FORM 10-KSB

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, 1996

[ ]	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
(Exact name of registrant as specified in its charter)

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

84-0838184
(IRS Employer Identification number)

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

(405) 840-6031
(Registrant's telephone number, including area code)

Not Applicable
(Former Name, former address and former fiscal year, if
changed since last report)

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

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

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES[X] NO [ ]

Indicate by check mark 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 l0-KSB or any amendment to this Form 10-KSB.
YES [ ] NO [X]

Revenues for the year ended December 31, 1996:  $ 2,393,934

The Registrant is unaware of material trading in the Registrant's
stock. There is presently no market maker for shares of the
Registrant's common stock. Therefore, the Registrant is
unable to determine the market value (if any) of the voting
stock held by non affiliates of the Registrant.

Number of shares of the registrant's common stock
outstanding as of March 28, 1997:    12,170,828

THE AMERICAN EDUCATION CORPORATION
FORM 1O-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. Initial
business activities, associated with the research and
development of medical devices and medical technology,
commenced from inception through 1984. In 1984, the Company
acquired all of the issued and outstanding stock of
Medquest, Inc. in exchange for 9,490,000 shares of the
Company's common stock. In 1985, in an agreement with an
affiliate, Medac, Inc., the Company received 67,000,000
shares of Medac, Inc. common stock, $10,000 in license fees
and future royalties, for the assignment of certain
technology rights. In November 1986, Medquest transferred to
Medac, Inc. for $10,000, the rights to certain technology,
computer equipment, and 57,000,000 of its 67,000,000 Medac
shares. Thereafter, the Company was essentially inactive until
1989. In 1989, the Company sold its remaining 10,000,000 shares
of Medac common stock for $290,000. From 1989 until 1990, the
Company initiated a plan to seek an acquisition, or merger with
another company. In December 1990, the Company entered into
an agreement to purchase substantially all of the assets of
American Educational Computer, Inc. from its parent, UNICO,
Inc. (UNICO). The following major developments relating to
the asset purchase are listed in chronological order:

Purchase of Assets of American Educational Computer Inc.
--------------------------------------------------------

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.

Assets involved in the purchase included AECI's trade names,
trademarks, retail product sales rights, non-exclusive
school and library sales rights, specific accounts
receivable, specific inventory, and specific furniture and
equipment. As a component of the transaction, the Company
also acquired the publishing and distributing assets and
licenses of Concord Video, a publisher of special interest
video tapes. The acquisition was for a total purchase price
of $990,000 consisting of $190,000 in cash, paid on the
effective date, and $800,000 in notes payable. The notes
payable were subsequently structured into $600,000 of
Convertible Preferred Stock and $200,000 in notes payable
with quarterly installments of principal and interest
commencing in September 1991. The Company also assumed
accounts payable and accrued liabilities of AECI, totaling
approximately $173,000.

In August 1991, at a meeting of the Company's shareholders,
the purchase of the assets of AECI was ratified, a new class
of Preferred Stock was authorized and the shareholders
approved the change of the Company's name from Plasmedics,
Inc. to THE AMERICAN EDUCATION CORPORATION.

A plan to discontinue the operations of the Company's
Concord Video division was formally adopted by the board of
directors in November 1992. The plan called for the Company
to secure a buyer for the video division's assets in a
timely manner or to liquidate the assets of the division and
effectively abandon the video operations. The Company was
unable to attract a buyer for the video division, therefore,
the Company discontinued video operations and liquidated the
remaining video division's assets during fiscal 1993.

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

The Company's business is to license or internally develop
and market educational microcomputer software and CD-ROM
titles. Except as specified to the contrary, all references
to the Company's current business include the activities
associated with the development and marketing of educational
computer software and CD-ROM based products under the
direction of Company management.

The Company internally develops, and also licenses from
third parties, educational computer software. The Company
utilizes both in-house technical programmers and independent
computer programming companies to develop these products.
The products are sold through retail outlets, distributors,
catalog companies, independent dealers, and direct mail.
Sales are made to domestic and international markets. The
products are sold for use in elementary and high schools,
libraries, adult learning centers, private industry, and for
use at home for self-directed learning and home-based schooling.

The use of microcomputers and software as educational and
instructional aids is the major focus of the Company's marketing
strategy, as the use of the personal computer and CD-ROM devices
has been adopted by many of the nation's Schools as they have become
more affordable. The Company's marketing plan calls for separate
marketing efforts to be directed toward the home and institutional
 markets.  Currently, the Company utilizes a small employee sales
force as well as independent dealers ("school-dealers") to market
its products to schools, industry and libraries. Each school-dealer
generally covers a geographically-limited territory. Other marketing
efforts are through business partners such as Educational Resources,
Davidson & Associates, Learning Services, National School Services,
Inc. and direct mail and catalog companies which market third-party
products to the school and library markets.

Principal Products.
-------------------
Computer Software
-----------------

The Company acquired (through its acquisition of AECI) a
series of exclusive and non-exclusive licenses to develop
and market microcomputer software products based upon
certain courseware in reading, English, spelling, social
studies, bilingual language development and early childhood
development.

Educational software for the elementary and high school
markets is designed for use in classroom instruction and
stresses usefulness to the instructor as well as the
student. In addition, there is a growing use of computer
network technology in schools. The Company's products for
schools and the professional educator feature management
modules which track both individual student and class
performance. This management module also prints reports,
lesson materials, tests and assignments. Further, a hallmark
of the Company's products is an authoring capability which allows
the user to add, modify and expand both graphics and text to the
curriculum content provided by the Company. The Company's
software, that is designed for home use, is also closely
related to classroom work, and is correlated to major national test
objectives so that parents can can select software to assist students
in a specific subject and grade level. The Company's computer software
products, particularly those designed for the home market, are
designed to be used without extensive experience with computer operations.

In an industry where there are in excess of 300 educational
software publishers, the Company has developed a distinctive
niche form of content and delivery. This approach features
high educational value and extensive content that is fully
correlated to the leading states' desired learning outcomes,
national educational objectives and major textbook series.
The Company has concentrated on the design of products that
offer educational significance and substance that is
correlated to grade and age level, with teacher control of
content delivery rather than products which are dependent
upon high entertainment value to maintain student interest.

The majority of the Company's school products are designed
for a networked environment.  To monitor and facilitate
student performance in this environment, a class of software
referred to as a managed solution has evolved. This solution
is typically defined as an Integrated Learning System
("ILS"). This approach provides software controlled class
and student lesson assignments, individualized paths of
study, skills assessment, authoring, time management,
integration of third party software where relevant, and a
range of other functions which assist the educator in
directing and understanding the effectiveness of the
software and the learning process. Management believes that
fewer than 10 companies, industry-wide, provide a managed
solution or this class of sophisticated educational software
product.

