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, 2001

[   ]  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)

Colorado
--------
(State or other jurisdiction of incorporation or organization)

84-0838184
----------
(I.R.S. Employer Identification No.)

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


(405) 840-6031
--------------
(Registrant'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.  [ X ]

Revenues for the year ended December 31, 2001:     $8,902,467

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: $2,476,923 based on 6,880,343 shares at $.36 per share, the
last sale price of the common stock on March 15, 2002. (For purposes
of calculating this amount only, all the directors and executive
officers of the issuer have been treated as affiliates.)

Number of shares of the issuer's common stock outstanding as of March
15, 2002: 14,272,461

Transitional Small Business Disclosure Format     YES     NO  X



TABLE OF CONTENTS TO FORM 10-KSB



PART I


                                                          Page Number

Item 1     Description of Business                                3
Item 2     Description of Property                               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                                               14
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


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                                20
Item 11    Security Ownership of Certain Beneficial Owners and
           Management                                            22
Item 12    Certain Relationships and Related Transactions        23
Item 13    Exhibits and Reports on Form 8-K                      24



THE AMERICAN EDUCATION CORPORATION


FORM 10-KSB
-----------

PART I
======

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

General
-------
The American Education Corporation, formerly, Plasmedics, Inc., (the
"Company" or "AEC"), was incorporated under the laws of the State of
Colorado on February 23, 1981.

On January 8, 1991, the Company completed the purchase of
substantially all of the operating assets of American Educational
Computer, Inc. ("AECI"), an Oklahoma City-based company.  The sale
was consummated pursuant to an asset purchase agreement between the
Company and AECI dated December 31, 1990.  The purchase price for
the assets was approximately $1,163,000.

In August 1991, the Company changed its name from Plasmedics, Inc. to
The American Education Corporation.

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 trademark,
Macintosh registered trademark, Unix registered trademark and Linux
registered trademark operating systems.  Since 1995 the Company's
revenues primarily have been derived from the sale of its principal
product family, the A+dvanced Learning System registered trademark
("A+LS" trademark), a comprehensive courseware offering developed by the
Company.  A+LS is currently shipping in Version 2.15.  In late fiscal 2000,
the Company largely completed and subsequently, in early 2001, released
the A+nyWhere Learning System registered trademark, a Java trademark 2-
based program designed to be the Company's future delivery platform for
its extensive grade level 1-12 educational content and assessment tools.
This new product family was well received by the school market and as a
component of total revenues has made steady progress with respect to its
relative percent of total net revenues since its early 2001 release.

The Company acquired two businesses in 1998, Projected Learning
Programs, Inc. ("PLP") and Learning Pathways, Limited ("LPL").  These
organizations are primarily resellers of other publishers' products
and operate as subsidiaries of the Company.  In 2001, management
elected to wind down and ultimately discontinue the catalog selling
operations of the PLP subsidiary as a result of the marketplace
moving to increasing use of the Internet and the cash use intensity
of this type of business.  LPL, the Company's Derby, United Kingdom
subsidiary acquired in late 1998, is the exclusive school and library
distributor of the print, multimedia and online versions of World
Book trademark Encyclopedia in Great Britain.  In the latter part of
2000, LPL substantially completed the process of converting the
Company's A+LS curriculum content to a product presentation that is
suitable for British educators and schools.  LPL also undertook the
development of new content specifically focused on the UK's new literacy
and numeracy instructional requirements during 2001 and significant
portions of this new product offering were completed during the 2001
fiscal year.  LPL's revised and expanded product family was
substantially released to the UK school market during the 2001 fiscal
year.  The Company purchased Dolphin, Inc., ("Dolphin") in December
1999.  Dolphin is an established, 12 year-old developer of
educational software for many of the world's leading textbook
and electronic publishers.  Dolphin was purchased 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.

The Company internally develops 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 for the development of its software technology and limited,
external contract services to develop these products.  The Company is
the primary developer of its curriculum content and employs full-time
educational professionals in this electronic publishing effort.  The
Company 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.

The Company's products are sold through school dealers, an in-house
employee 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, the
private industry, and to a limited extent, for home-based schooling.
Approximately 81% of the Company's 2001 sales were to the domestic
U.S. school market and 19% to the international markets.  Future sales
to international markets are expected to increase as a percentage of
total revenues as a result of the LPL acquisition and as a result of
distribution or other market development partnerships, which were
entered into during the year in Jordan and Malaysia.

The increasing 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 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 and
educational catalog companies, which market other publishers'
products to the school and library markets.  Selling efforts in the
U.K. are effected by a direct company-employed sales force.

The Company is in a technology-based business and is an active
developer of software applications to facilitate the delivery of its
content in a networked environment, which includes the Internet.  A
significant percentage of the Company's current revenues are derived
from sales to schools that deliver curriculum content on a local area
network ("LAN") within a single school site.  The rapid adoption of
fiber optic-based wide-area networks ("WAN"), and increased Internet
usage provides for future growth opportunities for the Company.  In
late 2000 the Company began the testing and delivery of its content
online.  Through the roll out and release of the A+nyWhere Learning
System the Company, at December 31, 2001, had in excess of 29 schools
in 7 states using online curriculum content for both school and home-
based students.  These users are largely supported on company maintained
server facilities in Oklahoma City.  Management believes that it has in
place the development technology and programs to allow it to capitalize
on these rapidly developing changes in the structure of how content and
delivery of electronic-based instruction will be utilized by school
districts in future years.

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

Educational Software
--------------------
The Company engages in extensive development efforts to develop new
programming technology as well as new curriculum 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 trademark brands 147 separate
software titles with approximately another 40 titles in revision or
development for release in early 2002.  The currently released products
all carry 2000 or later copyrights reflecting the Company's commitment
not only to development of content, but maintaining the currency of its
products.

The Company's educational software for the elementary, middle and
high school markets is designed for use in classroom instruction and
stresses usefulness to the instructor as well as the student.  There
is a growing use of both LAN, WAN and Internet technologies in
schools and school districts and the Company provides versions that
perform in these environments.  The Company's products for schools
are designed for the professional educator and feature a management
function, which records assessment test and student activity data for
both individual student and class academic performance.  This
management function also provides for a wide range of performance
reports, lesson materials, tests and assignments.  A hallmark feature
of the Company's products is a unique authoring tool, which allows
the educator to add, modify and expand both graphics and text to the
curriculum content provided by the Company.  The Company's software
is correlated to over 80 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 learner
objectives, or individual student skill deficiencies.  The Company's
computer software products are carefully designed to be utilized
without extensive user experience with computer operations.

