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, 1995 
 
[ ]	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 5.025 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[ ] NO [X] 
 
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, 1995:  $1,288,867 
 
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 November 22, 1996:	12,170,828 

Transitional Small Business Disclosure Format	
YES [ ] NO [X] 
 
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, Inc. 
transferred to Medac, Inc. for $10,000, the rights to 
certain technology, computer equipment, and 57,000,000 of 
its 67,000,000 Medac, Inc. shares. Thereafter, the Company 
was essentially inactive until 1989. In 1989, the Company 
sold its remaining 10,000,000 shares of Medac, Inc. 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. 
 
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, for 
personal improvement and home-based schooling. 
 
The increasing 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 School 
and District Board's of Education and 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 and direct mail and 
catalog companies which market third-party products to the 
school and library markets. 
 
For the home market, the Company maintains a separate sales 
force of independent representative firms that market 
products to the home school market. 
 
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, 
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 so that parents 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 type 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 special emphasis 
to correct or detect skill deficiencies. 
 
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. 
 
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 hilly supported. 
 
Basic Learning Skills Courseware 
-------------------------------- 

Introduced in 1992, Basic Learning Skills Courseware is a 
DOS product family that includes hilly 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 hilly 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 operate 
in the product niches of the Company. These relationships 
are being sought to supplement and complement the content of 
existing and planned A+LS subject matter. Management 
believes this process postures the Company as an open 
architecture, full classroom management solution. 
Management also believes this process enhances the value of 
the Company's products and strengthens marketing 
relationships with distributors 
 
The Market For Educational Software Products. 
--------------------------------------------- 

The Company addresses two major market segments for its 
products: the school and home markets. The Company's 
products, except for those especially configured for use by 
the professional educator, generally have application in 
either market. During 1995, one customer, United Marketing 
Associates, represented 10.7% of total Company revenues. 
During 1994, one customer, Educational Resources, 
represented 10.3% of total Company revenues. 
 
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. A major objective is to continue to expand the 
Company's dealer base of organizations calling on and 
selling into the public school market. The Company lacks 
representation in many significant areas of the country. A 
key emphasis will be to ensure that this expansion program 
will provide coverage in these areas. 
 
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. 
 
Trade Names. Service Marks and Logo Types. 
------------------------------------------ 

The 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 
of the Company and is incontestable for this use. Other 
various trademarks and logos acquired from AECI and 
associated with the software products acquired from AECI 
have also been registered. 
 
On June 16, 1995, the Company filed for the separate and 
expanded use of its A+ registered mark as A+dvanced Learning 
System with its logo design to describe and identify the 
extensive family of educational software products released 
in 1995. Formal notification of acceptance of this 
registered mark has not been received at this writing. 
 
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 hill time basis. At December 31, 1995, the Company 
employs eight hill 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 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 technical support and product 
development resources. At December 31, 1995, the Company 
employed one hill time curriculum manager for this effort. 
 
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 $166,523 in software 
research and development costs in 1995. 
 
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. 
------------
 
Sales of textbook products to schools are subject to a 
certain degree of seasonality as major purchases are usually 
made in July and August prior to the start of the school 
year. The sale of educational software products does not 
indicate this same pattern. Decisions by schools and 
individual consumers to purchase educational software have 
most frequently been made at the beginning, or near the end 
of school periods. For home computer software products, the 
Company experiences marginally higher sales levels during 
the first and fourth quarters of the year. Summer months 
have shown the lowest level of sales for computer software 
products. The Company anticipates that seasonal trends will 
become more distinct as the educational software market 
continues to mature. 
 
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, 1995, the Company 
had twenty-three (23) hill-time employees. The Company 
believes that its relationship with employees is 
satisfactory. 
 
Subsequent 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 November 22, 1996, the following significant 
subsequent 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 it 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 restricted 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 restricted common 
stock at an exercise price of $.50 per share. 
 