A+dvanced Learning System TM
----------------------------

A+LS, from a content perspective, has been designed as a
grade level 1-9 basic skills curriculum solution. It is
comprised of 43 subject titles in a multi-media environment
with extensive sound and graphics. Subject areas covered
are: reading, writing, mathematics, science, history,
geography and language arts. Each ascending level of the
product presents increasingly more complex concepts, but
provides overlapping, level to level subject matter
reinforcement. As a body of published work, it is one of the
most extensive in the industry for the targeted grade
levels. A+LS's content is divided into subjects and lessons
with each lesson containing a number of activities such as
study, practice, test and essay.  This content is further
supported by lesson related exercises.  This design
facilitates the use of the advanced A+LS class and student
management system. Educators may select specific lessons to
create a curriculum plan for a specific time period,
specifying independent mastery levels for each lesson. They
may also insert third party publishers' materials into a
supported course of study for enrichment or remediation. The
design also permits the development of individualized
courses of study for the at risk or special education
student which might require remediation or specific emphasis
to correct skill deficiencies. Approximately 1600 schools
and centers of adult literacy have purchased this product
since its introduction in mid-1995.

In early 1996, the Company began the process of developing
a major content extension of the A+LS elementary and
middle school curriculum through grade level 12. This
development process was largely completed for core
mathematics, science, and social studies titles during the
1996 fiscal year. The Company expects to release 16 new
subject titles starting in the early part of the second
quarter of fiscal 1997. One A+SSESS! title will also be
developed to support the assessment and testing requirements
for the high school level product offering. Management
believes that the addition of these 17 new subject titles
to the A+LS product family positions the Company with one
of the largest bodies of integrated curriculum content in
the industry.

A+SSESS! TM
-----------

A+SSESS! is a product family of primary, intermediate and
advanced modules which comprise three individual software
titles. A+SSESS! has been designed as a companion to A+LS's
extensive curriculum content, as a tool to assist educators
in determining student beginning skill levels in all A+LS
subject areas. A pretest process is utilized for this
purpose. After beginning skill levels are determined,
A+SSESS! automatically recommends and prepares lesson plans
for each student. A post-test 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 approximately 500 schools have
purchased the product since its introduction.

A+LS/MediaWeaver TM
-------------------

The Company entered into an agreement in late 1995 to
integrate certain of the Humanties Software, Inc. popular
MediaWeaver TM programs into a 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. 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. Six novel and skill bundles
for elemantary, middle and high school and 1 MediaWeaver authoring
title are now fully integrated into the A+LS class and student
manager. These programs complement A+LS's basic skills content and
provide a whole language reading and writing dimension to this
product family. The Windows version of this product was introduced
in late 1996 and substantial work was completed on the programming
of the Macintosh version in 1996.

New A+ TM
---------

Introduced in 1994, New A+ is the predecessor product family
to A+LS. It is comprised of 14 subject titles in the areas
of language arts, social studies and science, and is
available in network, lab pack, school stand alone, site
license, and home versions for Windows, Macintosh and DOS
platforms. New A+ has a management system which records
student grades and activities and allows full authoring. It
does not provide the multi-media functions, managed lesson
sequences or third party program capabilities that have been
incorporated in A+LS. New A+, which is installed in
approximately 1,500 schools nationwide, remains a viable
alternative for schools with older hardware that will not
support the operating requirements of A+LS. Macintosh,
Windows, Windows NT and DOS are fully supported.

Basic Learning Skills Courseware
--------------------------------

Introduced in 1992, Basic Learning Skills Courseware is a
DOS only product family that includes fully networkable
curriculum for grade levels 1-9. Subject areas include
language skills, reading and mathematics (the Language
Skills Development Program, Reading Skills Development
Program and Mathematics Skills Development Program). These
programs are fully supported by sound capabilities. Included
in the design of these products is a rudimentary management
system keyed to each product. These products, portions of
which are in use in over 700 schools, remain viable for
schools with non-current hardware technology.

Third Party Publishing and Marketing Affiliations
-------------------------------------------------

The Company is actively pursuing and is being pursued by
third party publishing and marketing companies which have
curriculum content which is complementary to the publications
of the Company. Many of these highly regarded companies do
not have the software management technology, or the distribution
resources of the Company. These relationships are being sought
to supplement and complement the content of existing and planned
A+LS subject matter as third party programs which may be launched
in a planned lesson sequence. Management believes this process
postures the Company as an open architecture, full classroom
management solution. Management also believes this continued
expansion of these type of relationships enhances the value of
the Company's products and strengthens marketing relationships
with its distributors and other business partners.

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

The Company addresses three major market segments for its
products: the school, adult literacy and home markets. The
Company's products, except for those especially configured for
use by the professional educator, generally have application in
either market.

School Market

The school market for educational software is growing at
approximately 20%-25% per year according to industry
sources. In order for the Company to take advantage of this
fast growing industry it must expand its authorized dealer
sales base. Although significant progress was made in 1996
in dealer recruiting program a major objective is to continue
to expand the Company's dealer base of organizations calling
on and selling into the public schools market. The Company lacks
effective representation in several important geographical areas
of the country. A key emphasis will be to insure that this dealer
expansion program will provide coverage in these areas and to
continue to expand industry marketing and strategic relationships.

Adult Literacy Market

The Company believes it has designed its curriculum content
delivery so that 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. In 1995
and 1996, the Company established a number of installations in
state and municipal centers of literacy and the juvenile and
adult corrections market segments. Preliminary information from
these installations is that the Company's products are highly
effective in preparing adult high school equivalency tests
and other recognized measurements of literacy. These markets
are 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 efforts in this area.

Home Market

Home education is growing at rates exceeding 25% per year,
according to industry sources. Many families are choosing
to educate their children at home versus through the
traditional education channels.  Many of the Company's
products are designed to appeal to the home educator who is
seriously involved in education. The Company's products are
marketed as educational products versus the more widely
recognized "edutainment" products.

In competing for the home market, the Company faces stiff
competition in the traditional retail outlets. AEC does not
have the financial resources to effectively compete in the
traditional retail market. The Company must, therefore,
market its products through unconventional channels. This
includes developing and expanding a distributor base which
deals directly with the public and emerging Internet opportunities.

Trade Name, Service Marks and Logo Types.
------------------------------------------

The American Education Computer, Inc. service mark for the
A+ products was registered with the United States Patent Office
on Principal Register, register number 675,666 on July 31, 1987.
On April 15, 1989, the A+ trademark for use with educational
software, was registered with the United States Patent Office.
The Company was notified on November 16,1995 that the use of the A+
symbol for educational software was a registered trademark and is
incontestable for this use. Other various trademarks and logos
associated with American Educational Computer, Inc.'s software
products have also been registered. These trade names, service
marks and logo types were included in the assets which were
purchased by the Company from American Educational Computer, Inc.

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 logo design to describe and identify this
extensive family of educational software products released
in the later part of fiscal 1995. This mark was registered with
the United States Patent Office on Principal Register, register
number 2,038,275, on February 18, 1996.

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

The Company purchases unformatted 5 1/4" and 3 1/2" software
diskettes and CD ROM blanks from various sources. The
Company owns commercial quality, high speed software
duplication equipment and duplicates all software
internally. The Company develops, with outside packaging
developers, materials and packaging concepts, and internally
authors necessary product manuals. The Company secures
product packaging from external sources and performs quality
control, final assembly, inventory and distribution on most
orders received. The Company has no dependence on any
individual supplier.

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

Initially, the Company relied upon external, independent
software developers for its technology and as the source of
software titles. In June 1991, the Company hired its first,
qualified technical programmer, and in January 1992,
retained an experienced, doctorate level educational
specialist on a project basis. In May 1992, this individual
was hired by the Company on a full-time basis. By the year
ended December 31, 1993, the Company employed a total of
three technical programmers and one technical support person
on a full time basis. At December 31, 1996, the Company
employs eight full time technical development and support
personnel.

