FORM 10-KSB/A

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. [  ]

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.)                YES___  NO X

Revenues for the year ended December 31, 2004:                 $10,186,517

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:
$4,333,544 based on 7,471,627 shares at $.58 per share, the last sale
price of the common stock on August 25, 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 August 25,
2005: 14,133,461

Transitional Small Business Disclosure Format       YES____NO  X



TABLE OF CONTENTS TO FORM 10-KSB/A


PART I


                                                           Page Number


Item 1     Description of Business                               3
Item 2     Description of Property                              12
Item 3     Legal Proceedings                                    12
Item 4     Submission of Matters to a Vote of Security Holders  12



PART II


Item 5     Market for Common Stock and Related Stockholder
           Matters                                              13
Item 6     Management's Discussion and Analysis or Plan
           of Operation                                         14
Item 7     Financial Statements                                 17
Item 8     Changes In and Disagreements with Accountants on
           Accounting and Financial Disclosure                  17
Item 8A    Controls and Procedures                              17
Item 8B    Other Information                                    17


PART III


Item 9     Directors, Executive Officers, Promoters, and
           Control Persons; Compliance with Section 16(a) of
           the Exchange Act                                     18
Item 10    Executive Compensation                               19
Item 11    Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters       21
Item 12    Certain Relationships and Related Transactions       22
Item 13    Exhibits                                             23
Item 14    Principal Accountant Fees and Services               24


THE AMERICAN EDUCATION CORPORATION


FORM 10-KSB/A


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 elected to
write off the remaining goodwill and the Company's investment in this
subsidiary in fiscal 2004 and in this amendment to Form 10-KSB has
classified LPL as a discontinued operation.

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 carry 2001 or later copyrights reflecting the
Company's commitment not only to development of content but also 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.  These are 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 the publication of 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 a LAN
environment as an 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 the 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 provides 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.  It
is believed that this product family should become an important source of
incremental revenue from existing and new customers in future years.

A+dvancer Learning System, registered
-------------------------------------

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 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 forr 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 US 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.  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/Corrections 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 2.7 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 A+
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 softtware 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
the last quarter of 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 the first two quarters of 2005 and
each quarter of 2004 and 2003.


                                 2005            2004            2003
                            HIGH     LOW    HIGH     LOW    HIGH     LOW
                           --------------  --------------  --------------

Quarter Ending March 31    $0.75    $0.35  $0.52    $0.35  $0.20    $0.07


Quarter Ending June 30     $0.62    $0.30  $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 Yahoofinance.com 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 assessment testing software, and software management
technology specifically designed to manage the delivery of and record the
results of student progress in schools and other institutions.  Java-based
technology, the A+nyWhere Learning System, registered, ("A+LS") 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 formative
assessment testing and formative instructional content for various segments
of the primary, secondary and post secondary educational markets.  All
company products are designed to provide for LAN, WAN and Internet delivery
options.  The Company has developed computer adaptive, formative 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 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, trademark, College Readiness Online, the Company's
postsecondary offering, identifies and assists students in attaining
college entry-level academic skills in Arithmetic, Elementary Algebra,
Reading Comprehension, and Sentence Skills.  A+dvancer reduces demand on
institutional admissions and developmental departments, while providing
students with both improved skills assessment and the alignment to
developmental and remedial coursework in an online, self-paced learning
environment.

The Company is a technology-based publishing enterprise.  To remain
competitive it must constantly invest in the development of programming
technology to keep 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 and to develop additional educational
content offerings to remain competitive.  In 2004, the Company incurred
costs of approximately $644,000 for these updates and new content-based
products.  These investments are an essential, recurring cost of doing
business and impact the Company's operating cost and margin structures.
During 2004, the Company spent approximately $660,000 in modifying its
software engines to improve delivery of its content online and to develop
additional reporting and data management features to assist its customers
in meeting school accountability requirements.