In October 1996, a supplier of the Company exchanged $11,747 
of amounts owed to it 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: 

<TABLE>
<S>                                <C>
Debt eliminated	                     $988,457 
Capital from purchase of stock	      $243,258 
Common stock shares issued	         3,236,286 
</TABLE>
 
As a result of these transactions, borrowings from third 
parties or banks have been reduced to approximately $67,000 
as of November 22, 1996. 
 
Item 2.	Description of Properties. 
---------------------------------- 

The Company is located at 7506 North Broadway, Suite 505, 
Oklahoma City, Oklahoma, 73116. This space houses, 
within approximately 8,750 square feet, the Company's 
corporate offices and warehouse facility. At December 31, 
1995, the Company was in default on this lease and was, 
therefore, occupying the space on a month to month basis. 
Effective March 31, 1996, the default was corrected and the 
space was leased for a monthly fee of approximately 
$5,247, exclusive of utilities and other services. 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 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, the assessment of fines against the 
Company, or an action by the Securities and Exchange 
Commission to deregister the Company's common stock. 
 
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 1995. 
 
PART II 
-------
 
Item 5.	Market for Common Stock and Related Stockholder Matters. 
----------------------------------------------------------------
 
As of September 22, 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 hinds 
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.
------------------------------------------------------------------
Liquidity and Capital Resources. 
--------------------------------
 
The Company, after assuming operational control of AECI, 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 the 
Company's product offerings. To finance the business, 
management has utilized additional long-term, subordinated 
debt from private investment sources, secured bark 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. 
 
At December 31,1995, the Company had $791,989 of unpaid 
principal outstanding on convertible notes, including 
$33,201 owed to a vendor. Effective June 30, 1996, the 
Company exchanged 2,651,274 shares of common stock for 
$731,989 of principal and $233,471 of accrued interest 
related to these convertible notes. At November 22, 1996, 
$50,000 of convertible notes, with a conversion price per 
share of $.136, remained outstanding. 
 
Additional working capital beyond that available within the 
Company have been and may be required to expand operations. 
Management has and will consider options available in 
providing such finding, including debt financing and capital 
enhancement. 
 
Results of Operations. 
----------------------
 
Fiscal Year Ended December 31. 1995 Compared to 
Fiscal Year Ended December 31, 1994. 
------------------------------------------------ 

The following is a discussion of the results of operations 
for the fiscal year ended December 31, 1995, as compared to 
the fiscal period ended December 31, 1994. 
 
Net software revenues for the twelve months ended December 
31, 1995, totaled $1,288,867 compared to net software 
revenues of $672,228 for the year ended 1994. This 
represents an increase of nearly 92% in 1995. The dramatic 
increase in sales is primarily attributed to the acceptance 
of the A+dvanced Learning System family of products, 
following a lengthy period of development and technical 
improvement. 
 
The Company is presently involved in discussions with 
several companies regarding the marketing and distribution 
of its products into the home market. 
 
Cost of goods sold for the year ended December 31, 1995, 
increased by approximately 9%, even though sales increased 
by 92%. 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, 1995, were $1,320,153, compared to $1,158,248 
for the previous year. This represents an increase of 
approximately 14%. Selling and marketing costs increased by 
approximately 22%, from $256,924 in fiscal 1994 to $312,355 
in 1995. The increase in 1995 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 
approximately 7% during 1995, from $745,147 to $795,615. 
This nominal increase is related to expanded technical 
support staff added as a result of the expanding customer 
base and higher legal and professional costs related to 
expansion of third party relationships and resolution of 
disputes with prior period suppliers. 
 
Costs incurred in conjunction with product development are 
charged to research and development expense until 
technological feasibility is established. In 1995 
amortization of such costs 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 increased by approximately 36% 
during 1995, from $156,177 in 1994 to $212,183 in 1995. This 
increase reflects the Company's emphasis on development of 
new and enhanced products during the past two years. 
 
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 42% during 1995, reflecting 
the reduced need for such financing during the latter 
portion of the year. 
 
Interest expense increased by approximately 58% during 1995, 
from $67,177 in 1994 to $106,261 for 1995. This increase 
reflects the higher levels of interest bearing debt and the 
reduced dependence on factoring during the year. 
 