The Company makes use of professional educators as
consultants in the design of its curriculum-based products.
These individuals provide the technical and curriculum support
on the development and enhancement of Company products, support
existing customers on technical issues, and engage in
limited programming and content development of new products.
Management believes that it will continue to rely upon
external sources for a portion of its new product
requirements. However, the growing sophistication and
complexity of the design of products and the rapid changes
occurring in the marketplace will require continued
expansion of in-house curriculum and graphics development resources.
At December 31, 1996, the Company employed 2 full-time educational
professionals in support of this effort. These individuals
plan and manage and coordinate the efforts of up to twenty
independent consultants and graphic designers.

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 costs of $276,999 in software
research and development costs in 1996.

Backlog.
--------

The Company's computer software products are normally
shipped within ten 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 launching 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 the school periods. For home
computer software products, the Company experiences marginally
higher sales levels during the first and fourth quarters of
the year. Summer months have historically shown the lowest level
of sales for computer software products.

Competition.
------------

The educational software industry is highly competitive and
subject to rapid change. There are a large number of
companies developing educational software products.  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, microcomputer hardware manufacturers and
microcomputer software developers which 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,
educational content, product reliability, sales support and
customer service.

Employees.
----------

During the fiscal year ended December 31, 1996, the Company
had twenty-six (26) full-time employees. The Company
believes that its relationship with employees is
satisfactory.

Recapitalization and Restructuring Events.
------------------------------------------

In an effort to appropriately capitalize the Company and to
provide sufficient working capital to develop and market high
quality products, management has sought appropriate investment
from qualified private investors. From January 1, 1996 through
December 31, 1996, the following significant events have occurred:

In March 1996, a private investor purchased 160,000 shares of
restricted common stock at price per share of $.50.

In June 1996, five third party debt holders converted $965,460
of short term debt and accrued interest related thereto, into
2,651,274 shares of common stock at an average price per share
of approximately $.34.

In June 1996, a supplier of the Company exchanged $11,250 of
amounts owed to them by the Company for 15,000 shares of
restricted common stock at a price per share of $.75.

In July 1996, a private investor exercised 100,000 warrants to
purchase 100,000 shares of common stock, at an exercise price of
$.20 per share.

In September 1996, a private investor exercised 286,517 warrants
to purchase 286,517 shares of common stock at an exercise
price per share of $.50.

In October 1996, a supplier of the Company exchanged $11,747 of
amounts owed them by the Company for 23,495 shares of restricted
common stock at a price per share of $.50.

The pro forma effect of these transactions is as follows:

Debt eliminated                         $988,457
Capital from purchase of stock          $243,259
Common stock shares issued             3,236,286

As a result of these transactions, borrowings from third parties
or banks has been reduced to approximately $53,000 as of
December 31, 1996.

Item 2.	Description of Properties.
----------------------------------

The Company is located at 7506 North Broadway, Suite 505,
Oklahoma City, Oklahoma, 73116. This space houses the
corporate offices and the offices and warehouse facility for
the Company's operations. This space is leased for a monthly
fee of approximately $5,247, exclusive of utilities and other
services, and has approximately 8,750 square feet. The term
of the lease expires February 28, 1999.

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

In October 1996, the Company became a party to litigation in
the United States District Court for the District of
Columbia entitled Securities and Exchange Commission,
Plaintiff v. The American Education Corporation, Defendant
(the "Action"). In the Action, the Company admitted that,
in violation of certain provisions of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), it
failed to file, among other things, certain annual and
quarterly reports. The Company entered into a Consent and
Undertaking pursuant to which the Court will issue a Final
Judgment of Permanent Injunction requiring the Company to
(i) file all of its delinquent Exchange Act reports. The
failure to file any required report could result in a
contempt citation or the assessment of fines against the
Company.

In addition, the Company is the subject of various legal
proceedings in the normal course of business. However,
management knows of no pending or threatened litigation
involving the Company, other than the Action, that is
considered material to the on-going operations and viability
of the Company.

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

No matters were submitted to a vote of the security holders in 1996.

PART II
-------

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

As of December 31, 1996, there were approximately 2,500
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. There have
been no formal market makers for the Company's common stock
for the past two years. Due to the absence of a formal
market for the stock, the Company is unable to state the
range of high and low bid information for the common stock
for those years.

Dividends.
----------

The Company has never declared a cash dividend. 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
by reason 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, after assuming operational control of AEC, 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 and expand the Company's product
offerings. To finance the business, management has utilized
additional long-term, subordinated debt from private investment
sources, secured bank revolving credit lines, and accounts
receivable financing sources.  Management anticipates that
additional financing will be required to continue to develop
and position the Company for the significant growth opportunities
that exist in the electronic media for education industry.

The Company views accounts receivable, inventory, and cash as
its principle measures of liquidity.  To supplement its
anticipated short-term working capital requirements, the Company
entered into various convertible loan agreements beginning in
January 1991, with private investors.  These loans were
convertible into common stock of the Company at conversion
prices ranging from $.136 to $.50 per common share.  Loans of
this nature were the only viable sources of borrowing for the
Company during this period.

Effective June 30, 1996, the Company exchanged 2,651,274 shares
of common stock for $731,989 of principal and $222,509 of accrued
interest related to convertible notes.  At December 31, 1996,
$53,000 of convertible notes, including $3,000 of accrued
interest, with a conversion price per share of $.136 remain
outstanding.

At December 31, 1996, the Company had a working capital deficit
of $203,497. Certain of the Company's accounts payable,
approximately $110,000, date back to between 1991 and 1993.
These accounts are disputed and no payments have been made.
Management anticipates that these accounts, if paid at all,
will be settled for significantly less than their face value.

Additionally, at December 31, 1996, the Company had recorded as
current liabilities approximately $194,000 of customers credit
balances. These deposits will be recognized as revenue in the
first half of 1997 as product is shipped. In particular, $125,000
of prepayments from Davidson and Associates, (Davidson) on a
$350,000 minimum purchases contract for products will become
revenue as products are shipped during the second quarter of
fiscal 1997 and through December 31, 1997.

The Company relationships with its dealers have grown and
management believes that several significant opportunities
exist for fulfillment of large known orders with its products.
Several of these opportunities have been negotiated by the
Company's distributors and will be fulfilled during the second
quarter of 1997 and through the end of the fiscal 1997 year.

With the Company's enhanced gross margins and expense control,
demonstrated during fiscal 1996, and product improvements and
expansion of curriculum into the secondary grade levels, management
believes that the Company will meet most of its working capital
requirements from operating cash flows.

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.

Results of Operations.
----------------------

Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended
December 31, 1995.
-----------------------------------------------------------------

The following is a discussion of the results of operations for
the fiscal year ended December 31, 1996, as compared to the
fiscal period ended December 31, 1995.

Net software revenues for the twelve months ended December 31,
1996, totaled $2,393,934 compared to net software revenues of
$1,288,867 for the year ended 1995.  This represents an increase
of nearly 86% in 1996.  The dramatic increase in sales is primarily
attributed to the acceptance of the A+dvanced Learning System family
of products, the release of new subject titles associated with this
product family upon the conclusion of lengthy development activity
initiated in 1995 and enhanced relationships with major educational
publishers and distributors.