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 and instructional design.  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 for a Learning
Management System ("LMS") and allow full educator control of the content
delivery rather than one that is controlled by the software.  Various
software tools, such as the Company's products for assessment and
testing, allow the use of the Internet as a source of instructional
material, and provide educators with the means to effectively utilize
the Company's products as a comprehensive supplemental instructional
solution designed to address individual student skill deficiencies.
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 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 majority of the Company's installed base is currently utilized in
a LAN environment as a LMS.  The LMS allows teachers and school
administrators to monitor and facilitate student performance, which
is increasingly important in a national environment where school
accountability is a prominent trend.  This approach provides
complete district, school and educator control of class and student
lesson assignments, individualized paths of study, skills assessment,
authoring, testing, reporting and the integration of third-party and
Internet-based content.  These capabilities and range of reporting,
and documentation of individual student functions assist the educator
in directing the use, and understanding the effectiveness, of the
software 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+dvanced Learning System registered trademark, Version 2.15
------------------------------------------------------------
A+LS, V2.15, the currently shipping version, from an educational
content perspective, has been designed as a comprehensive grade level
1-12 core curriculum solution.  It is a product family comprised of
147 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 of
the product family 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 containing a number of activities such
as study, practice exercises, test and essay.  These instructional
activities are further supported by 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 and to record academic gains, to maintain this data
and report on individual student and class activities.  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 for the at-risk or
special education student, which might require specific emphasis to
correct skill deficiencies.  Approximately 10,000 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.

In 2000, the Company completed the release of the A+LS secondary
titles including additional titles for the General Educational
Development ("GED") test to extend the Company's range of software
publications through grade level 12.  A GED A+SSESS! trademark was also
developed to support the assessment requirements for the GED test.
These secondary grade level products were well received by the
marketplace and were a factor in the Company's 2001 revenues, not
only in the sales of product-related revenues, but the more complete
product offering allowed the Company to secure district-wide
adoptions.  A new GED test and curriculum was specified to be
effective January of 2002.  During 2001, the Company conformed its
curriculum to meet this new test and instructional design and was one
of the first to release a completed updated testing and instruction
software package to the school market.

Throughout 2001, 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,
approximately 40 individual titles, reflecting offerings in both
English and Spanish languages, were developed and or updated for
release and the Company's 2001-2 catalog reflects a total K-12
offering of 147 titles.  At the same time, approximately 72 titles
were converted from Version 2.15 formats to Version 3.0 and Version
4.0 formats.  This expanded, updated curriculum offering should
provide for additional revenue opportunities with its existing and
future school customers.  In addition, during fiscal 2001 significant
portions of the Company's current assessments and standards database
was expanded, updated and realigned to meet new or revised state and
national academic standards.

A+SSESS! trademark, Version 2.15
--------------------------------
A+SSESS! is a product family of primary, intermediate, advanced and
high school skill and testing modules, which is comprised of four
individual software titles with additional tools being developed for
the Spanish language products of the Company.  This assessment and
testing tool allows educators to quickly determine student skills and
to periodically evaluate student progress.  A+SSESS! has been
designed as a companion to A+LS's extensive curriculum content as a
tool to assist educators in not only determining student skill
levels, but to aid in the optimal placement in all A+LS subject areas
for each student. A pre-test process is utilized for this purpose.
After skill levels are determined, A+SSESS! automatically recommends
and prepares lesson plans for each student.  A posttest process is
utilized to facilitate measurement of student academic gains.  This
product family, designed to complement the curriculum design of A+LS,
was introduced in mid-1996, and since its introduction approximately
6,000 schools have purchased the product.

MediaWeaver registered trademark-A+LS Software Edition
------------------------------------------------------
The Company entered into an agreement in late 1995 to integrate
certain of the Humanities Software, Inc's., ("Humanities") popular
MediaWeaver programs into the A+LS delivery format and class and student
management system.  The MediaWeaver software series is well known by
educators for its excellent presentation of material and exercises
relating to classical literature and process writing.  The MediaWeaver
series did not possess any of the management features required by today's
networked schools until its incorporation into the A+LS management system.
These programs complement A+LS's basic skills content and provide a whole
language reading and writing dimension to this product family.  Since the
initial release of this product offering, the Company and Humanities
expanded the number of novel and skill bundles, bringing the total titles
to 18 during the first quarter of fiscal 1998.  In addition, in late 1998,
an agreement was reached with Humanities to incorporate Kids Media Magic
trademark, a new four-title elementary series in the reading skills area.
This new early grade level product offering was developed and released in
the latter part of 1999.

A+nyWhere Learning System, Version 3.0, Version 4.0
---------------------------------------------------
Throughout 2001 the Company has been working to finalize development
of this important new software technology-based upon Sun
Microsystems' Java 2 software.  The design approach of this new
product family will maintain the excellent features of the A+dvanced
Learning System and A+SSESS! product families and the means to move
current and updated content to the Java platform.  Java 2 was
selected because of its inherent suitability for Internet delivery
and cross-platform capabilities.  Development work was largely
completed in 2000 and the product was release early in the 2001
fiscal year.  The process of transferring the Company's extensive
147-title content to this new environment is ongoing and at year end
2001 approximately 50% of the Company's content had been converted to
this platform.

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 existing customer databases.  The powerful class and
student management features of this product provide the means to link
and transfer student performance 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 prescribe individualized remediation.

During 2001 the Company largely completed development of the 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 via the Internet.  Importantly, Version 4.0 utilizes all
of the curriculum and assessment content resources of Version 3.0.
Further, the 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 allowing schools to
deploy as single, common instructional resource from a single vendor
throughout a community or campus, simplifying 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 utilize computer and bandwidth resources as these are
upgraded over time.

This ongoing investment 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
----------------------
The Company initiated development of the A+ University, 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
is scheduled for the second quarter of 2002.  It is believed that this
product family should become an important source of incremental revenue
from existing and new customers in future years.

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 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.  The Company has a marketing
affiliation with World Book, Inc. ("WB") to enter into both content and
cooperative marketing programs, which was launched in mid-1999.  WB is
providing a special version of its industry-leading multimedia World Book
trademark Encyclopedia to which the Company will correlate selected A+LS
titles and lesson material.  This relationship provides the Company's
customers with what is believed to be an industry first; a completely
integrated curriculum and reference resource for instruction.  In 2001,
it was agreed that this relationship would be expanded to include World
Book Online.  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.

Humanities Software, Inc., a division of Renaissance Learning, Inc.
(formerly Advantage Learning, Inc.), is an important industry
partner.  The Company licenses both programming technology and
content from this industry-leading company.  This arrangement is the
basis for the Company's MediaWeaver and Kids Media Magic product
offerings.

During 2001, the Company entered into a number of 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 2001 and have been announced in company or
subsidiary press releases or literature. Several other strategic
partnering projects initiated in 2001 are still under
development, or are currently subject to confidential disclosure
restrictions.

The Market For Educational Software Products
--------------------------------------------
The Company addresses four major market segments for its products;
the school (U.S. and International), adult literacy and home markets.
To date, the Company has not been active with programs to penetrate
the home market with the A+LS product family.  In 1998, the Company's
school software products were specially configured for use by the
home educator in a separate, new version modified for this
application.

The U.S. School Market
----------------------
The U.S. school market for educational software is growing at
approximately 20% per annum according to industry sources.  In the
United States this market growth is being 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 with K-12 expenditures expected to reach $6.5
billion during the year 2001.  The 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 effected
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
current administration's initiatives such as the 21st Century and
Reading First grant programs, combined with the "No Child Left
Behind" initiative is expected to provide additional impetus to
market growth in 2002 and future years.