The net loss in 1995 improved by approximately 45% as 
compared to the prior year. This reduction of net loss from 
$856,593 in 1994 to $473,476 in 1995 reflects the higher 
sales levels noted above, as well as the improving gross 
margins related to concentration of sales in more profitable 
markets. Also during 1995, final technical difficulties 
associated with network versions of the Company's products 
were resolved. Management believes that with these network 
problems resolved and with the expansion of 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 enhanced 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, future 
opportunities exist in both the school and home markets. The 
Company is now equipped with Macintosh, DOS and Windows 
program shells that facilitate the rapid and less expensive 
development of new subject titles. Management also believes 
that the Company is better positioned to compete in the 
multimedia field as a result of its software development 
tools and capabilities, growing marketing strengths and its 
position within the school and home market places. 
Accordingly, this area which is now emerging as a major 
market, is under study and the Company is investigating 
sources for intellectual property and potential partnerships 
with other publishers on which it may base future 
publications. Management believes that the Company can make 
significant progress within its existing product development 
and marketing budgets to position the Company to identify 
and plan products for this business. 
 
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 1996. 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 independent auditing 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 as of November 22, 1996. 
 
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. 
 
<TABLE>

Name                     Age       Position
------------------------------------------------------------
<S>                     <C>        <C>
Jeffrey E. Butler        54         President, Director, 
                                    Chief Executive Officer
                                    and Chief Financial Officer

Thomas Shively           44         Executive Vice President 
                                    and Chief Operating Officer
 
Monty C. McCurry         51         Director

Newton W. Fink           58         Director

Stephen E. Prust         51         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, 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 
hill-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 for the 
fiscal years, 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. During these periods, no other executive officer 
of the Company received total salary and/or bonus 
compensation in excess of $100,000. The Company did not 
grant any restricted stock awards, stock options or stock 
appreciation rights, or make any long term incentive plan 
payments to Mr. Butler during the fiscal years indicated. 

<TABLE>
 
Name of Individual or Number in Group                 Cash 
Compensation (1) 
-------------------------------------                 ------
<S>                                                   <C>
Jeffrey E. Butler (1, 2, 3)	1995	                     $ 94,349 
		                          1994	                     $ 88,083 
Directors and executive officer(s) as a group 
(7 persons) (1, 3)	1995	                              $242,550 
		                 1994	                              $292,360 

</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 
 
(3)	Includes $39,177 for 1995 and $41,107 for 1994, in 
payments made to Mr. Butler for reimbursement of out of 
pocket expenses incurred on behalf of the Company. 
 
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 1,289,195 
shares of restricted common stock at a price of $.50 per 
share were granted to 14 employees in March 1996. 
 
There were no exercises of stock options by employees during 
1995 and no options were deemed In-the Money during this 
period. 

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 November 22, 1996. 
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          	6,454,507 	       51.5% 
 
Robert Schoolfield (7) 
S Pleasant Cove
Austin , TX 78746	                   Common	          1,536,517 	       12.7% 

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 hinds 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. 

(7) The amount and percentage figures include the exercise 
of 286,517 common stock warrants to purchase an equal number 
of common shares at a price of $.50 per share, exercised in 
September 1996. 
 
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 hill fiscal year or of the other entity's 
consolidated gross revenues for its last hill 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 Company, which was incorporated under the laws of 
the state of Oklahoma on March 17, 1995. Under the terms of 
this agreement, AmED Financing Company 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 Company, 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. See footnote 8, to financial 
statements. 
 
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. There were no reports filed or required 
to be filed on Form 8-K for the fourth quarter ended 
December 31, 1995. 
 
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. 
 