The Company entered into an agreement with Davidson and Associates
in August of 1996 to license certain elements of the A+dvanced
Learning System product family curriculum content and software
technology under a software distribution and license agreement.
In addition, the Company entered into verbal agreement with
National School Services, Inc. (NSS) to work with that organization
to convert certain the A+dvanced Learning System subject content
areas into Spanish and to license the new Spanish version for NSS's
exclusive distribution in certain other Spanish-speaking markets.
The Company will have the rights to sell the Spanish version in the
United States.  It is expected that the formal agreement with
National School Products will be signed during the latter part of
the first calendar quarter of 1997.

Cost of goods sold for the year ended December 31, 1996,
increased by approximately 16%, even though sales increased
by approximately 86%.  This disproportionately low increase in
direct costs reflects the efficiency in which software products
are now produced on CD-ROM.  The use of this medium also
positively effects the cost of packaging, handling and freight
associated with products that are marketed primarily into the
school market, as opposed to traditional retail outlets.  Cost
of goods sold represents the actual cost to produce the
software products, including certain allocated overhead costs,
a portion of which is fixed.  Actual component costs as well
as the direct labor costs associated with the assembly of
software products is now very low.  Excluding the costs of
allocated overhead, product costs provide gross profit margins
ranging from 75% to 95% percent on the Company's principal products.
As sales volumes increase, overall gross profit margins are
expected to increase, as total allocable overhead costs remain
relatively fixed.

Total operating expenses recorded for the year ended December
31, 1996, were $1,879,505 compared to $1,320,153, for the previous
year.  This represents an increase of approximately 42%.  As a
component of total operating expenses, selling and marketing costs
increased by approximately 128%, from $312,355  in fiscal 1995 to
$712,320 in 1996.  The increase in 1996 is related to expanded
sales and marketing efforts and higher commission costs related to
the higher sales levels achieved.  General and administrative
expenses increased by only 3% during 1996, from $795,615
to $816,583.  This increase is related to expanded technical support
staff added as a result of the expanding customer base and higher
legal, accounting and professional costs related to expansion of
third party relationships and return to compliance in the
Company's SEC reporting obligations.

Costs incurred in conjunction with product development are
charged to research and development expense until technological
feasibility is established.  Amortization of such costs for 1996
was approximately equal to the amount of such charges capitalized
for the year.  The comparability of these amounts reflects the
maturing nature of the Company's developmental activities.
Amortization of capitalized software costs for 1996 increased
by approximately 26% during 1996, from $212,183 in 1995 to
$267,327 in 1996.  This increase reflects the Company's emphasis
on development of new and enhanced products.  During 1996, the
Company completed the development of its planned 43 subject titles
A+LS product line, developed the three module A+SSESS! tools
software program and fully integrated the A+LS/Humanities, Inc.
seven title reading and writing program into the A+LS management
program.  In addition, the Company planned and made substantial
curriculum development progress on 16 new high school titles and
1 companion A+SSESS module.  These new subject titles for
mathematics, science, and social studies will be added to the
Company's product line during fiscal 1997.

Due to restricted cash flows from operations, the Company
entered into a factoring arrangement whereby, it would assign
from time to time, the payment of specific invoices to the
factoring entity.  The cost of factoring is disclosed as a
separate line item within the statement of operations.  Such
costs decreased by approximately 56% during 1996, reflecting
the improved financial condition of the Company and reduced need
for such financing during the latter portion of the year.

Interest expense decreased by approximately 53% during 1996,
from $106,261 in fiscal 1995 to $50,194 for 1996.  This decrease
reflects the reduction of interest bearing debt as a result of
conversion of such debt to equity during the year, as well as
the improving financial condition of the Company during 1996.

Net income for the current year improved by approximately 126%
during 1996 compared to the prior year.  This improvement from
a net loss of $473,476 in 1995 to net income of $122,681 in 1996
reflects the higher sales levels noted above, as well as the
improving gross margins related to concentration of sales in
more profitable markets and cost control of general and
administrative expenses.  Also during 1996, final technical
difficulties associated with network versions of the Company's
products were resolved.  Management believes that with these
technical problems resolved and with the expansion of product
line, increased sales and marketing efforts through third party
organizations and independent dealers, the Company is now
positioned to develop more dependable sales results from the
home and school education markets.

The Company has been constrained by the lack of adequate
capital and proper financing for the past several years.
As sales of the A+LS product line have improved, management
has taken action to reduce debt and to supplement capital
through the private sale of restricted common stock. and
conversion of convertible debt to common stock.

Company management believes that significant, opportunities
exist in the school, adult literacy and home markets for
future company growth.  The Company is now equipped with
DOS products and A+LS Macintosh and Windows program shells
that facilitate the low cost and rapid development of new
subject titles.  In addition, the Company has expanded its
content and intellectual property base with the internal
development of substantial educational content for its
current and future products  Management believes, as a
result of these recent curriculum and technical developments,
that the Company is well positioned to compete in the major
market segments of the educational technology industry.
The Company's competitive position is further enhanced by
its growing employee base of skilled technical and business
professionals that has aided the development of new industry
partnerships during 1996.  These elements combine to form a
stronger overall corporate base that, combined with growing
markets and expanding marketing and distribution strengths,
provides a greatly improved platform for the Company's future
operations.  The Company has also been studying the Internet as
a potential new channel of distribution as well as its impact
on the educational software market place.  During 1996, the
Company initiated strategic planning steps for the development
of programming and curriculum content changes to take advantage
of this still-developing and emerging channel.  Management
believes that the Internet will become an important, future
factor in the Company's delivery of both new products and
services.

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

Financial Statements and Financial Statement Schedules - See
Index to 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.
-----------------------------------------------------------

In March 1994, the Company experienced a disagreement with
its then current independent auditing firm regarding the cost
and timeliness of the audit for fiscal year 1993.  The proposed
cost involved an overrun of more than 150% from the originally
estimated amount.  Due to the deficient working capital position
of the Company at that time, the dispute was not resolved until
November As a result, the independent audits for the years 1993,
1994 and 1995 were significantly delayed in completion.  The
Company was not able to maintain reporting compliance with
the Securities and Exchange Commission throughout this
period.  As a result of the recently improving condition
of the Company, management was able to resolve the
differences with the independent auditing firm and, on
October 31, 1996, the Company voluntarily agreed to a formal
Consent and Undertaking to resolve the reporting deficiency
with the Securities and Exchange Commission.  Prior to
resolution of the dispute with the independent auditing firm
which was responsible for the audit of fiscal 1993, the Company
engaged the services of a local independent auditing firm to
begin the auditing processes for fiscal years 1994 and 1995.
Upon completion and delivery of the independent audit report for
1993, the prior firm of Lehman Butterwick withdrew from future
auditing work for the Company and the firm of Steakley & Gilbert
was hired as the Company's independent auditors and accountants.
There were and are no disputes with independent auditors regarding
matters of accounting or reporting.  There are no remaining
disputes regarding fees or services.


PART III
--------

Item 9.   Directors, Executive Officers, Promoters and Control Persons.
-----------------------------------------------------------------------

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, or until their successors
have been elected and qualified. Vacancies in the existing board
are filled by a majority vote of the remaining directors. Officers
serve at the will of the board of directors under terms of any
employment agreements that may exit with the Company.

