
3, 4 and 5 furnished to the Company with respect to the year ended
December 31, 2004, the Company has determined that Messrs. Butler, Shively,
Johnson, each had two Form 4's not filed timely and Messrs. McCurry, Fink
and Prust each had a Form 4 that was not filed timely.

Code of Ethics
--------------

The Company has adopted a written Code of Ethics that applies to the
Company's principal executive officer, principal financial officer,
principal accounting officer or controller and any persons performing
similar functions. The Company will provide a copy of its Code of
Ethics to any person without charge upon written request addressed
to The American Education Corporation, 7506 N. Broadway Ext. Suite 505,
Oklahoma City, Oklahoma 73116, Attention: Shareholder Relations.


Item 10.  Executive Compensation.
-------   -----------------------

Compensation
------------

The following table shows the compensation of the Company's executive
officers.

                         Summary Compensation Table
                                                                Long-Term
                                 Annual Compensation          Compensation
                            ------------------------------ -------------------
                                                                    Securities
                                                Other    Restricted Underlying
Name and Principal                             Annual       Stock    Options/
    Position         Year   Salary  Bonus  Compensation(1)  Awards   SARS(#)
------------------------------------------------------------------------------
Jeffrey E. Butler,   2004  $150,167 $ 2,060    $     --        --     356,800
President and Chief  2003.. 132,000   2,060          --        --     360,000
Executive Officer    2002   120,462      --          --        --     100,000

Thomas A. Shively,   2004  $144,399 $26,384    $     --        --     273,276
Executive Vice       2003   126,500      --          --        --     260,000
President            2002   115,442      --          --        --      60,000

Neil R. Johnson,     2004  $122,609 $    --    $     --        --      25,000
Vice President and   2003   108,350      --          --        --     125,000
Chief Financial      2002    98,879      --          --        --      60,000
Officer

(1)  The executive officers did not receive any perquisites or other
benefits, the aggregate amount of which exceeded the lesser of $50,000
or 10% of their compensation.


Employment Agreements
---------------------

In December, 1998, the Company entered into an employment agreement
with Jeffrey E. Butler providing for a base salary and benefits as
determined by the Board of Directors, including incentive bonuses based
on profitability, that are provided to all employees of the Company. If
Mr. Butler is terminated without cause, his compensation will continue
for one year. In the event of a change in control, Mr. Butler may
require the Company to purchase up to 50% of his beneficial stock
ownership.  In addition , Mr. Butler has a deferred retirement benefit
as disclosed in Note 10 of the Notes to Consolidated Financial
Statements.

Messrs. Thomas A. Shively, and Neil R. Johnson also have employment
agreements with the Company.  These agreements also provide for
severance payments and repurchase of a portion of their beneficial
stock ownership in the event of a change in control. They also have a
deferred retirement benefit as disclosed in Note 10 of the Notes to
Consolidated Financial Statements.

Stock Incentive Plans
---------------------

The shareholders approved an Incentive Stock Option Plan for employees,
including officers, during 1998, and approved amendments to the plan in
1999, 2000 and 2001 to increase the number of shares available. The
total common shares issuable under this plan are 2,650,000 shares. The
Board of Directors acts as the Compensation Committee ("Committee").
The Committee of this Plan determines the employees who will receive
options to purchase common shares and the number granted. Option prices
will be the fair market value at date of grant.  Options are
exercisable as deemed by the Committee and terminate within ninety days
of employment termination, or as designated by the Committee. In no
event shall an option be exercisable more than ten years from the date
it is granted. No options may be issued under this plan after March 31,
2008. Since its inception, options to purchase 4,007,000 shares have been
granted, 1,806,029 options have expired, and 180,970 options have been
exercised. At December 31, 2004, there were options to purchase 2,020,001
shares outstanding under this Plan.

In March 1996, a Non-Qualified Stock Option Plan was approved by the
Board of Directors. Since its inception non-qualified stock options to
purchase a total of 2,990,271 shares of restricted common stock have
been issued, 1,431,995 have expired and 195,700 have been exercised. At
December 31, 2004, there were options to purchase 1,362,576 shares
outstanding.

Stock Option Grants In 2004
---------------------------



                   Options   Percentage of Total  Exercise
                   Granted    Options Granted to    Price      Expiration
Name               (Shares)    Employees in 2004(Per share)       Date
-----------------------------------------------------------------------------
Jeffrey E. Butler  356,800          54.5%          $.35     December 31, 2007
Thomas A. Shively  273,276          41.7%          $.35     December 31, 2007
Neil R. Johnson     25,000           3.8%          $.35     December 31, 2007

Additionally, in November 2004, 100,000 options for Mr. Butler and
60,000 options each for Mr. Shively and Mr. Johnson with an original
expiration date of February 2005 were extended to December, 2008, at its
original exercise price of $.25 per share.

Option Exercises and Fiscal Year-End Values
-------------------------------------------

No executive officer exercised options during 2004. The following table
sets forth, for the executive officers named in the Summary
Compensation Table above, the year-end value of unexercised stock
options:

                         Number of Securities        Value of Unexercised
                        Underlying Unexercised          In-the-Money
                          Options at Year-End         Options at Year-End
Name                  Exercisable/Unexercisable    Exercisable/Unexercisable
----------------------------------------------------------------------------
Jeffrey E. Butler         696,800/120,000                $22,000/$6,000
Thomas A. Shively          506,612/86,664                $14,667/$4,333
Neil R. Johnson            168,334/41,666                $10,167/$2,083

Directors' Compensation
-----------------------

In 2004 the Company's non-employee directors each were granted 63,000
qualified options to purchase the Company's common stock at $.35 per
share. The directors received no compensation, other than options, for
services in their capacity as directors.  In 2004, two directors received
cash compensation for services rendered outside the scope of normal
director's duties.  Monty McCurry received $21,500 for assisting the Company
in recruiting key personnel required for the Company's expansion and growth.
Stephen Prust received $5,000 for assistance to management in the development
and review of company strategic initiatives in the area of mergers and
acquisitions.  Both of the extra assignments were related to specific skills
and experience of each director.