November 22, 1996 
 
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          November 22, 1996
                            Chairman of the Board Treasurer

/s/ Monty C. McCurry        Director                         November 22, 1996

/s/ Newton W. Fink          Director                         November 22, 1996
 
/s/ Stephen E. Prust        Director                         November 22, 1996

</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, 1995                    F-2

Statements of Operations years ended 
December 31, 1995 and 1994	                         F-3 

Statements of Stockholders' Deficit years ended 
December 31, 1995 and 1994	                         F-4 

Statements of Cash Flows years ended 
December 31, 1995 and 1994	                         F-5 

Schedule of Non-Cash Investing and Financing 
Activities years ended December 31, 1995 and 1994   F-6

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, 1995 and the related 
statements of operations, stockholders' deficit, and cash 
flows for each of the two years in the period ended December 
31, 1995. 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 audit. 
 
We conducted our audit in accordance with generally accepted 
auditing standards. Those standards require that we plan 
and perform the audit 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 audit provides 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, 1995 and the results of its operations and cash 
flows for each of the two years in the period ended 
December 31, 1995, in conformity with generally accepted 
accounting principles. 
 
Oklahoma City, Oklahoma November 18, 1996 
 
THE AMERICAN EDUCATION CORPORATION 
BALANCE SHEET 
December 31, 1995 
 
ASSETS 
------

<TABLE>

Current assets: 
<S>                                                               <C>
Cash	                                                             $	 56,882 
Accounts receivable, net of allowance for 
uncollectible accounts of $28,822 (Note 1)                          130,352 
Inventory, net of impairment reserve of $10,000 (Note 1)             19,986 
Prepaid expenses and deposits                                         7,147 
                                                                  ---------
Current Assets	                                                     214,367 
Property and equipment, at cost (Note 1)	                           135,115 
Less accumulated depreciation and amortization                      (99,64l) 
                                                                 -----------
Net property and equipment	                                          35,474 
 
Other assets: 
Capitalized software costs, net of accumulated 
amortization of $745,989 (Note 1)	                                  312,364 
Goodwill, net of accumulated amortization of 
$154,264 (Note 1)	                                                   92.536 
                                                                 ----------
Total other assets		                                                404,900 
                                                                 ----------
Total Assets	                                                    $  654,741 
                                                                 ==========
</TABLE>
 
LIABILITIES AND STOCKHOLDERS' DEFICIT 

<TABLE>
 
Current liabilities: 
<S>                                                              <C>
Accounts payable and accrued liabilities	                        $1,063,384 
Current maturities of notes payable and 
long-term debt (Note 4)	                                            726.989 
                                                                 ----------
                                                                  1,790,373 
 
Long-term debt (Note 4)                                              65,000 
                                                                 ----------
Total liabilities                                                 1,855,373 
                                                                 ----------
Commitments and contingencies (Notes 5, 6, 10, 11 and 12)                -- 
 
Stockholders' Deficit (Note 3) 
Preferred Stock $.00 1 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- 
8,570,865 shares	                                                  214,272 
Additional paid in capital	                                      4,083,616 
Retained deficit	                                               (5,498,520) 
                                                                -----------
Total stockholders' deficit	                                    (1,200,632) 
                                                                -----------
Total liabilities and stockholders' deficit	                    $   654.741 
                                                                ===========

</TABLE>
 
See accompanying notes and accountants' report. 
 
THE AMERICAN EDUCATION CORPORATION 
STATEMENTS OF OPERATIONS 
Years ended December 31, 1995 and 1994 

<TABLE>
                                                      	   
                                                         1995         1994 
                                                      ----------   -----------
<S>                                                   <C>          <C>
Sales	                                                $1,238,867    $  672,228 

Cost of goods sold		                                     311,603       286,182 
                                                      -----------    ----------
Gross Profit		                                           977,264       386,046 
                                                      -----------    ---------- 
 
Operating expenses: 
	Selling and marketing	                                  312,355	      256,924 
	General and administrative	                             795,615       745,147 
	Amortization of capitalized software costs	             212,183       156,177 
                                                      -----------   -----------
Total operating expenses                               1,320,153     1,158,248
                                                      -----------   -----------
Operating loss                                          (342,889)     (772,202)
Other income (expense):
Interest income                                               --           847
Miscellaneous income                                       7,410        36,831  
Interest expense                                        (106,261)      (67,177)
Factoring costs                                          (31,736)      (54,892)
                                                      -----------    ----------
Net loss                                    	          $(473,476)    $(856,593) 
                                                      ===========    ==========
Weighted average common shares outstanding	            8,403,403 	   8,088,916 
                                                      ===========    ==========
Net loss per common share	                                ($.056)       ($.106) 
                                                      ===========    ==========
</TABLE>

See accompanying notes and accountants' report. 