The International School Market
-------------------------------
With its acquisition of LPL, the Company has entered the school
market in the UK.  This market is approximately 20% the size of the
U.S. market and believed to be growing at an annual rate exceeding
20%.  In 1999, the British government continued implementation of
Phase 1 of The National Grid for Learning ("NGfL") and launched
Phase II of this program on April 1, 1999, to invest substantially in
computer hardware infrastructure, Internet access, educator training
and instructional software technologies for the UK's schools.  The
NGfL funding is scheduled to continue through one additional phase
released in 2001 and management believes that these government school
funding initiatives will continue through the year 2003.  Accordingly
the UK market should experience rates of growth in funding for
educational technology, at the individual school level, approximately
the same as the U.S. market.  Many former British Commonwealth
nations utilize the UK's instructional model and Company management
believes that additional international opportunities will emerge as a
result of the Company's programs and presence in the UK marketplace.
This belief was validated by the Company entering into a development
partnership with Edu-Sol of Jordan to provide under license the
Company's software technology and English language content for
translation into Arabic for the Middle East's school market.  EdSol
began payment to LPL in the latter part of 2001 for access to the
Company's technology and additional fees are scheduled to be paid through
2003.

The Adult Literacy/Lifelong Learning Market
-------------------------------------------
The Company believes it has designed its curriculum content delivery
so that it is both appealing and engaging to children and not
offensive to adult learners.  As a result, the Company is receiving
significant interest from this segment of the market.   In 2001, the
Company established additional installations in state and municipal
centers of literacy and the juvenile and adult corrections market
segments, including a state wide deployment of content in Kansas 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 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 distribution and the Company is seeking to secure
additional dealers to support its expansion efforts in this area.

The Home Market
---------------
The Company has not been active in marketing its products to this
market segment, which offers future opportunities for growth and
additional financial returns on the Company's investment into
educational content.  In 2001, the Company continued programs to
market these products through a new Internet and web facility for
home educators, greatgrades.com.  Management believes that there is
an opportunity to move into this segment of the market with its
current products and collateral support and training materials that
will be of value to home educators. 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 will make use of the
Internet to reach the home market with various marketing and
distribution programs.

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
software products have also been registered.

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

The Company filed for additional separate and expanded use of its A+
registered mark for use as A+nyWhere Learning System and A+dult
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 trade mark.
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.

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 a portion of its software internally.  Large production runs
on CD-ROM are contracted with outside duplicators to manage production
costs.  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 small, or initial 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
manuals and 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 has the capability to electronically
deliver and install its products at customer locations.  This new
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, 2001, the Company employed fourteen (14) 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 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, 2001, the Company employed eight (8) 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 $2,242,192 in
software research and development costs in 2001.  Amortization of
product development costs for the year ended December 31, 2001, was
$878,451.

Distribution and Sales Programs
-------------------------------
In marketing its products, the Company utilizes approximately 40
independent school dealers and four educational catalog houses to
reach its school-based customers.  During 2001, 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
seven individuals at December 31, 2001.

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 2001, 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 its web
sites functionally and graphically its www.amered.com, www.dolphinsoft.com,
www.learnpath.com, and www.learnaplus.com URL's.  At the end of 2001,
the Company has five 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
2000 or 2001.

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 capaccity 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, 2001, the Company had 72 full-time employees in its
domestic operations and 23 full-time employees in its UK subsidiary.
The Company believes that its relationship with employees is
satisfactory.



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 2002. The monthly rent under this
lease is $12,587.

Dolphin, Inc., a wholly owned subsidiary, leases 6,584 sq. ft. of
office space in Gibbsboro, New Jersey, under a lease agreement
expiring May 31, 2002.  Monthly lease expense is $13,693.

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 $294,806 for 2001 for
the Company's Oklahoma, New Jersey and Derby, UK facilities.  Cost of
leased facilities for 2000 was $281,288.


Item 3.  Legal Proceedings.
---------------------------
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 ongoing operations and viability of the
Company.


Item 4.  Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
On November 15, 2001, the Company held its annual meeting of
shareholders.  There were five proposals submitted to the shareholders
for approval; one of which was the election of directors.  The
following five nominees, who were all of the current directors of the
Company, were re-elected to serve on the Board of Directors until
their successors are duly elected and qualified: Jeffrey E. Butler,
Monty C. McCurry, Newton Fink, Stephen E. Prust and Geoffrey Glossop.

The following is a tabulation with respect to the votes for each
nominee for office:

                                 FOR                   WITHHELD

Jeffrey E. Butler             11,203,745                92,593

Monty C. McCurry              11,266,435                29,893

Newton Fink                   11,279,745                16,593

Stephen E. Prust              11,278,745                17,593

Geoffrey Glossop              11,226,345                69,993


The second proposal was a proposal to ratify the selection of
Steakley, Gilbert & Morgan P.C. as the independent accountants for the
Company for the fiscal year ending December 31, 2001.  The selection
of Steakley,  Gilbert & Morgan P.C. was ratified by the following
vote:

              FOR             AGAINST           ABSTAIN

         11,193,337             7,305            95,696

The third proposal was a proposal to approve an Agreement of Merger
and Plan of Reorganization with The American Education Corporation, a
Nevada corporation, to allow a change of the state of incorporation
from Colorado to Nevada. The Agreement and Plan were approved by the
following vote:

              FOR             AGAINST           ABSTAIN

         10,035,642            96,692          1,164,004

The fourth proposal was a proposal to amend the Company's Stock Option
Plan for Employees to increase the number of options in the Plan from
1,650,000 to 2,650,000.  The amendment was approved by the following
vote:

              FOR             AGAINST           ABSTAIN

         10,012,297           102,451         1,181,590

The fifth proposal was a proposal to amend the Director's Stock Option
Plan to increase the number of options in the Plan from 100,000 to
200,000.  The amendment was approved by the following vote:

              FOR             AGAINST           ABSTAIN

         9,998,121            116,107         1,182,110



PART II
-------

Item 5.  Market for Common Equity and Related Stockholder Matters.
------------------------------------------------------------------
As of December 31, 2001, there were approximately 2,200 record holders
of the Company's common stock. Since its initial public offering in
1982, the Company's securities have been traded in the over-the-
counter market. The following is a summary of the high and low bid
price for each of the 2001 and 2000 quarters.


                                    2001                 2000
                                    ----                 ----
                              HIGH        LOW       HIGH        LOW
                             -----------------     -----------------
Quarter Ending March 31      $0.97       $0.52      $1.75      $1.25

Quarter Ending June 30       $0.80       $0.40    $1.1875    $0.4375

Quarter Ending September 30  $0.60       $0.35     $1.125     $0.375

Quarter Ending December 31   $0.50       $0.28   $1.03125    $0.6875

The above information was obtained from the National Association of
Securities Dealers. 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.


Item 6.  Management's Discussion and Analysis or Plan of Operation.
-------------------------------------------------------------------
Certain matters discussed herein (including the documents incorporated
herein by reference) are 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, including 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.

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

Management anticipates that the Company will be able to meet its
financial needs from internally generated funds and existing bank
lines of credit in 2002.  However, additional financing may be
required to accelerate the Company's growth and to take advantage of
strategic growth opportunities through acquisitions that may exist in
the electronic media for education industry.  In addition, management
is focused on the need to gain software industry standard valuations
on the business and recognition of its potential for future profitable
growth.  In order to gain this recognition, the Company may undertake
additional financing to strengthen its financial position and to
provide management with the flexibility offered by this strength to
deal with value enhancement options that may be presented in the
future.