The shareholders approved a Director's Stock Option Plan during 1998
and approved an amendment to the Plan in 2001 to increase the number of
shares available. The total common shares issuable under this Plan are
200,000 shares. Each outside director initially elected or appointed
after March 27, 1998, shall be granted options to purchase 5,000 shares
of common stock at the fair market value at the date of the grant.
Additionally, each outside director shall automatically be granted an
option to purchase 3,000 shares of common stock, if available, in each
succeeding calendar year through termination of the Plan on March 31,
2008. Options granted are exercisable immediately and for a period of
three years after the date of the grant or, if earlier, ninety days
after the date when the participant ceases to be a director of the
Company. Since its inception options to purchase a total of 292,998
shares of restricted common stock have been issued and 93,000 have
expired. At December 31, 2004, there were 199,998 options outstanding.

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

The following table sets forth ownership of the common stock of each
director and officer, all officers and directors as a group, and each
person known or believed by the Company to have beneficially owned five
percent or more of the Company's outstanding common stock as of March
10, 2005. Unless otherwise indicated, the beneficial owner has sole
voting and investment power over the common stock listed below:

                                                    Shares Beneficially
                                                           Owned
                                                    --------------------
 Name/Address of Beneficial Owner                   Number       Percent
----------------------------------                ----------------------
Jeffrey E. Butler (1)                             1,478,375       9.5%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Thomas A. Shively (2)                               743,000       5.0%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Neil R. Johnson (3)                                 180,834       1.3%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Monty C. McCurry (4)                                253,566       1.8%
2134 S. Eagle Ct.,
Aurora, CO 80014

Newton W. Fink (5)                                 218,066        1.5%
1143 Corinth Greene Dr.,
Sun City Center, FL 33573

Stephen E. Prust (6)                                555,934       3.8%
9025 East Kenyon Avenue,
Denver, CO 80237

John D. Garber (7)                                3,672,286      26.0%
7323 Linden Terrace,
Carlsbad, CA 92009

Robert Schoolfield (8)                           1,536,517       10.9%
5 Pleasant Cove,
Austin, TX 78746

The Pennsylvania State                             750,000        5.3%
University (9)
University Park, PA 16802

Officers and Directors                           3,429,775       19.5%
as a Group (6 persons)
(1) (2) (3) (4) (5) (6)

(1)  The amount and percentage figures include the possible exercise of
356,800 common stock options with an exercise price of $.35 per share,
100,000 common stock options at $.25 per share, and 240,000 common stock
options at $.30 per share exercisable within 60 days.
(2)  The amount and percentage figures include the possible exercise of
273,276 common stock options with an exercise price of $.35 per share,
60,000 common stock options at $.25 per share, and 173,336 common stock
options at $.30 per share exercisable within 60 days.
(3)  The amount and percentage figures include the possible exercise of
25,000 common stock options with an exercise price of $.35 per share,
60,000 common stock options at $.25 per share and 83,334 common stock
options at $.30 per share exercisable within 60 days.
(4)  The amount and percentage figures include the possible exercise of
84,000 common stock options with an exercise price of $.35 per share,
60,000 common stock options at $.13 per share, and 42,666 common stock
options at $.30 per share exercisable within 60 days.
(5)  The amount and percentage figures include the possible exercise of
84,000 common stock options with an exercise price of $.35 per share,
60,000 common stock options at $.13 per share, and 42,666 common stock
options at $.30 per share exercisable within 60 days.
(6)  The amount and percentage figures include the possible exercise of
129,000 common stock options with an exercise price of $.35 per share,
60,000 common stock options at $.13 per share, and 42,666 common stock
options at $.30 per share exercisable within 60 days.
(7)  The amount and percentage figures include 3,192,286 shares of
common stock held by John D. Garber and Clare C. Garber as trustees of
the John D. Garber and Clare C. Garber Trust for which Mr. Garber is
the beneficiary; 440,000 shares of common stock held by John D. Garber
and Clare C. Garber, as trustees of the John D. Garber and Clare C.
Garber defined benefit plan and 40,000 owned personally by Mr. Garber.
(8)  The amount and percentage figures include 737,528 shares of common
stock owned by the Schoolfield 1994 Charitable Unitrust for which Mr.
Schoolfield is the trustee; 614,607 shares of common stock owned by Mr.
Schoolfield individually; and 184,382 shares of common stock owned by
the Schoolfield Grandchildren's Trust for which Mr. Schoolfield is the
trustee.
(9)  In 1999, the John D. Garber and Clare C. Garber Trust donated
750,000 shares of the Company's common stock to The Pennsylvania State
University.


Item 12.  Certain Relationships and Related Transactions.
-------   -----------------------------------------------

The Company had a note receivable due from its Chief Executive Officer,
Jeffrey E. Butler, in the amount of $300,000 that was advanced in
October 2000 and due in 2003. In 2003 the Board of Directors approved a
transaction whereby the note would be paid in full in exchange for
200,000 shares of the Company's common stock owned by Mr. Butler. The
stock has been recorded as treasury stock at this cost.

The Company is indebted to two major shareholder affiliates, John D.
Garber and Janis L. Butler, for convertible subordinated debt in the
amount of $305,880, which was advanced in April, 2003. The debt bears
interest at 8% and the interest is payable quarterly. Principal is due
in one payment on April 1, 2005. The debt is subordinated to the debt
owed the Company's senior lender and is convertible into the Company's
common stock at $.40 per share.