<TABLE>

Name                     Age       Position
------------------------------------------------------------
<S>                     <C>        <C>
Jeffrey E. Butler        55         President, Director,
                                    Chief Executive Officer
                                    and Chief Financial Officer

Thomas Shively           44         Executive Vice President
                                    and Chief Operating Officer

Monty C. McCurry         52         Director

Newton W. Fink           58         Director

Stephen E. Prust         52         Director

</TABLE>


Business Experience.

JEFFREY E. BUTLER was named a director of the Company in August
1989 and was elected Chief Executive Officer and President on
March 31, 1990. Since 1985, Mr. Butler has been a management
consultant to businesses in the biotechnology; computer science;
software; educational and entertainment video industries. Mr.
Butler also served as a director to Video Professor Industries,
Inc., a public corporation, from February 1, 1989 to October 31,
1990, when he resigned this directorship. Prior to establishing
his personal services business, Mr. Butler was, from 1980 to 1985,
the Chief Executive Officer and President of Informed Corporation,
an Englewood, Colorado-based provider of computer diagnostic
equipment and data management services to hospitals, leading
corporations and physicians.  Prior to 1985, Mr. Butler was employed
by Sandoz, Ltd., Corning, Inc. and the 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, Inc.,
a division of LIVE Inc., with headquarters in Denver, CO.  From
1989 to 1990, he was Vice President and General Manager of the
Richie Resource Group with headquarters in Minneapolis, MN.  From
1978 to 1988, he was employed by Gelco Corporation, Minneapolis,
MN, 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, MN.

MONTY C. MCCURRY was named a director of the Company and was
elected Secretary and Treasurer in April, 1989.  Upon the
acquisition of assets from AECI, Mr. McCurry relinquished the
position of Secretary and Treasurer to the Company's full-time
Chief Financial Officer.  Since 1985, Mr. McCurry has been
President and owner of Executive Resource Management, an
executive search firm with headquarters in Aurora, Colorado.
From 1969 to 1985, he was associate general manager of Paul M.
Riggins and Associates, a Denver, Colorado-based executive
search firm.

NEWTON W. FINK, EdD, was named a director of the Company on
January 8, 1991.  Since 1984, Dr. Fink has been President of
Computer Instructional Services, Inc., a privately-held
corporation providing computer  educational services to
individuals, schools, corporations and institutions. Prior
to founding Computer Instructional Services, Inc., Dr. Fink
was the Superintendent of Schools in Fort Lupton, Colorado
and Hillside, Illinois.

STEPHEN E. PRUST has been a director of the Company since April
1992. As a director, he has worked to develop special retail
marketing strategies for the Company's software products.
From 1990 to 1992, he was the President of AVID home video,
Inc., a division of Live Entertainment, Inc., a major NYSE
video production company.  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 his personal interests in the
venture were acquired by K-Tel in 1981.

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

Cash Compensation.
------------------

The following table shows the cash compensation of the Company's
Chief Executive Officer, as well as all executive officers and
employees paid in excess of $100,000, and all compensation paid
to the Company's other officers and directors, as a group, who
served during any portion of the preceding year, who earned less
than $100,000.


<TABLE>

Name of Individual or Number in Group                 Cash
Compensation (1)
-------------------------------------                 ------
<S>                                                   <C>
Jeffrey E. Butler (1, 2, 3)	1996                     $ 60,570
		                          1995                     $ 94,349
Directors and executive officer(s) as a group
(7 persons) (1, 3)	1996                              $204,540
		                 1995                              $242,550

</TABLE>

(1)	Exclusive of personal benefits and other forms of non-
cash compensation, the aggregate value of which did not
exceed the lessor of $25,000, or 10% of the cash
compensation shown for each officer, or for all officers and
directors as a group.

(2)	The Company has employment agreements with Jeffrey E.
Butler and Thomas Shively which guarantee their salary at a
minimum of the annual amount authorized by the Board of
Directors, plus incentive bonus that is based upon
profitability and, in the case of Mr. Shively, on attainment
of sales and profit plan. Mr. Butler and Mr. Shively have
severance provisions in their respective agreements that
their compensation will continue in force for six months and
four months, respectively, should they be terminated by the
Company for any reason, other than a willful act of fraud,
or the failure to spend the necessary time in the execution
of their respective duties

An incentive stock plan (the "Plan") in which 40,000 shares of
the Company's common stock was reserved for issuance to key
employees of the Company lapsed in July 1992, and was not
renewed by the Board of Directors.  The Plan was replaced by
an unqualified common stock option plan which was approved by
the Company's Board of Directors in December 1992.  The 1992
unqualified plan involved fourteen key management and advisory
personnel of the Company.  Under the terms of the 1992 plan,
which expired in December 1995, a total of 1,045,000 common
shares of the common stock were reserved for issuance under
the terms of the plan, with exercise prices ranging from $.20
per common share to $.50 per common share.  In March 1996,
a Non-Qualified Stock Option Plan was approved by the Board
of Directors.  Non-qualified stock options to purchase a
total of 1,301,195 shares of restricted common stock at a
price of $.50 per share were granted to 20 employees and key
associates during 1996.  Of this total, 1,273,195 remain
outstanding at December 31, 1996.

None of the options granted in 1996 have been exercised and
no options were deemed In-the Money at December 31, 1996.

(3) Includes $39,177 for 1995, in payments made to Mr.
Butler for reimbursement of out of pocket expenses
incurred on behalf of the Company.

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 28, 1997. Unless otherwise
indicated, the beneficial owner has sole voting and investment
power over the common stock listed below:

<TABLE>

                                                    Shares Beneficially Owned
                                                    -------------------------
                                    	Title of Class
                                     --------------

Name/Address of Beneficial Owner		                     Number	           Percent
--------------------------------                       ------            -------
<S>                                 <C>                <C>               <C>
Jeffrey E. Butler (1)
7952 5. South Emerson CT.
Englewood, CO 80112	                 Common            981,904	          7.8%

Thomas A. Shively (2)
13331 Plaza Terrace
Oklahoma City, OK 731	               Common           	451,161 	         3.6%

Monty C. McCurry (3)
2134 S. Eagle CT.
Aurora, CO 80014	                    Common	           108,400           	.9%

Newton W. Fink (4)
921 Broadway
Ft. Lupton, CO 80621	                Common	            76,400	           .6%

Stephen E. Prust (5)
9025 East Kenyon Avenue
Denver, CO 80237	                    Common            459,616	          3.7%

John D. Garber (6)
7530 Navigator Circle
Carlsbad, CA 92009	                  Common          	6,379,108 	       50.9%

Robert Schoolfield (7)
5 Pleasant Cove
Austin , TX 78746	                   Common	          1,536,517 	       12.6%

Officers and Directors as a Group
(6 persons)	                         Common          	2,077,481 	       15.9%
(1) (2) (3) (4) (5)

</TABLE>

(1) The amount and percentage figures include the possible
exercise of 352,000 common stock options, with an exercise
price of $.50 per share.
(2) The amount and percentage figures include the possible
exercise of 259,195 common stock options, with an exercise
price of $.50 per share.
(3) The amount and percentage figures include the possible
exercise of 70,000 common stock options, with an exercise
price of $.50 per share.
(4) The amount and percentage figures include the possible
exercise of 70,000 common stock options, with an exercise
price of $.50 per share.
(5) The amount and percentage figures include the possible
exercise of 120,000 common stock options, with an exercise
price of $.50 per share.
(6) The amount and percentage figures include the possible
conversion of 371,471 common shares for convertible debt loaned
to the Company pursuant to the loan agreement between Mr. Garber
and the Company.  The Company borrowed funds and created
indebtedness in 1991 of $50,000 which may be converted at the
option of Mr. Garber into shares of the Company's Common Stock
at an exchange rate of $0.1346 per share.