As of December 31, 2001 the Company's principal sources of liquidity
included cash and cash equivalents of $612,052, net accounts
receivable of $2,552,598 and inventory of $75,892. The Company's net
cash provided by operating activities was $1,895,493.  Cash used in
investing activities was $2,024,372 in 2001, and was comprised
primarily of investment in capitalized software development costs. The
majority of the cash for the Dolphin acquisition in 1999 was borrowed
under a portion of the Company's lines of credit, and is recorded as
long-term debt.  At December 31, 2001, the Company had working capital
of $1,104,623 compared to $2,865,873 at December 31, 2000.

The amount of inventory needed to support expanding software sales is
minimal since the Company has a "just in time" inventory plan that can
create the appropriate media (CD-ROM's) on an almost as needed basis.
Further efficiencies in product production and delivery occurred
during the year with the development of electronic delivery of
products, documentation and periodic updates to customers directly
from the Company to school customer's servers. For those items which
must be inventoried, such as the World Book products in the United
Kingdom or items offered through catalog sales, management strives to
keep such amounts to a minimum while providing timely service to the
Company's customers. Management anticipates that the working capital
requirements to support continued expansion will be funded from
continuing operations or lines of credit with banks.

With the expansion of the Company's product lines, the addition of new
products and markets through its subsidiaries acquired over the past
three years and the increase in school spending that the Company
expects to see in 2002, management believes that the Company will
return to a pattern of growth similar to that demonstrated in
prior years. Management believes that it can undertake this expansion
with most of the Company's working capital requirements secured from
its operating cash flows.  If successful, the Company should continue
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 financing and capital enhancement. At December 31, 2001, the
Company had available short-term bank credit lines totaling
$1,000,000, subject to borrowing base limitations, of which $275,000
was unused.

Results of Operations
---------------------
Fiscal Year Ended December 31, 2001 Compared to Fiscal Year Ended
December 31, 2000

The following is a discussion of the results of continuing operations
for the fiscal year ended December 31, 2001, as compared to the fiscal
period ended December 31, 2000. The results of Projected Learning
Programs, Inc., which ceased operations on December 31, 2001, have
been shown as discontinued operations in the statement of income for
2000 and 2001.

Net consolidated revenues for the twelve months ended December 31,
2001, totaled $8,902,467 compared to net revenues of $10,740,653 for
the year ended 2000.  This represents a decrease of 17% in net
consolidated revenues over the prior fiscal year.  The decrease in net
revenues is attributable to several different factors, including
school spending deferrals, budgetary approval delays and adjustments
in the spending for technology in several key states resulting from
substantial spikes during the year in energy costs, major computer
virus issues that occurred in the first part of the year and the
events of September 11, 2001. These issues affected both U.S. and UK
operations. In addition, two of Dolphin's major customers closed or
merged their publishing units representing canceled contracts for
potentially significant revenues for that subsidiary.

Cost of goods sold as a percentage of net revenues for the year ended
December 31, 2001 increased to 25.4% from 21.2% in 2000. This change
is attributed to the results of Dolphin, which has lower gross margins
than the Company's primary software business.  Cost of goods sold
represents the actual cost to produce the software products, or in the
case of LPL the cost to acquire software from other publishers, and
includes certain allocated overhead costs.  The Company's principal
product family, A+LS, provided gross profit margins averaging 93% in
2001.

Total operating expenses recorded for the year ended December 31,
2001, were $6,929,808 or 78% of net revenues, compared to $6,363,162
or 59%, for the previous fiscal year. The increase in operating
expenses as a percentage of net revenues is primarily due to the fixed
nature of the Company's expenses in the face of declining revenues.
As revenues begin to increase through the return to growth that
management believes will occur in 2002, the operating costs as a
percentage of revenues will decrease. As a component of total operating
expenses, selling and marketing costs decreased slightly from $2,542,561
in fiscal 2000 to $2,493,604 in fiscal 2001. Operations expense decreased
by 5% to $304,150 in fiscal 2001, compared to $320,079 in 2000.
General and administrative expenses increased to $3,253,603 in 2001
compared to $2,981,484 in 2000.  The increase in this cost category is
primarily as a result of the write-off of several doubtful accounts
receivable approximating $340,000.

Costs incurred in conjunction with product development are charged to
research and development expense until technological feasibility is
established.  During fiscal 2001, the Company capitalized $2,242,192
of product development costs, and net of accumulated amortization had
capitalized software costs of $4,277,975 at December 31, 2001.
Amortization of product development costs was $878,451 for 2001, a 69%
increase over the $519,038 amortized in 2000. During 2001, the Company
made substantial progress in development efforts on revised, updated
and expanded curriculum offerings and a new Java-based Version 3.0 and
the browser-based (Version 4.0) of the A+dvanced Learning System
product family, which was introduced in early in the year. Further,
the Company began the additional development of A+ University
trademark, a complementary Internet-based teacher training
offering for the Company's proprietary software in the latter half of
the year. 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 $121,326 in 2001 compared to $163,747 in 2000
reflecting the decrease in interest rates during 2001 as well as the
reduction of total debt. The Company had a net loss from continuing
operations of $(222,849) in 2001 compared to net income from
continuing operations of  $1,191,264 in 2000 as a result of the
decrease in revenue noted above. The loss from discontinued operations
of $(318,730) in 2001 and $(137,420) in 2000 reflects the cessation of
operations at Projected Learning Programs, Inc. on December 31, 2001.
Net income decreased from $1,053,844 in 2000 to a loss of $(541,579)
in 2001. This loss represents approximately $.04 per common share.

Company management continues to believe that significant future growth
opportunities exist in the school, adult literacy and home or self-
directed education markets on a worldwide basis.  These markets may be
accessed by not only the Company's traditional distribution-based
methods of selling and marketing, but also by new, rapidly emerging
electronic learning delivery of content business models, or e-
learning.  The Company's ongoing investment in content, academic
assessment tools, programming technology, and server infrastructure
provide a broad platform to secure new business partners and address
the many opportunities that are believed to be emerging in the
educational technology industry on a global basis.  The Company's
investment into the United Kingdom through its acquisition of Learning
Pathways, Ltd. in 1998 underscores management's conviction that
the Company is engaged in a global marketplace.  In this global
market, the Company's English-language content, which is suitable for
both the U.S. and the UK's instructional systems, will meet the
requirements for many countries where English-language instruction is
part of the required coursework.  Management believes that the
Company's investment into content, technology and the e-learning
business model should provide for expanded growth opportunities on a
worldwide basis in the future.

The Company's future competitive position has been enhanced as a
result of its ongoing investment in personnel, facilities, additional
content and infrastructure as well as its entry into international
markets.  The most significant of these investments has been the
sustained spending on the Company's new Java 2-based A+nyWhere
Learning System trademark and A+ University trademark.  In its planning
of the future, management believes that the Internet will become a
principal method for the future delivery of its products to its customers.
These investments combine to form a stronger overall corporate foundation
that combined with what management believes to be overall favorable
world market conditions, provide a basis for sustained, future growth.