Item 13.  Exhibits and Reports on Form 8-K.
-------   ---------------------------------

(a) The following documents have been filed as a part of this annual
report:

Exhibit
  No.                         Description of Exhibits
----------------------------------------------------------------------------

  3.1      Amended and Restated Articles of Incorporation of The American
           Education Corporation (incorporated by reference to the exhibit in
           the Current Report on Form 8-K filed with the Securities and
           Exchange Commission on June 25, 1998)

3.2        Bylaws of The American Education Corporation (incorporated by
           reference to the Company's registration statement on Form S-8
           filed with the Securities and Exchange Commission on October
           22, 1999)

4.1        Form of Stock Certificate (incorporated by reference to the
           Company's registration statement on Form S-8 filed with the
           Securities and Exchange Commission on October 22, 1999)

4.2        Directors' Stock Option Plan (incorporated by reference to
           Exhibit B to the Definitive Proxy Statement filed with the
           Securities and Exchange Commission on April 24, 1998)

4.3        First Amendment to the Directors' Stock Option Plan
           (incoorporated by reference to the Company's registration
           statement on Form S-8 filed with the Securities and Exchange
           Commission on October 22, 1999)

4.4        Stock Option Plan for Employees (incorporated by reference to
           Exhibit C to the Definitive Proxy Statement filed with the
           Securities and Exchange Commission on April 24, 1998)

4.5        First Amendment to the Stock Option Plan for Employees
           (incorporated by reference to the Company's registration
           statement on Form S-8 filed with the Securities and Exchange
           Commission on October 22, 1999)

4.6        Second Amendment to the Stock Option Plan for Employees
           (incorporated by reference to Exhibit 4.7 to the Company's
           registration statement on Form S-8 filed with the Securities
           and Exchange Commission on September 29, 2000)

10.1       Purchase Agreement for the acquisition by the Company of
           Learning Pathways, Limited (incorporated by reference to the
           exhibit in the Current Report on Form 8-K filed with the
           Securities and Exchange Commission on December 15, 1998)

10.2       Stock Purchase Agreement for the acquisition by the Company of
           Dolphin, Inc. (incorporated by reference to the exhibit in the
           Current Report on Form 8-K filed with the Securities and
           Exchange Commission on January 10, 2000)

11         Statement re: computation of per share earnings (filed
           herewith)

21         Subsidiaries of The American Education Corporation (filed
           herewith)

23.1       Consent of Steakley, Gilbert and Morgan

31.1       Certification of Chief Executive Officer pursuant to Section
           302 of the Sarbanes-Oxley Act of 2002.

31.2       Certification of Chief Financial Officer pursuant to Section
           302 of the Sarbanes-Oxley Act of 2002.

32.1       Certification of the Chief Executive Officer pursuant to 18
           U.S.C. Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002.

32.2       Certification of the Chief Financial Officer pursuant to 18
           U.S.C. Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002.

(b)   Reports on Form 8-K

      On November 16, 2004, the Company filed a Form 8-K under Item 5,
      Other Events, Item 9, Regulation FD Disclosure and Item 12,
      Results of Operations and Financial Condition, filing its press
      release announcing the company's financial results for the
      quarter ended September 30, 2004.


Item 14.  Principal Accounting Fees and Services.
-------   ---------------------------------------

Audit Fees. The aggregate fees of Steakley, Gilbert, & Morgan, P.C. for
professional services rendered for the audit of the Company's annual
financial statements for the years ended December 31, 2004 and 2003,
and the review of the financial statements included in the Company's
Forms 10-QSB totaled $28,225 and $24,000, respectively.

Audit-Related Fees. The aggregate fees billed by Steakley, Gilbert, &
Morgan, P.C. for audit related services for the years ended December
31, 2004 and 2003, and are not disclosed in "Audit Fees" above, were
$6,300 and $-0-, respectively.

Tax Fees. The aggregate fees billed by Steakley, Gilbert, & Morgan,
P.C. for tax compliance for the years ended December 31, 2004 and 2003
were $8,325 and $7,800, respectively.

All Other Fees. The aggregate fees billed by Steakley, Gilbert, &
Morgan, P.C. for services, other than those described above, for the
years ended December 31, 2004 and 2003 were $-0- and $-0-, respectively.



SIGNATURES
----------


Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

						The American Education Corporation


March 31, 2005                           By:  /s/Jeffrey E. Butler
                                         ------------------------
                                         Jeffrey E. Butler,
                                         Chief Executive Officer
                                         Chairman of the Board
                                         Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

Name                          Title                       Date
-----------------     -------------------------     ---------------
Jeffrey E. Butler     /s/Jeffrey E. Butler          March 31, 2005
                      Chief Executive Officer
                      Chairman of the Board
                      Treasurer

Neil R. Johnson       /s/Neil R. Johnson            March 31, 2005
                      Chief Financial Officer

Monty C. McCurry      /s/Monty C. McCurry           March 31, 2005
                      Director

Newton W. Fink        /s/Newton W. Fink             March 31, 2005
                      Director

Stephen E. Prust      /s/Stephen E. Prust           March 31, 2005
                      Director



The American Education Corporation

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


             Item                                          Page No.
-----------------------------------------------            --------

Independent Auditors' Report                                  F-1

Financial Statements:

  Consolidated Balance Sheet, December 31, 2004               F-2

  Consolidated Statements of Income for the years
   ended December 31, 2004 and 2003                           F-3

  Consolidated Statements of Changes In Stockholders'
   Equity for the years ended December 31, 2004 and 2003      F-4

  Consolidated Statements of Cash Flows for the years
   ended December 31, 2004 and 2003                           F-5

  Notes to Consolidated Financial Statements                  F-7



All schedules are omitted as the required information is included in
the financial statements or notes thereto or is not present in
sufficient amounts.


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



INDEPENDENT AUDITORS' REPORT
----------------------------


To Board of Directors and Stockholders
The American Education Corporation
Oklahoma City, Oklahoma


We have audited the consolidated balance sheet of The American
Education Corporation as of December 31, 2004 and the related
consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the two years in the period ended December 31,
2004.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).  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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of The American Education Corporation as of December 31, 2004 and the
consolidated results of its operations and cash flows for each of the
two years in the period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.