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 $10,186,517 compared to net revenues of $8,230,285 for the year
ended 2003.  This represents an increase of 24% in net consolidated
revenues over the prior fiscal year, and is attributable to an increase in
orders at AEC.  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 zero.  In this amended Form 10-KSB/A
the statement of income has been restated to show the results of Learning
Pathways as a discontinued operation and, therefore, the comparisons
discussed here are only for the Company and its Dolphin, Inc. subsidiary.
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 14% 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
were $7,522,597 or 74% of net revenues, compared to $6,012,388 or 73%, for
the previous fiscal year.  The increase in the 2004 operating expenses is
largely attributable to the 55% increase in selling and marketing expenses
from $2,341,607 to $3,628,550 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.  The Company
recognizes sales revenue based upon the type of customer.  If the sale is
made to a distributor who in turn resells a product to the end user, the
amount of the sale is recorded, no commission is due the distributor
and the transaction is recorded as a net sale.  If the sale is billed
direct to the school or other end user, a commission is paid to the
distributor or a sales representative, which increases the amount of the
sale, but a transaction of this nature would  directly increase marketing
expense as a result of an obligation to pay a commission.  These
commissions paid may vary in the percentage of the sale paid by the
Company, depending up the type of sale and the status of the individual or
organization making the sale.  The decision to sell and to bill direct to
the customer and pay a subsequent commission can result from a number of
factors, including credit policy issues with individual distributors as a
result of payment history or limitations on authorized limits.
Additionally, method of delivery of the product may necessitate direct
billing to the customer and the subsequent payment of a commission.  An
example would be an online product sale that requires delivery from
company servers and related record keeping on licensed number of users
accessing the product online as well as the number of units delivered.
This level of record keeping requires company monitoring and billing
directly to the customer. These factors create a change in sales mix
affecting the amount of commission paid and the manner in which revenues
may be recorded by  the Company.  Accordingly, these factors, and the
source and nature of recorded revenue, can impact period revenue
recognition and related costs of securing revenue may vary from period to
period. Operations expense 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 $1,938,629
to $1,978,757 or by 2%.  This increase is attributable to several different
items. Internet operating costs increased approximately $60,000 resulting
from an increasing percentage of the Company's net revenues being derived
from providing customers with online access to our products.  Deferred
compensation payable upon executive officers' and directors' retirement
increased approximately $170,000 from 2003 to 2004 as a result of increased
future benefits accrued and additional individuals who were eligible for
the program.  Bad debt expense decreased approximately $180,000 versus 2003
because an increase in the allowance for doubtful accounts recorded in 2003
was not necessary in 2004.

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 was $1,413,889 for 2004, a
9% increase over the $1,296,153 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 increase 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.  Income tax expense decreased to 41% of pre-tax
income from continuing operations in 2004 compared to 46% in 2003 as a
result of fewer non-deductible expenses incurred in 2004.  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 $(.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, lease financing sources and convertible debt from private
individuals.

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
$2,137,957 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.  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 current lender and several other financing
sources.

In April 2003, the Company borrowed $305,880 from major shareholder
affiliates, which is subordinated to the debt owed to the Company's senior
lender. This debt matures in September of 2006 and is convertible into the
Company's common stock at $.40 per share. On March 30, 2005, the Company
entered into a Convertible Note Purchase Agreement with an unaffiliated
individual.   Pursuant to the terms of the Convertible Note Purchase
Agreement, the Company issued the note purchaser an unsecured 8%
Subordinated Convertible Note in the original aggregate principal amount
of $400,000 (the "Note").   All principal and interest on the Note is due
and payable on March 30, 2006 (the "Initial Maturity Date"), subject to
the note purchaser's option to extend the Initial Maturity Date twelve
months to March 30, 2007 (the "Extended Maturity Date").  The Company may
not prepay principal or interest on the Note prior to the Initial Maturity
Date.  The Note is convertible at any time at the note purchaser's option
into shares of the Company's common stock at the initial conversion price
of $0.463 per share, subject to certain anti-dilution adjustments.  Any
shares of common stock issued upon conversion of the Note will have
"piggy-back" registration rights. The proceeds from the subordinated
convertible debt were used to reduce accounts payable, bank debt and to
support the normal operations of the business.

The Company has a $450,000 revolving line of credit with a bank that bears
interest at a rate of 2.50% over the prime rate (7.75% as of December 31,
2004) and matures on March 31, 2006.  At December 31, 2004, the Company
had borrowed $112,895 under this line of credit.  Additionally, the
Company has a term loan with an aggregate principal balance of $255,761 as
of December 31, 2004.  The term loan bears interest at a rate of 2.00%
over the prime rate (7.25% as of December 31, 2004) and matures on
November 30, 2005.  The Company is continuing to discuss future borrowing
arrangements with its current lender and several bank financing sources.

There are no material operating covenants in either of the subordinated
debt agreements nor in the bank loan agreements.  The Company does not
believe that there are any covenants that affect the way the business is
operated or that would require material financial obligations.

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
(an average of approximately 20% per year). 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 controls and other procedures
of the Company that are designed to ensure that information required to be
disclosed by the Company in its reports that it submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.

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 and that such disclosure
controls and procedures were effective.  During the three months ended
December 31, 2004, there have been no changes in internal controls, or in
factors that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial
reporting.

Item 8B.  Other Information.
--------  ------------------

None.


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.

Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------

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.

Audit Committee Financial Expert
--------------------------------

The entire Board of Directors serves as the Audit Committee of the Company
nor is the Company required under Regulation SB Item 401(e) governing SB
Corporations to have a formal audit committee.  The Board of Directors does
not have a financial expert serving as a member of the Board.  The Company
does not have a financial expert serving on its Board due to the Company's
size, financial condition for the past several years and its inability to
offer sufficient incentives and D&O insurance to attract a financial expert
to serve on the Board.

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 stock options,
for services in their capacity as directors.  In 2004, two directors
received cash compensation for services rendered outside of the scope of
normal directors 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 review of operations of the Company's subsidiaries whose operations
are causing large amounts of losses for the Company and the development of
strategic alternatives to manage the losses being generated by these
subsidiaries, including the potential sale of the subsidiaries.  Both of
the extra assignments were related to the 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
          and Related Stockholder Matters.
--------  --------------------------------------------------------------

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 August 25,
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)                             1,598,375      10.7%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Thomas A. Shively (2)                               829,664       5.6%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Neil R. Johnson (3)                                 222,500       1.6%
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       3.9%
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

David J. Smith (9)                                 863,930        5.8%
10 South Close, Workingham
Berks, United Kingdom

The Pennsylvania State                             750,000        5.3%
University (10)
University Park, PA 16802

Officers and Directors                           3,678,105       22.5%
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 360,000  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 260,000 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 125,000  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)  The amount and percentage figures include 863,930 shares of common
stock which would be issued to Mr. Smith if he elects to convert his
$400,000 8% Subordinated Convertible Note dated March 30, 2005 to common
stock.
(10)  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 September 30, 2006. 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.
--------  ---------

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)

10.3       Convertible Note Purchase Agreement dated March 30, 2005 by and
           between The American Education Corporation and David J. Smith
           (incorporated by reference to the exhibit in the Current Report
           on Form 8-K filed with the Securities and Exchange Commission
           on April 11, 2005)

10.4       The American Education Corporation 8% Subordinated Convertible
           Promissory Note dated March 30, 2005 in favor of David J. Smith
           (incorporated by reference to the exhibit in the Current Report
           on Form 8-K filed with the Securities and Exchange Commission
           on April 11, 2005)

10.5       Promissory Note dated March 31, 2004 from The American
           Education Corporation in favor of UMB Bank, N.A. (incorporated
           by reference to the exhibit in the quarterly report 10-Q
           filed with the Securities and Exchange Commission on August 15,
           2005)

10.6       Promissory Note dated March 31, 2004 from The American
           Education Corporation in favor of UMB Bank, N.A. (incorporated
           by reference to the exhibit in the quarterly report 10-Q
           filed with the Securities and Exchange Commission on August 15,
           2005)

10.7       Employment Agreement with Jeffrey E. Butler dated December 5,
           1998 (incorporated by reference to the exhibit in the quarterly
           report 10-Q filed with the Securities and Exchange Commission
           on August 15, 2005)

10.8       Employment Agreement with Thomas A. Shively dated December 5,
           1998 (incorporated by reference to the exhibit in the quarterly
           report 10-Q filed with the Securities and Exchange Commission
           on August 15, 2005)

10.9       Employment Agreement with Neil R. Johnson dated December 5,
           1998 (incorporated by reference to the exhibit in the quarterly
           report 10-Q filed with the Securities and Exchange Commission
           on August 15, 2005)

10.10      Promissory Note dated October 16, 2000 from Jeffrey E. Butler
           in favor of the Company (filed herewith)

10.11      Promissory Note dated September 30, 2004 from the Company in
           favor of John Garber (filed herewith)

10.12      Promissory Note dated September 30, 2004 from the Company in
           favor of Janis L. Butler (filed herewith)

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.


Item 14.  Principal Accountant 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


September 8, 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          September 8, 2005
                      Chief Executive Officer
                      Chairman of the Board
                      Treasurer

Neil R. Johnson       /s/Neil R. Johnson            September 8, 2005
                      Chief Financial Officer
                      Chief Accounting Officer

Monty C. McCurry      /s/Monty C. McCurry           September 8, 2005
                      Director

Newton W. Fink        /s/Newton W. Fink             September 8, 2005
                      Director

Stephen E. Prust      /s/Stephen E. Prust           September 8, 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
(Except for Note 15, which is dated September 1, 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



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


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


Sales                            $10,186,517            $ 8,230,285

Cost of goods sold                 1,398,246              1,350,977
                                ------------           ------------
Gross Profit                       8,788,271              6,879,308
                                ------------           ------------