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 2001.  There
are no disputes with the independent accountants regarding matters of
accounting or reporting.


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     60      President, Director,           1989
                              Chief Executive Officer

Thomas A. Shively     48      Executive Vice President and
                              Chief Operating Officer

Neil R. Johnson       51      Vice President and
                              Chief Financial Officer

Monty C. McCurry      56      Director                       1989

Newton W. Fink        65      Director                       1991

Stephen E. Prust      57      Director                       1992

Geoffrey Glossop      53      Director                       1998


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. He is a Certified Public Accountant.

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. Since September 1998 Dr. Fink has been 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.

GEOFFREY GLOSSOP was appointed to the Board of Directors in December
1998. He is the President of Learning Pathways, Limited, a company he
founded in 1997. From 1994 to 1996, Mr. Glossop was the Research
and Development Director for Systems Integrated Research plc.  Prior
to 1994, Mr. Glossop was the Managing Director of Global Learning
Systems, Ltd.   Mr. Glossop graduated from the University of Newcastle
upon Tyne in 1969 with a B.S. in Electrical Engineering. He was
awarded the M.B.E. for services to the educational technology industry
in the Queen's Birthday Honours in 1982.

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, 2001, to the best of the Company's
knowledge, the Company's directors, executive officers and holders of
more than 10% of its Common Stock timely filed the reports required by
Section 16(a).


Item 10.  Executive Compensation.
---------------------------------
Cash Compensation
-----------------
The following table shows the cash compensation of the Company's
executive officers.


                         Summary Compensation Table
                                                                Long-Term
                                 Annual Compensation          Compensation
                            ------------------------------ ----------------
                                                Other
Name and Principal                             Annual       Stock     Stock
    Position         Year   Salary  Bonus  Compensation(1) Options   Awards
----------------------------------------------------------------------------
Jeffrey E. Butler,   2001  $120,000 $18,480    $  2,700(2)       0      --
President and Chief  2000   106,845  13,588           0     40,000      --
Executive Officer    1999   100,357   7,347      17,600(2)  40,000      --

Thomas A. Shively,   2001  $115,000 $ 1,467    $  2,700(2)       0      --
Executive Vice       2000   105,000  12,090           0     40,000      --
President            1999    91,204   7,510      12,960(2)  55,000      --

Neil R. Johnson,     2001  $ 98,500 $ 1,256    $  2,025(2)       0      --
Vice President and   2000    89,890   6,620           0     25,000      --
Chief Financial      1999    84,432   1,157       3,650(2)  25,000      --
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.

(2)  In 2001, Mr. Butler was awarded 10,000 shares of Common Stock,
Mr. Shively was awarded 10,000 shares of Common Stock and Mr. Johnson
was awarded 7,500 shares of Common Stock  for services rendered. In
1999, Mr. Butler was awarded 35,200 shares of Common Stock,  Mr.
Shively was awarded 25,919 shares of Common Stock and Mr. Johnson was
awarded 5,000 shares of the Company's Common Stock for services
rendered.

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.

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.

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, 1,681,500 options have been granted, 376,196 have expired,
and 180,970 options have been exercised. At December 31, 2001, there
were 1,124,334 options 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 1,623,695 shares of restricted common stock at
prices ranging from $.50 to $.90 have been issued, 456,919 have
expired and 195,700 have been exercised. At December 31, 2001, there
were 971,076 options outstanding. Certain of these options had an
original expiration date of March 11, 1999. In February 1999, these
options were extended for an additional three years and now expire in
2002.

Stock Option Grants In 2001
---------------------------
No stock options were granted during the last fiscal year to the
executives named in the Summary Compensation Table.

Option Exercises and Fiscal Year-End Values
-------------------------------------------
No executive officer exercised options during 2001. 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          443,466/13,334                     $0/$0
Thomas A. Shively          384,942/13,334                     $0/$0
Neil R. Johnson            116,666/ 8,334                     $0/$0

Directors' Compensation
-----------------------
In 2001, the Company's non-employee directors each received options to
purchase 3,000 shares of the Company's common stock at $.50 per share.
The directors received no compensation, other than the options, for
services in such capacity.

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 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. At December 31, 2001, 93,000 options had been issued and
were outstanding under this Plan.


Item 11.  Security Ownership of Certain Beneficial Owners and
          Management.
-------------------------------------------------------------
The following table sets forth ownership of the common stock of each
director and officer, all officers and directors as a group, and each
person known or believed by the Company to have beneficially owned
five percent or more of the Company's outstanding common stock as of
March 8, 2001. 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  Title of Class   Number       Percent
------------------------------------------------------------------------
Jeffrey E. Butler (1)                Common       1,458,375       9.9%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Thomas A. Shively (2)                Common         641,330       4.4%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Neil R. Johnson (3)                  Common         149,166       1.0%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Monty C. McCurry (4)                 Common         220,900       1.5%
2134 S. Eagle Ct.,
Aurora, CO 80014

Newton W. Fink (5)                   Common         185,400       1.3%
1093 Lincoln,
Manteno, IL 60950

Stephen E. Prust (6)                 Common         539,768       3.7%
9025 East Kenyon Avenue,
Denver, CO 80237

Geoffrey Glossop (7)                 Common         650,784       4.6%
Field House,
89 Merlin Way,
Mickleover, Derby, UK

John D. Garber (8)                   Common       3,632,286      25.4%
7323 Linden Terrace,
Carlsbad, CA 92009

Robert Schoolfield (9)              Common       1,536,517       10.8%
5 Pleasant Cove,
Austin, TX 78746

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

Officers and Directors              Common       3,845,723       24.2%
as a Group (7 persons)
(1) (2) (3) (4) (5) (6) (7)


(1)  The amount and percentage figures include the possible exercise
of 343,466 common stock options with an exercise price of $.50 per
share, 100,000 common stock options at $.73 per share, and 33,334
common stock options at $.25 per share exercisable within 60 days.
(2)  The amount and percentage figures include the possible exercise
of 259,942 common stock options with an exercise price of $.50 per
share, 125,000 common stock options at $.73 per share, and 20,000
common stock options at $.25 per share exercisable within 60 days.
(3)  The amount and percentage figures include the possible exercise
of 16,666 common stock options with an exercise price of $.50 per
share, 100,000 common stock options at $.73 per share, and 20,000
common stock options at $.25 per share exercisable within 60 days.
(4)  The amount and percentage figures include the possible exercise
of 81,000 common stock options with an exercise price of $.50 per
share, 10,000 common stock options at $.75 per share, 13,000 common
stock options at $.73 per share, and 60,000 common stock options at
$.13 per share exercisable within 60 days.
(5)  The amount and percentage figures include the possible exercise
of 81,000 common stock options with an exercise price of $.50 per
share, 10,000 common stock options at $.75 per share, 13,000 common
stock options at $.73 per share, and 60,000 common stock options at
$.13 per share exercisable within 60 days.
(6)  The amount and percentage figures include the possible exercise
of 126,000 common stock options with an exercise price of $.50 per
share, 10,000 common stock options at $.75 per share, 13,000 common
stock options at $.73 per share, and 60,000 common stock options at
$.13 per share exercisable within 60 days.
(7)   The amount and percentage figures include 573,784 shares of
common stock held in trust for the benefit of the Glossop family,
10,000 shares held by Mr. Glossop personally, 47,000 common stock
options with an exercise price of $.73 per share, and 20,000 common
stock options at $.50 per share, exercisable within 60 days.
(8)  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 and 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.
(9)   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.
(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 has a note receivable due from its Chief Executive
Officer, Jeffrey E. Butler, in the amount of $300,000 that was
advanced in October 2000. The Board of Directors and the major
stockholder approved this advance. The proceeds were used as part of a
settlement in a marital estate matter that allowed him to retain his
ownership position in the Company, which the Board of Directors
believed to be materially beneficial to the Company and its
stockholders. The note bears interest at the Company's lowest bank
lending rate (approximately 5% at December 31, 2001). Principal and
interest is due in one payment on October 26, 2003.