STEAKLEY, GILBERT & MORGAN


Oklahoma City, Oklahoma
March 23, 2005


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 2004

ASSETS
Current assets:
 Cash and cash equivalents                                 $   549,343
 Accounts receivable, net of allowance for
  returns and uncollectible accounts of
  $250,000 (Note 1)                                          2,146,264
 Inventory (Note 1)                                             14,485
 Prepaid expenses and deposits                                 305,897
 Deferred tax asset (Note 6)                                    86,542
                                                           -----------
    Total current assets                                     3,102,531

Property and equipment, at cost (Note 1)                     1,308,735
 Less accumulated depreciation and amortization             (1,164,389)
                                                           -----------
    Net property and equipment                                 144,346
Other assets:
 Capitalized software costs, net of accumulated
  amortization of $7,652,777 (Note 1)                        3,815,680
 Goodwill, net of impairment (Note 1)                        1,215,015
                                                           -----------
    Total other assets                                       5,030,695
                                                           -----------
    Total assets                                           $ 8,277,572
                                                           ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable trade                                    $   285,261
 Accrued liabilities (Note 11)                                 693,122
 Deferred revenue                                              654,337
 Notes payable and current portion of long-term
  debt (Note 4)                                                371,862
                                                           -----------
    Total current liabilities                                2,004,582

Other long-term accrued liabilities (Note 10)                  470,475
Deferred income tax liability - Long-term (Note 6)             103,921
Long-term debt  (Note 4)                                       305,880
                                                           -----------
    Total liabilities                                        2,884,858
                                                           -----------

Commitments and contingencies (Notes 5, 7, 10 and 12)               --
Stockholders' Equity  (Note 3)
 Preferred Stock $.001 par value;
  Authorized-50,000,000 shares, issued and
  outstanding-none; liquidation preference-$.02 per share           --
 Common Stock, $.025 par value;
  Authorized 30,000,000 shares; issued and outstanding-
  14,133,461 shares                                            359,186
  Additional paid in capital                                 6,698,817
  Treasury stock, at cost, 234,000 shares                     (319,125)
  Retained deficit                                          (1,346,164)
                                                           -----------
    Total stockholders' equity                               5,392,714
                                                           -----------

    Total liabilities and stockholders' equity             $ 8,277,572
                                                           ===========

See accompanying notes and accountants' report.


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2004 and 2003


                                    2004                   2003
                                 ------------        --------------


Sales (Note 1)                  $10,399,865            $ 8,598,868

Cost of goods sold                1,398,246              1,370,910
                                -----------            -----------
Gross Profit                      9,001,619              7,227,958
                                -----------            -----------

Operating expenses:
 Selling and marketing (Note 1)   3,679,956              2,390,498
 Operations                         501,401                435,999
 General and administrative       2,903,034              2,419,187
 Impairment of subsidiary
  (Note 15)                       1,150,000                     --
 Amortization of capitalized
  software costs                  1,572,654              1,446,373
                                -----------            -----------

 Total operating expenses         9,807,045              6,692,057
                                -----------            -----------

 Operating income (loss)           (805,426)               535,901

Other income (expense):
 Interest expense                   (61,058)               (68,556)
                                -----------            -----------

Income (loss) before income
  taxes                            (866,484)               467,345

 Current income tax (benefit)       (38,100)               (72,338)
 Deferred income tax expense
  (benefit)                        (485,124)               366,106
                                -----------            -----------
                                   (523,224)               293,768
                                -----------            -----------

Net income (loss)               $  (343,260)           $   173,577
                                ===========            ===========

Earnings per share: (Note 13)
 Basic                          $      (.02)           $       .01
 Fully diluted                  $      (.02)           $       .01

See accompanying notes and accountants' report.


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2004 and 2003


                                           Additional               Retained
                         Common Stock        paid in    Treasury    Earnings
                       Shares      Amount    Capital      Stock    (Deficit)
                     --------------------  ---------- ----------  -----------
Balance at
December 31, 2002    14,280,961  $357,874  $6,649,240  $ (19,125) $(1,176,481)

Issuance of common
  stock for cash and
  services               52,500     1,312       2,363

Repurchase common stock,
  at cost              (200,000)                        (300,000)

Net income                                                            173,577

Comprehensive Income adjustment:
 Foreign currency
  translation                                  22,527
                     ----------  --------  ----------  ---------  -----------

Balance at
 December 31, 2003   14,133,461   359,186   6,674,130  ( 319,125)  (1,002,904)

Net loss                                                             (343,260)

Comprehensive Income adjustment:
 Foreign currency
  translation                                  24,687
                     ----------  --------  ----------  ---------  -----------

Balance at
 December 31, 2004   14,133,461  $359,186  $6,698,817  $(319,125) $(1,346,164)
                     ==========  ========  ==========  =========  ===========

See accompanying notes and accountants' report.


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004 and 2003


                                              2004            2003
                                          -----------     -----------

Cash flows from operating activities:
Net income (loss)                        $  (343,260)    $  173,577

Adjustments to reconcile net income
 (loss) to net cash provided by
 operating activities:
  Depreciation and amortization            2,768,465      1,617,405
  Increase in reserve for bad debts           25,000        122,691
  Services rendered for common stock              --          3,675
  Deferred compensation                      234,000         64,920

Foreign currency translation                  24,687         22,527


Changes in assets and liabilities:
  Accounts receivable                        619,063       (911,999)
  Inventories                                  1,966         19,993
  Prepaid expenses and deposits             (131,415)      (111,724)
  Accounts payable and accrued liabilities  (604,125)       (65,333)
  Accounts payable - Affiliate                    --        (60,000)
  Deferred revenue                            44,637        371,620
  Deferred income taxes                     (501,061)       366,108
                                         -----------    -----------
  Net cash provided by operating
   activities                              2,137,957      1,613,460
                                         -----------    -----------

Cash flows from investing activities:
 Purchase of property and equipment          (53,264)       (57,179)
 Software development costs capitalized   (1,372,955)    (1,289,693)
                                         -----------    -----------
 Net cash used in investing activities    (1,426,219)    (1,346,872)
                                         -----------    -----------

Cash flows from financing activities:
 Proceeds received from issuance of debt          --        300,000
 Principal payments on notes payable        (379,071)      (424,317)
                                         -----------    -----------
 Net cash used in financing activities      (379,071)      (124,317)
                                         -----------    -----------

Net increase in cash                         332,667        142,271

Cash at beginning of year                    216,676         74,405
                                         -----------    -----------

Cash at end of year                      $   549,343    $   216,676
                                         ===========    ===========

Interest paid in cash                    $    62,263    $    70,121
                                         ===========    ===========

Income taxes paid                        $    14,766    $        --
                                         ===========    ===========

See accompanying notes and accountants' report.