Operating expenses:
 Selling and marketing             3,628,550              2,341,607
 Operations                          501,401                435,999
 General and administrative        1,978,757              1,938,629

 Amortization of capitalized
  software costs                   1,413,889              1,296,153
                                ------------           ------------

 Total operating expenses          7,522,597              6,012,388
                                ------------           ------------

 Operating income from
  continuing operations            1,265,674                866,920

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

Income from continuing
 operations before income
 taxes                             1,204,616                798,364

 Deferred income tax expense         493,673                366,106
                                ------------           ------------

Income from continuing
 operations                          710,943                432,258

Loss from discontinued operations
 (net of tax benefits 2004 -
 $1,016,897; 2003 - $72,338)
 (Note 15)                        (1,054,203)              (258,681)
                                ------------           ------------

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


Earnings per share: (Note 13)
 Basic and diluted:
Continuing operations            $       .05              $     .03
Discontinuing operations         $      (.07)             $    (.02)
Net income (loss)                $      (.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 for
using 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.    Discontinued operations
       -----------------------

In early 2005, the Company made the decision to seek a buyer for its
foreign subsidiary, Learning Pathways Ltd. due to continuing losses.  The
Company impaired the value of its foreign assets by $1,150,000 as of
December 31, 2004.  The Company anticipates the foreign operations will
cease during the year 2005.  As a result, the Statements of Income for the
two years ended December 31, 2004 have been restated to reflect the
operations of Learning Pathways, Ltd. as discontinued.  Costs of disposal
will be immaterial.  Foreign assets and liabilities at December 31, 2004
were negligible and no separate balance sheet disclosure is considered
necessary.



Exhibit 10.10


NOTE PAYABLE

Oklahoma City, Oklahoma
Dated: October 26, 2000
$300,000.00

The Board of Directors (the "Board") of the Corporation has authorized a
loan of funds to Jeffrey E. Butler, the Company's Chief Executive Officer,
that is secured by the Corporation under a transaction with UMB Bank.  The
intent of this action is to provide Mr. Butler with the funds to provide
for a cash settlement in the division of the marital estate in the divorce
proceedings with his wife, Carolyn L. Butler.  The Board has taken this
action to avoid division of Mr. Butler's common stock holdings in the
Corporation as a result of this proceeding.  The Board believes that
significant share holdings in the hands of Mrs. Butler will adversely
affect both share price and efforts to improve share price as a result of
Mrs. Butler's potential sale of stock.  The Board also wishes to ensure
Mr. Butler's continued motivation and incentive to effectively manage the
business and to increase share value.

Accordingly, FOR VALUE RECEIVED, Jeffrey E. Butler (the "Maker") promises
to pay to The American Education Corporation (the "Payee"), at the
principal office of the Payee at 7506 N. Broadway Extension, Suite 505,
Oklahoma City, OK 73116, the principal amount of THREE HUNDRED THOUSAND
DOLLARS ($300,000.00), together with interest at the rate stated herein
on such outstanding principal amount.

The unpaid principal amount hereof from time to time outstanding shall
bear interest from the date hereof at a rate equal to the rate per annum
that the Payee pays on its lowest rate loans at UMB Bank, N.A.  Interest
shall be computed on the actual number of days elapsed on the basis of a
year consisting of 360 days.

The principal amount of this note and all interest accrued but not yet
paid shall be paid in a single payment due October 26, 2003, unless
extended by the holder within the holder's sole discretion. The note may
be prepaid in whole or in part at any time without penalty.

Payments of both principal and interest are to be made in lawful money of
the United States of America.

The Maker and Payee have mutually agreed that the funds advanced to the
Maker are to be used only for expenses associated with a divorce
settlement including cash payments made as a part of such settlement and
for legal fees and other costs associated with the division of personal
property and not for any other purpose.

This Note is made under and governed by the laws of the State of Oklahoma.
This Note may be prepaid in whole or in part without penalty, and any such
prepayment shall be applied to accrued interest and then to principal.

/s/ Jeffrey E. Butler
---------------------
Jeffrey E. Butler



Exhibit 10.11


SENIOR, SUBORDINATED PROMISSORY NOTE

$105,880                                                September 30, 2004

As hereinafter provided, for value received, The American Education
Corporation ("the Payor") jointly and severally promises to pay to the
order of John Garber or his assigns ("the Payee"), One Hundred Five
Thousand Eight Hundred Eighty Dollars ($105,880), with interest at the
rate of 8% percent per annum, payable in full two years from the date
hereof.  Interest shall be payable quarterly, beginning with the quarter
ending December 31, 2004.