The Company's subsidiary, Learning Pathways, Ltd., paid Editplan
Services, Ltd. consulting fees of $165,695 in 2001 and $144,054 in
2000 to perform management services for LPL. Mr. Geoffrey Glossop is
an executive officer of, and owns more than 10% of the equity
ownership interest in, Editplan Services, Ltd.


Item 13.  Exhibits and Reports on Form 8-K.
-------------------------------------------
(a) The following documents have been filed as a part of this annual
report:

Exhibit
No.                        Description of Exhibits
-------   ----------------------------------------------------------
3.1       Amended and Restated Articles of Incorporation of The
          American Education Corporation (incorporated by reference to
          the exhibit in the Current Report on Form 8-K filed with the
          Securities and Exchange Commission on June 25, 1998)

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

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

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

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

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

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

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

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

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

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

21        Subsidiaries of The American Education Corporation (filed
          herewith)

23.1      Consent of Steakley, Gilbert and Morgan

(b)  Reports on Form 8-K

     None


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


April 1, 2002                            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          April 1, 2002
                      Chief Executive Officer
                      Chairman of the Board
                      Treasurer

Neil R. Johnson       /s/Neil R. Johnson            April 1, 2002
                      Chief Financial Officer

Monty C. McCurry      /s/Monty C. McCurry           April 1, 2002
                      Director

Newton W. Fink        /s/Newton W. Fink             April 1, 2002
                      Director

Stephen E. Prust      /s/Stephen E. Prust           April 1, 2002
                      Director

Geoffrey Glossop      /s/Geoffrey Glossop           April 1, 2002
                      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, 2001                    F-2

Consolidated Statements of Income for the years
ended December 31, 2001 and 2000                                 F-3

Consolidated Statements of Changes In Stockholders'
Equity for the years ended December 31, 2001 and 2000            F-4

Consolidated Statements of Cash Flows for the years
ended December 31, 2001 and 2000                                 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, 2001 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, 2001.  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 U.S. generally accepted
auditing standards.  Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of The American Education Corporation as of December 31, 2001 and the
consolidated results of its operations and cash flows for each of the
two years in the period ended December 31, 2001, in conformity with
U.S. generally accepted accounting principles.





STEAKLEY, GILBERT & MORGAN


Oklahoma City, Oklahoma
March 8, 2002





THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 2001

ASSETS
Current assets:
Cash and cash equivalents                                 $   612,052
Accounts receivable, net of allowance for
 returns and uncollectible accounts of $172,393 (Note 1)    2,552,598
Inventory (Note 1)                                             75,892
Prepaid expenses and deposits                                 137,513
Deferred tax asset (Note 6)                                   194,024
                                                          -----------
Total current assets                                        3,572,079

Note receivable from officer (Note 8)                         300,000

Property and equipment, at cost (Note 1)                    1,187,417
Less accumulated depreciation and amortization               (707,037)
                                                          -----------
Net property and equipment                                    480,380

Other assets:
Capitalized software costs, net of accumulated
 amortization of $3,034,534 (Note 1)                        4,277,975
Goodwill, net of accumulated amortization of
 $694,097 (Note 1)                                          1,840,446
                                                          -----------
Total other assets                                          6,118,421
                                                          -----------
Total assets                                              $10,470,880
                                                          ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade                                    $   488,443
Accrued liabilities (Note 11)                                 682,308
Deferred revenue                                              103,416
Notes payable and current portion
 of long-term debt (Note 4)                                 1,086,543
Foreign income taxes payable                                  106,746
                                                          -----------
Total current liabilities                                   2,467,456

Other long-term accrued liabilities                           106,635
Deferred income tax liability - Long-term (Note 6)            444,853
Long-term debt  (Note 4)                                      902,269
                                                          -----------
Total liabilities                                           3,921,213
                                                          -----------
Commitments and contingencies (Notes 5, 7, 10 and 13)            --
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-
   14,272,461 shares                                          356,811
Additional paid in capital                                  6,626,578
Treasury stock, at cost, 34,000 shares                        (19,125)
Retained deficit                                             (414,597)
                                                          -----------
Total stockholders' equity                                  6,549,667
                                                          -----------

Total liabilities and stockholders' equity                $10,470,880
                                                          ===========

See accompanying notes and accountants' report.



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001 and 2000

                                    2001                   2000
                                 ------------        --------------


Sales (Note 1)                   $ 8,902,467            $10,740,653

Cost of goods sold                 2,258,530              2,271,991
                                 -----------            -----------
Gross Profit                       6,643,937              8,468,662
                                 -----------            -----------

Operating expenses:
Selling and marketing (Note 1)     2,493,604              2,542,561
Operations                           304,150                320,079
General and administrative         3,253,603              2,981,484
Amortization of capitalized
 software costs                      878,451                519,038
                                 -----------            -----------
Total operating expenses           6,929,808              6,363,162

Operating income (loss) from
 continuing operations              (285,871)             2,105,500

Other income (expense):
Interest income                       20,815                 43,301
Interest expense                    (121,326)              (163,747)
                                 -----------            -----------
Income (loss) from continuing
 operations before income taxes     (386,382)             1,985,054

Current income tax provision
 (benefit)                           (27,593)               134,250
Deferred income tax provision
 (benefit)                          (135,940)               659,540
                                 -----------            -----------
                                    (163,533)               793,790
                                 -----------            -----------
Income (loss) from continuing
 operations                         (222,849)             1,191,264

Loss from discontinued
 operations (net of tax benefits
 2001-$37,548; 2000-$77,382)
 (Note 17)                         (318,730)             (137,420)
                               -------------            ----------
Net income (loss)              $    (541,579)           $1,053,844
                               =============            ==========

Earnings per share, basic and fully
 diluted: (Note 14)
Continuing operations          $        (.02)           $      .08
Discontinued operations        $        (.02)           $     (.01)
                               -------------            ----------
    Net income (loss)          $        (.04)           $      .07
                               =============            ==========


See accompanying notes and accountants' report.