THE AMERICAN EDUCATION CORPORATION
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Years Ended December 31, 2004 and 2003



During 2003 the Company issued 52,500 shares of common stock valued at
$3,675 for services provided by outside directors and distributors, and
received 200,000 shares of its common stock as payment for a note receivable
of $300,000.

See accompanying notes and accountants' report.


THE AMERICAN EDUCATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004

1.    Summary of significant accounting policies
      ------------------------------------------

The summary of significant accounting policies of The American
Education Corporation ("the Company") is presented to assist in
understanding the Company's financial statements.  These accounting
policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.

Principles of consolidation

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.

History and business activity

The American Education Corporation (formerly Plasmedics, Inc.) was
incorporated under the laws of the State of Colorado on February 23,
1981.  Through 1986, the Company's principal purpose was to manufacture
and market medical devices and medical technology.  The Company's
activities from inception through 1984 were directed toward raising
equity capital, acquisition of license and patent rights and research
and development.  From 1986 through 1990, the Company was essentially
inactive and seeking acquisition or merger candidates.

On January 8, 1991, the Company purchased substantially all of the
assets of American Educational Computer, Inc., and assumed specific
trade accounts payable and other accrued liabilities related to that
business.

On August 15, 1991, Plasmedics, Inc., changed its name to The American
Education Corporation ("AEC").  AEC's principal business is the
development of educational computer software and its distribution to
retail outlets and school districts nationally.

On November 25, 1998, effective October 1, 1998, the Company purchased
the business of Learning Pathways, Limited, ("LPL"), an entity organized
under the laws of the United Kingdom, pursuant to an Agreement between
the Company and the stockholders of LPL. The transaction was accounted using
a purchase method accounting. The business of LPL principally is to
distribute the Anywhere Learning System in the United Kingdom. As of
December 31, 2004 the subsidiary is considered as an asset held for sale
and a provision for impairment of $1,150,000 has been recognized as an
operating expense in the consolidated statements of income. The results of
regular operations of LPL are also included in the consolidated statements
of income for the two years ended December 31, 2004.  No dividends were
received from the foreign entity.

During 1999, the Company acquired 100% of the capital stock of Dolphin, Inc.,
("Dolphin") a New Jersey corporation.  The acquisition was accounted for using
purchase method accounting.  Results of Dolphin's operations are included in
the consolidated income statements for the two years ended December 31, 2004.
Dolphin provides software design services for unaffiliated customers.

Revenue recognition

The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountant's Statement of Position 97-2
and 98-9 on software revenue recognition.  The Company has recognized
revenue and a like amount of expense on products traded for advertising
and promotional services.  Sales revenue and selling and marketing
expense include approximately $259,145 and $244,445 of such non-
monetary transactions for the years ended December 31, 2004 and 2003,
respectively. Revenue for software design services at Dolphin is
recognized on the percentage-of-completion method.

The Company has adopted revenue recognition policies regarding sales
with multiple deliverables which comply with Emerging Issues Task Force
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables,"
which became effective July 1, 2003.  Revenues from technical service
contracts are deferred and amortized ratably over the period of the service
contract.

Capitalized software costs

Capitalized software costs consist of licenses for the rights to
produce and market computer software, salaries and other direct costs
incurred in the production of computer software and costs to defend the
Company's trademark.  The Company accounts for software capitalization
Under the guidelines of FASB 86.  Costs incurred in conjunction with
product development are charged to research and development expense until
technological feasibility is established.  Thereafter, all software
development costs are capitalized and amortized on a straight-line
basis over the product's estimated economic life of between three and
five years.  Capitalized software costs at January 1, 2004 were
$10,095,502 with $1,372,955 additional costs capitalized during 2004.
Amortization expense totaled $1,572,654 in 2004 and $1,446,373 in 2003.
Capitalized software costs are reviewed for potential impairment whenever
events or circumstances indicate that carrying amounts may not be
recoverable.

Goodwill

Goodwill represents the excess of the cost of purchased companies over
the fair value of their net assets at dates of acquisition.  Goodwill is
reviewed for possible impairment at least annually or more frequently upon
the occurrence of an event or when circumstances indicate that the carrying
amount is greater than its fair value.  During 2004, the Company determined
that the carrying amount of LPL's goodwill exceeded its fair value,
accordingly, a goodwill impairment loss of $625,431 was recognized.  (See
Note 15.)  The changes in the carrying amount of goodwill for the year ended
December 31, 2004, are as follows:

                                                Learning
                                  Dolphin       Pathways        Total
                                 ----------    -----------   -----------

Balance as of
 January 1, 2004                $1,215,015     $  625,431     $1,840,446
Impairment losses                       --       (625,431)    (  625,431)
                                ----------     ----------     ----------
Balance as of
 December 31, 2004              $1,215,015     $       --     $1,215,015
                                ==========     ==========     ==========


Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of packaging and educational software materials.

Property and equipment

Property and equipment is stated at cost.  Depreciation is provided on
the straight-line basis over the estimated useful life of the assets,
which is five years.  Depreciation expense totaled $131,616 and
$171,032 for 2004 and 2003, respectively.  The components of property
and equipment at December 31, 2004, are as follows:

     Furniture, fixtures and office equipment          $  692,750
     Computers and software                               583,344
     Leasehold improvements                                32,641
                                                       ----------
                                                        1,308,735
     Less: accumulated depreciation                    (1,164,389)
                                                       ----------

     Net property and equipment                        $  144,346

Stock Options

The Company has historically measured compensation from issuing employee
stock options under the accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" which is an intrinsic value
method.  Subsequent accounting pronouncements FAS 123 and FAS 148,
"Accounting for Stock Based Compensation," establish financial accounting
and reporting standards for stock-based employee compensation plans.
FAS 123 defines a fair value based method of accounting for an employee
stock option.  FAS 148 amends FAS 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation.  The Company
plans to continue to use the intrinsic value method for stock-based
compensation until new accounting standards are finalized by the FASB.
Accordingly, the compensation cost for stock options has been measured
as the excess, if any, of the quoted market price of Company stock at
the date of the grant over the amount the employee must pay to acquire
the stock.  The compensation cost is recognized over the vesting period
of the options.  Hence, no compensation is incurred unless the market
value is greater than the option exercise price.