Item 12.   Certain Relationships and Related Transactions With
Management and Others.
--------------------------------------------------------------

No business relationship between the Company and any business
or professional entity, for which a director of the Company has
served during the last fiscal year or currently serves as an
executive officer or has owned a 10% record or beneficial
interest, has existed since the beginning of the Company's last
fiscal year or currently exists and which represented or will
represent payments for property or services in excess of 5% of
the Company's gross revenues for its last full fiscal year or
of the other entity's consolidated gross revenues for its last
full fiscal year.

In addition, the Company did not owe, at the end of its fiscal
period, to any business or professional entity, for which a
director of the Company has served during the last fiscal year
or currently serves as an executive officer or has owned during
the last fiscal year or currently owns a 10% record or beneficial
interest, an aggregate amount in excess of 5% of the Company's
total assets at the end of its last fiscal period. No director of
the Company has served during the last fiscal year or currently
serves as a partner or executive officer of any investment banking
firm that performed services for the Company during the last fiscal
year or that the Company proposes to have perform services during
the current year. The Company knows of no other relationship between
a director of the Company and the Company that are not substantially
similar in nature and scope to that which is described above.

In April 1992, Stephen Prust, a director of the Company, loaned to
the Company $66,667 in exchange for a convertible note payable.
The note contained a provision to convert to common stock of the
Company at the rate of $.50 per share.  Interest on the note accrued
at an annual rate of twelve percent and was payable quarterly with
the principal due December 1994.  This note plus accrued interest of
$39,967 was converted to 213,268 shares of restricted common stock as
of June 30, 1996.

In March 1995, the Company entered into an agreement with John
Garber, a shareholder, to engage in the financing of the Company's
accounts receivable.  This financing was performed through a
company owned by Mr. Garber, AmED Financing, Inc., which was
incorporated under the laws of the state of Oklahoma on March 17,
1995. Under the terms of this agreement, AmED Financing, Inc. made
advances to the Company during 1995 and the initial portion
of 1996.  Unpaid advances under this financing arrangement
were convertible into common stock of the Company, at the option
of the holder, at a conversion price of $.50 per share.  All
tangible assets of the Company were pledged as security for
advances under the terms of this agreement.  Effective June 30,
1996, Mr. Garber converted unpaid advances made to the Company by
AmED Financing, Inc., in the amount of $290,000 plus accrued
interest of $34,481 related thereto, into 648,962 shares of
restricted common stock at a conversion price of $.50 per share.

PART IV
-------

Item 13. Exhibit, Financial Statement Schedules. and Reports
         on Form 8-K.
------------------------------------------------------------

(a) The following documents are filed as part of this
report:

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

Exhibits: The following exhibits are filed with this Form
lO-KSB and are identified by the numbers indicated. See
index to exhibits immediately following the financial
statements and schedules of this report.

<TABLE>

Exhibit
  No.                   Description of Exhibits
-------                 -----------------------
<S>                     <C>
 3	                     Articles of Incorporation and by-laws. Reference is
                        made to Exhibit 2(a) and 2(b) respectively, of the
                        Company's registration statement on Form S-IS
                        (file No. 2-78660-D) which are incorporated herein by
                        reference.

 4                      Registrant's Convertible Subordinated Note offering
                        dated September 15, 1991, incorporated by reference.

</TABLE>

Reports on Form 8-K filed November 26, 1996 regarding changes in
registrant's certifing accountant and Chief Financial Officer,
incorporated by reference.

SIGNATURES
----------

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

March 28, 1997

The American Education Corporation

By: /s/ 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.

<TABLE>

Name	                       Title                            Date
---------------------       ------------------------------------------------
<S>                         <C>                              <C>

/s/ Jeffrey E. Butler       Chief Executive Officer          March 28, 1997
                            Chairman of the Board Treasurer

/s/ Monty C. McCurry        Director                         March 28, 1997

/s/ Newton W. Fink          Director                         March 28, 1997

/s/ Stephen E. Prust        Director                         March 28, 1997

</TABLE>

The American Education Corporation

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>

Item
Page No.
-------------------------------------------------------
<S>                                                 <C>
Independent Auditors' Report	                       F-1

Financial Statements:

Balance Sheet, December 31, 1996                    F-2

Statements of Operations year ended
December 31, 1996 and 1995                          F-3

Statements of Stockholders' Equity year ended
December 31, 1996 and 1995                          F-4

Statements of Cash Flows year ended
December 31, 1996 and 1995	                         F-5

Notes to the Financial Statements	                  F-7

</TABLE>

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


STEAKLEY & GILBERT, P. C.
CERTIFIED PUBLIC ACCOUNTANTS
15 N ROBINSON. SUITE 701
OKLAHOMA CITY. OKLAHOMA 73102

STEVEN R. STEAKLEY, CPA
GREG P. GILBERT, CPA
STEVANNA H. WOLFARD, CPA
DAVID L BOZALIS, CPA
JANE A. HRESKO, CPA

OFFICE: (405) 235-4400  FAX: (405) 236-2207

INDEPENDENT AUDITORS' REPORT

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

We have audited the balance sheet of The American Education
Corporation as of December 31, 1996 and the related
statements of operations, changes in stockholders' equity, and
cash flows for each of the two years in the period ended December
31, 1996. 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 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 financial
position of The American Education Corporation as of
December 31, 1996 and the results of its operations and cash
flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.

Oklahoma City, Oklahoma March 21, 1997

Steakley & Gilbert, P. C.

F-1


THE AMERICAN EDUCATION CORPORATION
BALANCE SHEET
December 31, 1996

ASSETS
------

<TABLE>

Current assets:
<S>                                                               <C>
Cash	                                                             $ 193,347
Accounts receivable, net of allowance for returns and
uncollectible accounts of $112,187 (Note 1)                         408,178
Inventory, net of impairment reserve of $9,645 (Note 1)              15,909
Prepaid expenses and deposits                                        32,442
                                                                  ---------
Total Current Assets                                                649,876

Property and equipment, at cost (Note 1)	                           175,097
Less accumulated depreciation and amortization                     (125,838)
                                                                 -----------
Net property and equipment	                                          49,259

Other assets:
Capitalized software costs, net of accumulated
amortization of $879,033 (Note 1)	                                  322,036
Goodwill, net of accumulated amortization of
$200,536 (Note 1)	                                                   46,264
                                                                 ----------
Total other assets		                                                368,300
                                                                 ----------
Total Assets	                                                    $1,067,435
                                                                 ==========
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>

Current liabilities:
<S>                                                              <C>
Accounts payable trade                                           $  280,196
Accrued liabilities (Note 11)                                       360,697
Accounts payable-Affiliate                                           18,000
Customer deposits (Note 12)                                         194,480
                                                                 ----------
Total current liabilities                                           853,373

Long-term debt (Note 4)                                              53,000
                                                                 ----------
Total liabilities                                                   906,373
                                                                 ----------
Commitments and contingencies (Notes 5, 6, 10, 12 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 15,000,000; issued and outstanding-
12,170,829 shares	                                                  304,271
Additional paid in capital	                                       5,232,630
Retained deficit                                                 (5,375,839)
                                                                -----------
Total stockholders' equity                                          161,062
                                                                -----------
Total liabilities and stockholders' equity                      $ 1,067,435
                                                                ===========

</TABLE>

See accompanying notes and accountants' report.