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2001 and 2000


                                            Additional                 Retained
                          Common Stock        paid in     Treasury     Earnings
                        Shares      Amount     Capital        Stock    (Deficit)
                        ------------------   -----------   ---------  ----------
Balance at
December 31, 1999     13,755,069   $343,877  $6,424,322   $    --     $(926,862)

Issuance of common
 stock for cash
 and services            264,305      6,607     154,056

Issuance of common
 stock for contingent
 payment on purchase of
 Learning Pathways, Ltd.  63,754      1,594      30,283

Net income                                                            1,053,844

Repurchase common stock,
 at cost                                                   (19,125)

Comprehensive Income
 adjustment:
Foreign currency
translation                                     (26,440)
                      ----------   -------   ----------  ---------   ---------
Balance at
 December 31, 2000    14,083,128   352,078    6,582,221    (19,125)    126,982

Issuance of common
 stock for cash
 and services            189,333     4,733       62,667

Net loss                                                              (541,579)

Comprehensive Income
 adjustment:
Foreign currency
translation                                     (18,310)
                      ----------  --------   ----------    --------  ---------
Balance at
 December 31, 2001    14,272,461  $356,811   $6,626,578    $(19,125) $(414,597)
                      ==========  ========   ==========    ========  =========


See accompanying notes and accountants' report.


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000


                                              2001            2000
                                          -----------     -----------

Cash flows from operating activities:
Net Income (loss)                         $  (541,579)    $1,053,844

Adjustments to reconcile net income to net
     cash provided by operating activities:
Depreciation and amortization               1,507,569        878,380
Increase in reserve for bad debts              23,769         67,000
Services rendered for common stock             41,400         11,500
Deferred compensation                          51,810         38,700


Changes in assets and liabilities:
Accounts receivable                           889,081     (1,317,206)
Inventories                                    48,936       (272,484)
Prepaid expenses and deposits                 211,442          9,642
Accounts payable and accrued liabilities      (46,186)       200,916
Accounts payable - Affiliate                     --          (96,529)
Deferred revenue                               (1,207)       104,623
Income tax payable                            (40,117)        (6,488)
Deferred income taxes                        (249,425)       637,282
                                          -----------    -----------
Net cash provided by operating activities   1,895,493      1,309,180
                                          -----------    -----------

Cash flows from investing activities:
Acquisition of treasury stock                    --          (19,125)
Note advance to officer                          --         (300,000)
Purchase of property and equipment            (82,180)      (248,658)
Software development costs capitalized     (1,942,192)    (1,545,212)
                                          -----------    -----------
Net cash used in investing activities      (2,024,372)    (2,112,995)
                                          -----------    -----------

Cash flows from financing activities:
Proceeds received from issuance of debt       268,894        621,584
Principal payments on notes payable          (292,930)      (341,676)
Issuance of common stock for cash               1,000        149,163
                                          -----------    -----------
Net cash provided by financing activities     (23,036)       429,071
                                          -----------    -----------

Net increase (decrease) in cash              (151,915)      (374,744)

Cash at beginning of year                     763,967      1,138,711
                                          -----------    -----------

Cash at end of year                       $   612,052    $   763,967
                                          ===========    ===========

Interest paid in cash                     $   128,088    $   152,212
                                          ===========    ===========

Income taxes paid                         $      --      $    23,894
                                          ===========    ===========


See accompanying notes and accountants' report.




THE AMERICAN EDUCATION CORPORATION
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Years Ended December 31, 2001 and 2000



On May 2, 2000 the Company issued 63,754 shares of common stock valued
at $31,877 for additional costs associated with the acquisition of its
subsidiary, Learning Pathways, Ltd.


See accompanying notes and accountants' report.




THE AMERICAN EDUCATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

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 as a purchase. Pursuant to the
Agreement, the Company paid the sellers 510,030 shares of the
Company's $.025 par value common stock and cash of $165,760. The
Agreement further provides that if LPL meets or exceeds certain
financial goals set forth in the Agreement, then the Company will pay
the sellers additional shares of the Company's common stock. During
2000, an additional 63,754 shares were issued to the sellers. The
business of LPL principally is to distribute the World Book
Encyclopedia print and multimedia product line in the United Kingdom.
The results of operations of LPL are included in the consolidated
statements of income for the two years ended December 31, 2001.

On December 24, 1999, the Company entered into a stock purchase
agreement to acquire 100% of the capital stock of Dolphin, Inc.,
("Dolphin") a New Jersey corporation. The transaction's effective date
was October 1, 1999. The purchase price was $1,800,000 consisting of
cash payments totaling $1,752,000 and 35,148 shares of the Company's
common stock valued at $48,000. The acquisition has been accounted for
as a purchase. Results of Dolphin's operations are included in the
consolidated income statements for the two years ended December 31,
2001. Dolphin provides software design services for unaffiliated
customers.

During 2001 and 2000 net income (loss) from foreign operations totaled
$(87,687) and $373,589, respectively. No dividends were received from
the foreign entity.

Revenue recognition

The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountant's Statement of Position 97-2,
98-9 and modifications thereto 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
$237,375 and $516,346 of such non-monetary transactions for the years
ended December 31, 2001 and 2000, respectively. Revenue for software
design services at Dolphin is recognized on the percentage-of-
completion method.

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.  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, 2001 were
$5,070,317 with $2,242,192 additional costs capitalized during 2001.
Amortization expense totaled $878,451 in 2001 and $519,038 in 2000.

Goodwill

Goodwill represents the excess of the cost of purchased companies over
the fair value of their net assets at dates of acquisition.

                                                          Accumulated
                                         Goodwill        Amortization
                                        ----------     --------------

Projected Learning Programs, Inc.       $  325,000        $ (325,000)
Learning Pathways, Ltd.                    780,399          (154,968)
Dolphin, Inc.                            1,429,144          (214,129)
                                        ----------        ----------
                                        $2,534,543        $ (694,097)
                                        ==========        ==========

Through 2001, goodwill has been amortized over fifteen years.
Beginning January 1, 2002, goodwill is no longer being amortized on a
straight-line basis but will be measured for impairment each year and
any necessary expense recognized. Amortization expense from continuing
operations totaled $147,412 and $147,471 for 2001 and 2000,
respectively.

Amortization expense related to Projected Learning Programs, Inc. was
$260,000 in 2001 and $21,667 in 2000. This expense is a part of the
loss from discontinued operations.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of packing and educational software materials,
World Book Encyclopedia print and multimedia products.


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 $221,816 and
$190,409 for 2001 and 2000, respectively.  The components of property
and equipment at December 31, 2001, are as follows:


    Furniture, fixtures and office equipment          $1,120,295
    Leasehold improvements                                33,283
    Vehicles                                              33,839
                                                      ----------
                                                       1,187,417
    Less: accumulated depreciation                      (707,037)
                                                      ----------
Net property and equipment                            $  480,380
                                                      ==========

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.

Fair value of financial instruments

The carrying values of the Company's assets and liabilities
approximate fair value due to their short-term nature.