Pro forma information regarding net income (loss) and earnings (loss)
per share is required by FAS 123, and has been determined as if the
Company had accounted for its employee stock options under the fair
value method of that Statement.  The Company is continuing to utilize the
intrinsic value-based method for accounting for employee stock options or
similar equity instruments.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.  The
Company's pro forma income and earnings/(loss) per share are as follows
for the year ended:



                                                 2004        2003
                                              ----------   ----------

    Net income/(loss) - as reported           $(343,260)    $ 173,577
    Stock -based employee compensation
     expense - pro forma                         35,467        13,125
                                              ---------     ---------

    Net income/(loss) - pro forma             $(378,727)    $ 160,452
                                              =========     =========

    Basic earnings/(loss) per common
      share-as reported                           $(.02)         $.01
    Diluted earnings/(loss) per common
      share as reported                            (.02)          .01
    Basic earnings/(loss) per common
      share - pro forma                           $(.02)         $.01
    Diluted earnings/(loss) per common
      share-pro forma                              (.02)          .01

Statements of cash flows

In the consolidated statements of cash flows, cash and cash equivalents
may include currency on hand, demand deposits with banks or other
financial institutions, treasury bills, commercial paper, mutual funds
or other investments with original maturities of three months or less.

Use of estimates

The preparation of the financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.


2.    Options to purchase common stock
      --------------------------------

The shareholders approved an Incentive Stock Option Plan for employees
during 1998 and approved amendments to the plan in 1999, 2000 and 2001
to increase the number of shares available.  The total shares issuable
under this plan are 2,650,000. The Committee of this Plan determines
the employees who will receive options to purchase common shares and
the number granted. Option prices will be the fair market value at date
of grant. Options are exercisable as deemed by the Committee and
terminate within ninety days of employment termination, or as
designated by the Committee. In no event shall an option be exercisable
more than ten years from the date it is granted. No options may be
issued under this Plan after March 31, 2008.

The shareholders also approved a Director's Stock Option Plan during
1998 and approved an amendment to the Plan in 2001 to increase the
number of shares available. The total shares issuable under this Plan
are 200,000. Each outside director initially elected or appointed shall
be granted an option to purchase 5,000 shares of common stock at the
fair market value at the date of the grant. Additionally, each outside
director shall automatically be granted an option to purchase 3,000
shares of common stock as of January 1 of each succeeding calendar
year, if options are available, through termination of the Plan on
March 31, 2008. Options granted are exercisable immediately and for a
period of three years after the date of the grant or, if earlier,
ninety days after the date when the participant ceases to be a director
of the Company.

The Company's non-qualified stock option plan originated in 1996. The
following table summarizes stock option plan activity:


                                         (In Shares)
                                 --------------------------

                                     1998            1998

                      1996 Plan  Directors Plan  Employee Plan    Total
                      ---------  --------------  -------------  ---------

Number of shares under
options outstanding as of:

December 31, 2003     1,364,576      199,998        2,099,334    3,663,908

Shares granted          784,076       63,000          105,000      952,076

Shares exercised             --           --               --           --
Shares expired         (786,076)     (63,000)        (184,333)  (1,033,409)
                      ---------      -------        ---------    ---------
December 31, 2004     1,362,576      199,998        2,020,001    3,582,575
                      =========      =======        =========    =========

Option price
 range per share    $.13 - $.47    $.13 - $.35     $.25 - $.35

In November 2004, the Company extended the expiration date of 595,000 stock
options, originally granted in 2002 with an expiration in February 2005, to
December 31, 2008.  The original exercise price was $.25 per share, the
market value at date of grant.  The exercise price of the options remains
the same, however, since the market value of the Company's common stock was
$.27 per share at the date the modification of terms was made, the Company
has recorded compensation expense of $11,900.

3.    Common and preferred stock
      --------------------------

There were no common stock transactions during 2004.


4.    Notes Payable and Long-term debt
      --------------------------------

The Company had the following indebtedness under notes and loan
agreements:

                                    Current    Long-term       Total
                                    -------    ---------    ----------

Line of credit with bank,
originated December 23, 1999,
matures November 30, 2005;
initial line - $1,145,000,
payments of $24,000 per month
plus interest at the bank's
prime rate plus 2%  (7.25% at
December 31, 2004), remaining
principal due at maturity,
secured by accounts receivable
and inventory                      $255,761    $     --    $  255,761

Lines of credit with bank,
originated April 30, 1999, to
December 23,1999, matures
March 31, 2005; maximum line -
$450,000, interest at the bank's
prime rate plus 2.5% (7.75% at
December 31, 2004), payable
monthly, principal due at
maturity, secured by accounts
receivable and inventory            112,895          --       112,895

Installment notes payable to
bank, originated, December 4, 2001 ,
matures June 4, 2005; principal and
interest due in monthly payments
of $734, interest at bank's
prime rate plus .25%, (5.50% at
December 31, 2004); secured by
equipment                             3,206           --         3,206

Subordinated debt due to
shareholder affiliates,
originated April 1, 2003,
matures September 30, 2006;
interest at 8% payable quarterly,
principal due at maturity,
convertible into the Company's
common stock at $.40 per share           --      305,880       305,880
                                   --------     --------    ----------
                                   $371,862     $305,880    $  677,742
                                   ========     ========    ==========

Aggregate maturities of notes payable are as follows:

     2005              $  371,862
     2006                 305,880
                       ----------
                       $  677,742
                       ==========


5.    Operating leases
      ----------------

The Company leases office space in Oklahoma City, Oklahoma, under an
agreement renewed December 31, 2002 at $12,587 a month.  The agreement
expires December 31, 2005.