The sums due under this promissory note ("the Note") may be exchanged for
common stock of the Payor at any time before this Note is paid in full,
based upon a purchase price of $0.40 per share.

IT IS AGREED that the Payor will assign a senior, subordinated only to the
debt that the Payor may have to assign from time-to-time to banking or
institutional investor interests, a security position it Payor's current,
fixed and long-term assets, all of its intellectual property to secure the
obligations of the Note to the Payee.

IT IS AGREED that if the Payor is required to raise additional capital
from other investment sources at terms, defined as the interest rate or
the conversion formula of debt to common stock, that are less favorable to
the terms to the Payee contained herein, that the Payor shall
automatically be required to adjust the appropriate terms of the Note to
reflect the identical terms provided to other investment sources.

IT IS FURTHER AGREED by the makers that if this Note is not paid when due
or declared due hereunder, the principal and accrued interest therein
shall draw interest at the rate of ten percent per annum, and that failure
to make any payment of principal or interest when due or any default under
any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once, or the interest to be counted as principal, at the
option of the Payee.  The Payor hereof severally waives presentment for
payment, protest, notice of nonpayment and of protest, and agree to any
extensions of time of payment and partial payments before, at or after
maturity, and if this Note or interest thereon is not paid when due, agree
to pay all reasonable costs of collection, including reasonable attorney's
fees, and also waive all exemptions in case of suit on this Note.

The Oklahoma courts shall have sole jurisdiction in connection with any
civil action brought in connection with this Note.

Executed this 30th day of September 2004.

THE AMERICAN EDUCATION CORPORATION

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



Exhibit 10.12

SENIOR, SUBORDINATED PROMISSORY NOTE

$200,000                                                September 30, 2004



As hereinafter provided, for value received, The American Education
Corporation ("the Payor") jointly and severally promises to pay to the
order of Janis L. Butler ("the Payee"), Two Hundred Thousand Dollars
($200,000), with interest at the rate of 8% percent per annum, payable in
full two years from the date hereof.  Interest shall be payable quarterly,
beginning with the quarter ending December 31, 2004.

The sums due under this promissory note ("the Note") may be exchanged for
common stock of the Payor at any time before this Note is paid in full,
based upon a purchase price of $.40 per share.

Payment of this Note by Payor shall not be subject to any offset rights
for any sums owed to the Payor by Jeffrey Butler regardless of the nature
of any such obligation.  Accordingly, it shall not be a defense by the
Payor for failure or refusal to pay Payee hereunder that any such sums are
due to the Payor by Jeffrey Butler or that Payor has any claims against
Jeffrey Butler.  In the event of the death, disability or the departure of
Jeffrey Butler from the employment of the Payor, for any reason, the
obligations of the Payor are immediately due in full, together with all
interest accrued at that date.

IT IS AGREED that the Payor will assign a senior, subordinated only to the
debt that the Payor may have to assign from time to time to banking
interests, a security position it Payor's current, fixed and long-term
assets, all of its intellectual property to secure the obligations of the
Note to the Payee.

IT IS FURTHER AGREED by the makers that if this Note is not paid when due
or declared due hereunder, the principal and accrued interest therein
shall draw interest at the rate of ten percent per annum, and that failure
to make any payment of principal or interest when due or any default under
any encumbrance or agreement securing this Note shall cause the whole Note
to become due at once, or the interest to be counted as principal, at the
option of the Payee.  The Payor hereof severally waives presentment for
payment, protest, notice of nonpayment and of protest, and agree to any
extensions of time of payment and partial payments before, at or after
maturity, and if this Note or interest thereon is not paid when due, agree
to pay all reasonable costs of collection, including reasonable attorney's
fees, and also waive all exemptions in case of suit on this Note.

The Oklahoma courts shall have sole jurisdiction in connection with any
civil action brought in connection with this Note.

Executed this 30th day of September 2004.

THE AMERICAN EDUCATION CORPORATION



By /s/ Neil Johnson
   -------------------------------------
   Neil Johnson, Chief Financial Officer



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, (except for Note 15 which is dated September 1, 2005) with respect
to the consolidated financial statement of The American Education Corporation
included in its Annual Report (Form 10-KSB/A) for the year ended December 31,
2004, filed with the Securities and Exchange Commission.

Steakley, Gilbert, & Morgan, P.C.


September 8, 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/A 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-15(e) and 15d-15(e)) 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 as of the end of the period covered by this report
        based upon such evaluation; and

    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:  September 8, 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/A 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-15(e) and 15d-15(e)) 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 as of the end of the period covered by this
        report based upon such evaluation; and

    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:  September 8, 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/A 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/A 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, Neil R. Johnson, Chief
Financial 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