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 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 former 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, 2000  1,042,076      84,000        1,329,831    2,455,907

Shares granted          --         9,000           24,000       33,000
Shares exercised        --          --            (36,000)     (36,000)
Shares expired       (71,000)       --           (193,497)    (264,497)
                   ---------      ------        ---------    ---------
December 31, 2001    971,076      93,000        1,124,334    2,188,410
                   =========      ======        =========    =========

Option price range
per share        $.50 - $.75   $.50 - $.73     $.50 - $.73


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

The following is a summary of common stock transactions during 2001:

                                        Shares Issued     Per Share
                                        -------------    -----------

Stock issued for cash and services            189,333    $.27 - $.73


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 April 30, 2003;
initial line - $1,145,000,
payments of $20,015 per
month including interest at
prime rate (5% at December 31,
2001), remaining principal
due at maturity, secured by
accounts receivable and
inventory                         $204,278     $641,653       $845,931

Line of credit with bank,
originated December 23,
1999, matures April 30, 2003;
initial line - $250,000,
payments of $6,000 per month
including interest at prime
rate (5% at December 31, 2001),
remaining principal due at
maturity, secured by
accounts receivable and
inventory                           62,217      177,995        240,212

Lines of credit with bank,
originated April 30, 1999,
to December 23,1999, matures
April 30, 2002; maximum line -
$1,000,000, interest at prime
rate (5% at December 31, 2001),
payable monthly, principal due
at maturity, secured by accounts
receivable and inventory           725,000          --         725,000


Installment notes payable to
bank, originated June 4, 1999,
through December 4, 2001 ,
matures December 4, 2002
through June 4, 2005; principal
and interest due in monthly
payments of $9,298, interest
at bank's prime rate plus .25%,
(5.25% at December 31, 2001);
secured by equipment                79,345        82,621       161,966

Installment note payable to
finance company,originating
July 1999, due in monthly
payments of $ 932 including
interest at 0.9% annually,
maturing June 2002; secured
by a vehicle                         5,594          --          5,594

Installment notes payable,
bearing interest at 9%,
maturing in November 2002.
Monthly payments totaling
$989; secured by equipment           10,109          --        10,109
                                 ----------      --------  ----------
                                 $1,086,543      $902,269  $1,988,812
                                 ==========      ========  ==========

Aggregate maturities of notes payable are as follows:

     2002      $1,086,543
     2003         868,285
     2004          26,604
     2005           7,380
               ----------
               $1,988,812
               ==========


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

The Company leases office space in Oklahoma City, Oklahoma, under an
agreement renewed February 23, 1999 at $12,587 a month.  The agreement
expires December 31, 2002.

Dolphin, Inc., a wholly owned subsidiary leases office space in
Gibbsboro, New Jersey, for $13,693 a month under a lease agreement
expiring May 31, 2002. Dolphin, Inc. leases equipment for $530 a month
until February  2005. Dolphin also leases a vehicle for $667 a month
until July 2005.

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 rent expense was $310,603 for 2001 and $296,608 for 2000.

Future rental commitments under lease agreements are as follows:

     2002        $233,873
     2003          14,364
     2004          14,364
     2005           5,199


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:


                                              2001             2000
                                            -------          -------

Statutory federal income tax rate           (34.0%)           34.0%
State income taxes                           (6.0%)            6.0%
Write off of investment in subsidiary        (3.8%)             --
Amortization of goodwill                      2.4%             2.4%
Nondeductible expenses                         .2%              .5%
Foreign income taxed at different rate        1.1%            (4.5%)
Other, net                                   (2.2%)            1.6%
                                            ------           -------
Effective income tax rate                   (42.3%)           40.0%
                                            =======          =======


Deferred tax liabilities and assets at December 31, 2001 are comprised
of the following:

Deferred tax liabilities:
Capitalized software                                $1,490,365
Change in accounting method for tax
purposes - cash to accrual for purchased
subsidiary                                              31,524
Plant and equipment and related depreciation            19,591
Foreign deferred taxes                                     996
                                                    ----------
Total deferred tax liabilities                       1,542,476
                                                    ----------

Deferred tax assets:
Receivables and inventory valuation allowances          78,219
Net operating loss carryforward                      1,054,969
Change in accounting method for tax purposes-
capitalized software expensed for tax purposes         115,805
Vacation accrual and deferred compensation              42,654
                                                    ----------
Total deferred tax assets                            1,291,647
                                                    ----------
Net liability                                       $ (250,829)
                                                    ==========

Net deferred tax asset                              $  194,024
Net deferred tax liability                            (444,853)
                                                    ----------

Net liability                                       $( 250,829)
                                                    ==========

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 operating loss carryforwards of
approximately $2,635,000 for regular tax purposes expiring between the
years 2002 and 2021.



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 2003
to 2007. The Company has also entered into distribution agreements for
the sale of other software curriculum and integration with the World
Book Encyclopedia.  Royalty expense totaled $221,362 and $285,270 in
2001 and 2000, respectively.


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

The Company has a note receivable from its President in the amount of
$300,000 which was advanced in October 2000. The note bears interest
at the Company's lowest bank lending rate (approximately 5% at
December 31, 2001). Principal and interest is due in one payment on
October 26, 2003.


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

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 2001 or
2000.

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.

As of December 31, 2001, the Company has $450,000 of funds on deposit
in a financial institution in excess of federally insured limits.


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.


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

Accrued liabilities are comprised of the following at December 31,
2001:

     Accrued interest                          $  7,603
     Accrued payroll, taxes and benefits        166,824
     Accrued commissions and royalties          218,224
     Accrued professional fees                   24,975
     Accrued value added taxes                   41,887
     Accrued - other                            222,795
                                               --------
                                               $682,308
                                               ========


12.  Profit sharing plan
------------------------

The Board of Directors has a discretionary a profit sharing program
whereby 5% of the Company's pretax profits are accrued to a profit
sharing pool.  The amounts paid to individual employees are determined
based upon performance and annual salary. The Company had no profit
sharing expense in 2001 and  $107,595 in 2000, respectively.


13.  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.


14.  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:
                                                 2001           2000
                                             ----------     ----------

    Basic                                    14,201,172     14,034,800
    Diluted                                  14,201,172     14,723,960

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


15.  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.


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

The consolidated financial statements include the assets, liabilities
and income of its foreign subsidiary Learning Pathways Ltd. (LPL). The
following is a summary of LPL's financial condition at December 31,
2001 and the results of its operations for the year then ended stated
in U.S. currency:

     Total assets              $1,580,569
     Total liabilities         $  976,072

     Revenues                  $1,575,891
     Net loss                  $  (87,687)
     Foreign income taxes      $  (27,593)


17.  Discontinued operations
----------------------------

Effective December 31, 2001 the operations of Projected Learning
Programs, Inc. were discontinued. The loss from operations has been
disclosed on the statement of income and the prior year has been
restated to reflect a similar presentation. Total revenues from
discontinued operations were $44,557 and $293,605 for 2001 and 2000,
respectively. All assets and liabilities, which are not material, have
been transferred to the parent company and therefore no separate
balance sheet disclosure is necessary.



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:

                                                 2001           2000
                                             ----------     ----------

     Basic                                   14,201,172     14,034,800
     Diluted                                 14,201,172     14,723,960

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

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 8, 2002, with respect to the consolidated financial
statement of The American Education Corporation included in its Annual
Report (Form 10-KSB) for the year ended December 31, 2001, filed with
the Securities and Exchange Commission.

Steakley, Gilbert, & Morgan, P.C.


April 1, 2002
Oklahoma City, Oklahoma