The Company leases automobiles and certain office equipment with lease
payments totaling  $6,868 per month. The agreements expire in October
2007 to February  2008.

Dolphin, Inc., a wholly owned subsidiary leases office space in
Voorhees, New Jersey, for $4,922 a month under a lease agreement
expiring May 31, 2009. Dolphin, Inc. leases equipment for $540 a month
until May 2009.

Learning Pathways, Limited, a wholly owned subsidiary, leases office
space in the United Kingdom. Monthly rent approximates $1,580. The
lease renews each month for a period of ninety days.

Total lease expense was $369,238 for 2004 and $372,948 for 2003.

Future rental commitments under lease agreements are as follows:

     2005             $  273,975
     2006                113,215
     2007                 88,124
     2008                 67,303
     2009                 27,310


6.    Income taxes
      ------------

Deferred tax liabilities and assets are recognized for the expected
future tax consequences of events that have been included in the
financial statements or tax returns, determined by using the enacted
tax rates in effect for the year in which the differences are expected
to reverse.

The following is a reconciliation of the statutory federal income tax
rate to the Company's effective income tax rate:

                                                 2004        2003
                                               -------     -------
Statutory federal income tax rate              (34.0%)       34.0%
State income taxes                              (6.0%)        6.0%
Nondeductible expenses                           1.1%         6.4%
Foreign loss taxed at different rate           (21.5%)       16.5%
                                                -----        -----
Effective income tax rate                      (60.4%)       62.9%
                                                =====        =====

Deferred tax liabilities and assets at December 31, 2004 are comprised
of the following:

Deferred tax liabilities:
Capitalized software                                $1,526,271
                                                    ----------
  Total deferred tax liabilities                     1,526,271

Deferred tax assets:
Receivables allowance                                   80,000
Net operating loss carryforward                      1,211,110
Vacation accrual and deferred compensation             194,732
Plant and equipment and related depreciation            23,050
                                                    ----------
  Total deferred tax assets                          1,508,892
                                                    ----------
    Net liability                                   $  (17,379)
                                                    ==========

Net deferred tax asset                              $   86,542
Net deferred tax liability                            (103,921)
                                                    ----------

    Net liability                                   $  (17,379)
                                                    ==========

A deferred tax asset has been recorded for the tax benefit of the net
operating loss carryforward.  No valuation allowance has been recorded
against the deferred tax asset.

The Company has available U.S. net regular tax and alternative minimum
tax operating loss carryforwards of approximately $3,027,000 and
$3,184,000, respectively, expiring between the years 2021 and 2024.


7.    Royalty agreements
      ------------------

Several of the Company's software titles are authored by independent
consultants for which royalty agreements exist.  These agreements call
for quarterly payments based upon a percentage of the net sales of the
particular titles.  These agreements expire in the years 2005 to 2010.
Royalty expense totaled $62,640 and $87,231 in 2004 and 2003,
respectively.


8.    Related party transactions
      --------------------------

The Company is indebted to two major shareholder affiliates for
convertible subordinated debt in the amount of $305,880, which was
advanced in April 2003 with an original maturity of April 2005. The
debt bears interest at 8% and the interest is payable quarterly. In
September 2004, the maturity date of the debt was extended to September
2006. The debt is subordinated to the debt owed the Company's senior
lender and is convertible at any time before maturity into the Company's
common stock at $.40 per share.


9.    Significant customers and concentration of credit risk
      ------------------------------------------------------

Accounts Receivable
-------------------
The Company sells its products almost exclusively to schools through
various distributors of educational materials.

No individual customer accounted for more than 10% of sales in 2004 or
2003.

The Company reserves for returns and bad debts in the normal course of
its operations. Management feels the allowance is sufficient to cover
any losses from uncollectible trade receivables.

Cash
----
The Company maintains its bank accounts with three financial institutions.
Cash deposits in excess of FDIC limits were approximately $441,000 at
December 31, 2004.

10.    Commitments and contingencies
       -----------------------------

The Company amortizes capitalized software costs over the products
estimated useful life.  Due to inherent technological changes in the
software development industry, the period over which such capitalized
software costs are being amortized may have to be accelerated. Software
costs are carried in the accompanying balance sheet net of amortization.

The Company has employment agreements with its officers which include
salary terms and severance benefits.  The Company has a deferred
retirement benefit agreement with its executive officers and has
accrued $470,475 as of December 31, 2004.  Deferred benefit expense was
$234,000 in 2004 and $64,920 in 2003, respectively.


11.    Accrued liabilities
       -------------------

Accrued liabilities are comprised of the following at December 31,
2004:

    Accrued interest                         $   2,409
    Accrued payroll, taxes and benefits         77,170
    Accrued commissions and royalties          551,202
    Accrued professional fees                   15,600
    Accrued - other                             46,741
                                             ---------

                                             $ 693,122
                                             =========


12.    Litigation
       ----------

The Company may be the subject of various legal proceedings that could
arise during the normal course of business.  However, management knows
of no pending or threatened litigation involving the Company that
is considered material to the on-going operations and  viability of the
Company.


13.    Earnings per share
       ------------------

Basic earnings per share are computed by dividing earnings available to
common stockholders by the weighted average number of common shares
outstanding during the period.  Diluted earnings per share reflect per
share amounts that would have resulted if dilutive potential common
stock had been converted to common stock.

The weighted average number of basic and diluted common shares outstanding
is as follows:

                                            2004          2003
                                         ----------     ----------

    Basic                                 14,133,461    14,324,714
    Diluted                               15,801,795    15,628,899

Employee stock options are included in the number of diluted common
shares using the treasury stock method.


14.    Employee benefit plans
       ----------------------

The Company adopted a 401(k) Plan effective January 1, 1999. The Plan
allows eligible employees to defer part of their income on a tax-
favored basis into the Plan. The Plan is subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA). The
Company may make contributions to the Plan as a matching percentage or
as a lump sum amount determined annually.  There were no matching
contributions in 2004 and 2003.