F-2

THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF OPERATIONS
Years ended December 31, 1995 and 1994

<TABLE>

                                                         1996         1995
                                                      ----------   -----------
<S>                                                   <C>          <C>
Sales	                                                $2,393,934    $1,288,867

Cost of goods sold		                                     360,739       311,603
                                                      -----------    ----------
Gross Profit		                                         2,033,195       977,264
                                                      -----------    ----------

Operating expenses:
	Selling and marketing	                                  712,230       312,355
	General and administrative	                             816,583       795,615
 Provision for bad debts                                  83,365            --
	Amortization of capitalized software costs	             267,327       212,183
                                                      -----------   -----------
Total operating expenses                               1,879,505     1,320,153
                                                      -----------   -----------
Operating income (loss)                                  153,690      (342,889)

Other income (expense):
Interest and dividend income                               1,995            --
Miscellaneous income                                      31,156         7,410
Interest expense                                         (50,194)     (106,261)
Factoring costs                                          (13,966)      (31,736)
                                                      -----------    ----------
Income (loss) before taxes                  	            122,681      (473,476)
 Deferred income taxes                                    71,000            --
 Valuation allowance- change at
 beginning of year                                       (71,000)           --
                                                      -----------    ---------
Net income (loss)                                     $  122,681     $(473,476)
                                                      ===========    ==========
Weighted average common shares outstanding            10,428,466     8,403,403
                                                      ===========    ==========
Net income (loss) per common share	                   $     .012     $   (.056)
                                                      ===========    ==========
</TABLE>

See accompanying notes and accountants' report.

F-3

<TABLE>

THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995

<CAPTION>


                                                    Additional
                              Common Stock           paid in        Retained
                          Shares       Amount        capital         deficit
                          --------------------      ----------     -----------
<S>                       <C>         <C>           <C>            <C>
Balance at                8,397,218   $209,931      $4,001,133     $(5,025,044)
December 31, 1994

Issuance of common stock    173,647      4,341          82,483              --
for cash at $.50 per share

Net loss                         --         --              --        (473,476)
                          ---------    -------       ---------      -----------
Balance at                8,570,865    214,272       4,083,616      (5,498,520)
December 31, 1995

Issuance of common stock    546,517     13,663         229,596              --
for cash at $.20-$.50
per share

Issuance of common stock  2,689,770     67,244         921,213              --
conversion of debts at
$.20-$.75 per share

Issuance of common stock    363,677      9,092          (1,795)             --
for services rendered at
$.02 per share

Net Income                       --         --              --         122,681
                         ----------   --------      ----------     ------------
Balance at               12,170,829   $304,271      $5,232,630     $(5,375,839)
December 31, 1996        ==========   ========      ==========     ============


</TABLE>

See accompanying notes and accountants' report.

F-4

THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995

<TABLE>

                                                        1996           1995
                                                     -----------    ---------
<S>                                                  <C>            <C>
Cash flows from operating activities:
Net Income (Loss)	                                   $  122,681    $ (473,476)

Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
	Depreciation and amortization	                         342,827        283,714
	Reserve for bad debts	                                  83,365        (34,188)
	Gain on debt settlement	                               (31,158)        (7,206)

Changes in assets and liabilities:
	Accounts receivable	                                  (361,191)       (21,741)
	Inventories	                                             4,077         21,762
	Prepaid expenses and deposits	                         (25,295)         1,751
	Accounts payable and accrued liabilities	              (99,344)       104,862
 Customer deposits                                      125,000             --
 Accounts payable-Affiliate                              18,000             --
                                                      ----------     ----------
Net cash provided by (used in) operating activities     178,962       (124,522)

Cash flows from investing activities:
 Purchase of property and equipment                     (43,013)        (8,311)
	Purchase of capitalized software costs	               (276,999)      (166,528)
                                                     ----------- 	  -----------
Net cash used in investing activities	                 (320,012)      (174,839)

Cash flows from financing activities:
	Proceeds received from issuance of debt	                34,256        280,000
	Principal payment on debt	                                  --        (13,327)
	Issuance of common stock for cash	                     243,259         86,824
                                                     -----------    -----------
Net cash provided by financing activities	              277,515        353,497

Net increase in cash	                                   136,465         54,136

Cash at beginning of year                                56,882         	2,746
                                                     -----------    -----------
Cash at end of year                                 	$  193,347    $   56,882
                                                     ===========    ===========
Interest paid	in cash                                $       --     $   30,146
                                                     ===========    ===========
</TABLE>

See accompanying notes and accountants' report.

F-5


THE AMERICAN EDUCATION CORPORATION
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Years Ended December 31, 1996 and 1995

During 1996,$773,245 of principal debt and $222,509 of accrued interest
and accounts payable were converted to 3,053,447 shares of common stock.


See accompanying notes and accountants' report.

F-6


THE AMERICAN EDUCATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

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.

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 Education 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.

Basis of presentation
---------------------

The accompanying financial statements have been prepared on
a going-concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. The Company has an accumulated deficit
of $5,375,839, and an excess of current liabilities over current
assets of $203,497 at December 31, 1996. Accordingly, the
Company's continued existence is dependent on its ability to
generate positive cash flow from its operations and/or raise
additional financing or capital.

F-7

Accounts receivable factoring
-----------------------------

Until June 1996, the Company factored certain of its
receivables with recourse to a related party shareholder.
The Company received advances of $34,256 on its factoring
line of credit during 1996. The total owed under this line,
$290,000, was converted to common stock on June 30, 1996.
Factoring expense for 1996 and 1995 was $13,966 and $31,736,
respectively.

Revenue recognition
-------------------

The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountant's
Statement of Position 91-1 on software revenue recognition
The Company has recognized revenue and a like amount of
expense on products traded for advertising and promotional
services. Sales revenues and selling and marketing expense
include approximately $362,000 of such non-monetary transactions
for the year ended December 31, 1996 and $77,000 for 1995.

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. 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, 1996 were $924,070 with additional
costs capitalized of $276,999 during 1996.

Goodwill
--------

Goodwill relates to the acquisition of the Company in 1991,
and prior to 1993 was amortized over a period of 40 years.
In 1993, the estimated useful life was revised with the
remaining goodwill amortized over five years. Amortization
expense totaled $46,272 and $46,281 for 1996 and 1995,
respectively.

Inventories
-----------

Inventories are stated at the lower of cost (first-in,
first-out) or market and consist primarily of raw materials.
The components of computer software inventories at December 31,
1996 are as follows:

<TABLE>

<S>                                 <C>
Raw materials	                      $  25,554

Less: Impairment reserve      	        (9,645)
                                    ----------
Inventory, net of reserves	         $  15,909

</TABLE>

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 $29,228 and $25,249 for 1996
and 1995, respectively. The components of property and
equipment at December 31, 1996 are as follows:

<TABLE>

<S>                                           <C>
Computer equipment	                           $ 	87,519
Furniture, fixtures and office equipment 	      	83,323
Leasehold improvements 	                         	4,255
                                              ---------
Total property and equipment                  $ 175,097
                                              =========
</TABLE>

Statements of cash flows
------------------------

In the 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 fluids or other investments with original
maturities of three months or less.