15.    Foreign assets, liabilities and income
       --------------------------------------

The consolidated financial statements include the assets, liabilities
and income of its foreign subsidiary Learning Pathways Ltd. (LPL). The
following is a summary of foreign assets and liabilities net of impairment
reserve of $1,150,000 (including goodwill impairment of $625,431) that are
included in the consolidated financial statements at December 31, 2004 and
the results of its operations for the two years then ended stated in U.S.
currency:

    Current assets            $46,752
    Long-term assets          $ 6,384
    Liabilities               $72,734

                                          2004           2003
                                      ------------    ---------
    Revenues                          $   213,348     $ 368,583
    Net loss from operations          $  (883,000)    $(258,681)
    Foreign income tax benefit        $   (38,100)    $ (72,338)
    Impairment loss                   $(1,150,000)    $      --



Exhibit 11

Statement re: computation of per share earnings

Basic earnings per share are computed by dividing earnings available to
common stockholders by the weighted average number of common shares
outstanding during the period.  Diluted earnings per share reflect per
share amounts that would have resulted if dilutive potential common
stock had been converted to common stock.

The weighted average number of basic and diluted common shares
outstanding is as follows:

                                       2004            2003
                                   ----------       ----------

    Basic                          14,133,461       14,324,714
    Diluted                        15,801,795       15,628,899

Employee stock options are included in the number of diluted common
shares using the treasury stock method.



Exhibit 21

Subsidiaries of The American Education Corporation


Projected Learning Programs, Inc., an Oklahoma corporation (Inactive)

Learning Pathways, Limited, a United Kingdom corporation

Dolphin, Inc., a New Jersey corporation



Exhibit 23.1

Consent of Independent Auditors


We consent to the incorporation by reference in the Registration
Statement (Form S-8) filed October 22, 1999, pertaining to The American
Education Corporation Stock Option Plan for Employees and The American
Education Corporation Directors' Stock Option Plans of our report dated
March 23, 2005, with respect to the consolidated financial statement of
The American Education Corporation included in its Annual Report (Form
10-KSB) for the year ended December 31, 2004, filed with the Securities
and Exchange Commission.

Steakley, Gilbert, & Morgan, P.C.


March 31, 2005
Oklahoma City, Oklahoma



Exhibit 31.1

CERTIFICATIONS
--------------


I, Jeffrey E. Butler, certify that:

1.  I have reviewed this annual report on Form 10-KSB of The American
Education Corporation;

2.  Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;

3.  Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this report;

4.  The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

    a)  designed such disclosure controls and procedures, or caused
        such disclosure controls and procedures to be designed under
        our supervision, to ensure that material information relating
        to the registrant, including its consolidated subsidiaries, is
        made known to us by others within those entities, particularly
        during the period in which this report is being prepared;

    b)  evaluated the effectiveness of the registrant's disclosure
        controls and procedures and presented in this report our
        conclusions about the effectiveness of the disclosure controls
        and procedures based on our evaluation as of the Evaluation
        Date;

    c)  disclosed in this report any change in the registrant's
        internal control over financial reporting that occurred
        during the registrant's most recent fiscal quarter (the
        registrant's fourth quarter in the case of an annual report)
        that has materially affected, or is reasonably likely to
        materially affect, the registrant's internal control over
        financial reporting;

5.  The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

    a)  all significant deficiencies and material weaknesses in the
        design or operation of internal control over financial
        reporting which are likely to adversely affect the registrant's
        ability to record, process, summarize and report financial
        information; and

    b)  any fraud, whether or not material, that involves management or
        other employees who have a significant role in the registrant's
        internal controls over financial reporting.

Date:  March 31, 2005

/s/  Jeffrey E. Butler
----------------------
Signature
Title:  Chief Executive Officer



Exhibit 31.2

CERTIFICATIONS


I, Neil R. Johnson, certify that:

1.  I have reviewed this annual report on Form 10-KSB of The American
Education Corporation;

2.  Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;

3.  Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this report;

4.  The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

    a)  designed such disclosure controls and procedures, or caused
        such disclosure controls and procedures to be designed under
        our supervision, to ensure that material information relating
        to the registrant, including its consolidated subsidiaries, is
        made known to us by others within those entities, particularly
        during the period in which this report is being prepared;

    b)  evaluated the effectiveness of the registrant's disclosure
        controls and procedures and presented in this report our
        conclusions about the effectiveness of the disclosure controls
        and procedures based on our evaluation as of the Evaluation
        Date;

    c)  disclosed in this report any change in the registrant's
        internal control over financial reporting that occurred
        during the registrant's most recent fiscal quarter (the
        registrant's fourth quarter in the case of an annual report)
        that has materially affected, or is reasonably likely to
        materially affect, the registrant's internal control over
        financial reporting;

5.  The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

    a)  all significant deficiencies and material weaknesses in the
        design or operation of internal control over financial
        reporting which are likely to adversely affect the registrant's
        ability to record, process, summarize and report financial
        information; and

    b)  any fraud, whether or not material, that involves management or
        other employees who have a significant role in the registrant's
        internal controls over financial reporting.

Date:  March 31, 2005

/s/  Neil R. Johnson
--------------------
Signature
Title:  Chief Financial Officer



Exhibit 32.1

THE AMERICAN EDUCATION CORPORATION



Certification by Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



     In connection with the Annual Report on Form 10-KSB of The
American Education Corporation (the "Company") for the year ended
December 31, 2004 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Jeffrey E. Butler, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:

     (1)  The Report fully complies with the requirements of section
   13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in
   all material respects, the financial condition and result of the
   operations of the Company.



By:  /s/ Jeffrey E. Butler
     ---------------------
     Jeffrey E. Butler
     Chief Executive Officer



Exhibit 32.2

THE AMERICAN EDUCATION CORPORATION



Certification by Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



     In connection with the Annual Report on Form 10-KSB of The
American Education Corporation (the "Company") for the year ended
December 31, 2004 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Jeffrey E. Butler, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:

     (1)  The Report fully complies with the requirements of section
   13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in
   all material respects, the financial condition and result of the
   operations of the Company.



By:  /s/ Neil R. Johnson
     -------------------
     Neil R. Johnson
     Chief Financial Officer