Use of Estimates
----------------

The preparation of the financial statements in conformity
with 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
approzimate fair value due to their short-term nature.

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

During 1996, a shareholder exercised options to purchase
100,000 shares of common stock for cash at $.20 per share.
Warrants to purchase common stock at $.50 per share for
286,517 shares were exercised in September 1996.

During the first quarter of 1996, the Company adopted a
new non-qualified stock option plan. On March 11, 1996,
the Company granted options to employees, officers and
directors to purchase 1,301,195 shares of common stock at
$.50 per share. The options expire March 11, 1999, or ninety
days after termination of employment. During 1996 options for
28,000 shares expired as a result of employment termination.

F-9

3.	Common and Preferred stock
-----------------------------

The following is a summary of common stock transaction
during 1996:

                                  Number of         Price
                                Shares Issued     Per Shares
                                -------------     ----------
Stock options exercised           100,000           $    .20
Warrants exercised                286,517           $    .50
Conversion of debt              2,689,770           $.20-.75
Stock issued of cash              160,000           $    .50
Stock issued for compensation     363,677           $    .02

4. Long-term debt
-----------------
The Company has a note payable to a shareholder in the amount of
$50,000 due June 30, 2000; along with accrued interest at the
rate of 12% per annum. Total accrued interest at December 31, 1996
is $3,000. The note is convertible to common stock at $.136 per share
and is collateralized by virtually all of the Company's assets.

<TABLE>

December 31, 1996
-----------------
<S>                       <C>
Not payable                $  50,000
Interest payable               3,000
                          ----------
Current portion               53,000
Long-term debt                   -0-
                          ----------
                           $  53,000

</TABLE>

Aggregate maturities of notes payable are as follows:

<TABLE>

          December 31,
          ------------
          <S>                  <C>
          1997                       --
          1998                       --
          1999                       --
          2000                   53,000
                               --------
                               $ 53,000
                               ========

</TABLE>

Notes payable totaling $743,045 were converted to
common stock at June 30, 1996.

Interest incurred on notes payable for the years ended
December 31, 1996 and 1995 totaled $46,420 and $106,261,
respectively.

5. 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 ranging from 1%
to 5% of net collected sales on those particular titles.
These agreements expire in the years 2000 and 2005. Royalty
expense totaled $29,743 and $10,064 in 1996 and 1995,
respectively.

F-10

6.	Operating leases
-------------------

The Company rents office space under a lease agreement; dated
March 1, 1996 through February 1999; at the rate of $5,247 a
month. Total office rent expense for the years ended December
31, 1996 and 1995 was $56,241 and $56,235; respectively. The Company
also rents certain office equipment under a sixty month lease
beginning January 4, 1996 at the rate of $1,012 a month. Total
equipment expenses, including the lease, for the years ended
December 31, 1996 and 1995 was $29,164 and $15,920, respectively.

Future rental commitments under lease agreements are as follows:

<TABLE>

                        Office Lease         Equipment Lease
                        ------------         ---------------
<S>                     <C>                  <C>
1997                    $  62,959            $   12,144
1998                       62,959                12,144
1999                       10,493                12,144
2000                           --                12,144
Thereafter                     --                    --
                        ---------            ----------
                        $ 136,411            $   48,576
                        =========            ==========
</TABLE>

7. Income taxes
---------------

Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires recognition of deferred tax liabilities and assets
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.

There was no impact on January 1, 1993 from the adoption of
this standard.

No current or deferred tax provision resulted for 1995 as there
was both an accounting and a tax loss. As a result of the
utilization of net operating loss carry forwards, deferred tax
expense of $71,000 for 1996 is offset entirely by a change in the
valuation allowance at the beginning of 1996. Timing differences
between the reporting of income and expenses on a tax basis
and on an accounting basis consist primarily of amortization
of goodwill and capitalized software costs.

The Company has available a net operating loss carry forward of
approximately $4,760,000 expiring between the years 1997 and
2010. A valuation allowance for the full amount of the related
deferred tax asset of approximately $895,000 has been assessed.

F-11

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

The Company had notes payable due to various shareholders,
which were converted to common stock, along with the related
accrued interest at June 30, 1996. Principal and accrued
interest of $965,460 was converted to 2,651,275 shares of common
stock. The Company has an outstanding note payable and interest
to one shareholder totaling $53,000 at December 31, 1996. Total
related party interest expense and factoring costs was $51,657
and $97,215 for the years ended December 31, 1996 and 1995,
respectively.

Accrued compensation to officers and directors totaling $7,298
was converted to 363,677 shares of common stock during 1996.

The Company paid consulting fees to its President in the
amount of $37,663 and $55,172 during 1996 and 1995, respectively.
Consulting fees totaling $13,090 were also paid to two directors
during 1996.

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
1996.

In 1995, the Company had one customer that accounted for more
than 10% of total revenues; United Marketing Associates,
$137,626 or 10.7%.

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.

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 at $322,036.

The Company has various vendor claims pending on delinquent
trade payables. The Company uses the services of a professional
firm to work out settlements with these creditors. As a result,
these payables may be settled for less than their recorded amounts.

F-12


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

Accrued liabilities are comprised of the following at December 31, 1996:

Accrued payroll tax liabilities        $ 217,142
Accrued payroll and commissions          106,487
Accrued royalties                         37,068
                                       ---------
                                       $ 360,697
                                       =========

12. Customer deposits
---------------------

Customer deposits at December 31, 1996 are comprised of:

Contract payment received             $ 125,000
Various customer credit balances         69,480
                                      ---------
                                      $ 194,480
                                      =========

The Company has entered into a software distribution and
licensing agreement with a major educational product publisher,
whereby the Company's A+dvanced Learning System software
engine technology will be modified to the publisher's
specifications. Under this agreement, the Company received
a prepayment of $125,000. Upon the achievement of specific
milestones the Company will receive an additional $225,000.
The total payment of $350,000 represents payment against future
purchases of the modified products. The publisher has been
granted a security interest in the Company's inventory in the
amount of all prepayments.

13. Litigation
--------------

In October 1996, the Company became a party to litigation in
the United States District Court for the District of
Columbia entitled SECURITIES AND EXCHANGE COMMISSION-
PLAINTIFF V. AMERICAN EDUCATION CORPORATION. Defendant (the
"Action"). In the Action, the Company admitted that, in
violation of certain provisions of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), it
failed to file, among other things, certain annual and
quarterly reports. The Company entered into a Consent and
Undertaking pursuant to which the Court will issue a Final
Judgment of Permanent Injunction requiring the Company to
(i) file all its delinquent Exchange Act reports and (ii) in
the future, timely file all of its Exchange Act reports.
The failure to file any required report could result in a
contempt citation or the assessment of fines against the
Company.

In addition, the Company is the subject of various legal
proceedings in the normal course of business. However,
management knows of no pending or threatened litigation
involving the Company, other than the Action, that is
considered material to the on-going operations and viability
of the Company.