<TABLE>
 
THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Years ended December 31, 1995 and 1994

<CAPTION>

                                                         
                                                         Additional
                     Common Stock      Preferred Stock     paid in    Retained
                   Shares     Amount  Shares     Amount    capital     deficit
                   ------------------  ----------------- ---------- -----------
<S>                <C>                 <C>               <C>        <C>
Balance at         6,228,165 $155,704        --       -- $3,330,930 $(4,168,451)
December 31, 1993

Issuance of        1,375,000   34,375        --       --    515,625          --
common stock for
cash at $.40 per
share

Issuance of           40,000    1,000        --       --     19,000          --
common stock for
cash at $.50 per
share

Conversion of        754,053   18,852        --       --    135,578          --
notes payable to 
stock at a price 
of $.205 per share

Net loss                 --        --        --       --         --    (856,593)
                    --------- -------  -------- --------  ---------  -----------
Balance at          8,397,218 209,931        --       --  4,001,133  (5,025,044)
December 31, 1994

Issuance of           173,647   4,341        --       --     82,483  
common stock 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   ========= ======== ======== ======== ========== ============

</TABLE>

See accompanying notes and accountants' report.

THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF CASH FLOWS 
Years Ended December 31, 1995 and 1994 

<TABLE>

                                                        1995           1994 
                                                     -----------    ---------
<S>                                                  <C>            <C>
Cash flows from operating activities:               
Net Loss	                                            $ (473,476)    $ (856,593) 
 
Adjustments to reconcile net loss to 
net cash used in operating activities: 
	Depreciation and amortization	                         283,714	       224,918 
	Deferred assets written off	                                --        	42,511 
	Reserve for bad debts	                                 (34,188)	       60,531 
	Gain on debt settlement	                                (7,206)            --  
 
Changes in assets and liabilities: 
	Accounts receivable	                                   (21,741)	      (67,141) 
	Inventories	                                            21,762	        69,216 
	Prepaid expenses and deposits	                           1,751	        19,986 
	Accounts payable and accrued liabilities	              104,862	        91,059 
                                                      ----------     ----------                         
Net cash used in operating activities 	                (124,522)     	(415,513) 

Cash flows from investing activities:	 
 Purchase of property and equipment                      (8,311)       (17,713)     
	Purchase of capitalized software costs	               (166,528)     	(159,310) 
                                                     ----------- 	  -----------
Net cash used in investing activities	                 (174,839)     	(177,023) 
 
Cash flows from financing activities: 
	Proceeds received from issuance of debt	               280,000	       103,750 
	Principal payment on debt	                             (13,327)	      (82,198) 
	Issuance of common stock for cash	                      86,824 	      570,000 
                                                     -----------    -----------
Net cash provided by financing activities	              353,497       	591,552 

Net increase (decrease) in cash	                         54,136	          (984) 

Cash at beginning of year                                	2,746         	3,730 
                                                     -----------    -----------
Cash at end of year                                 	$   56,882	    $    2,746 
                                                     ===========    ===========
Interest paid	                                       $   30,146	    $   19,111 
                                                     ===========    ===========
</TABLE>
 
See accompanying notes and accountants' report.
 
 
THE AMERICAN EDUCATION CORPORATION 
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 
Years Ended December 31, 1995 and 1994 
 
During 1994, $3,775 of accrued interest was converted to 
note principal; $4,430 of accrued interest and $150,000 of 
notes payable were converted to 754,053 shares of common 
stock at a price of $.205 per share. (See Note 3). 
 
 
See accompanying notes and accountants' report. 
 
 
THE AMERICAN EDUCATION CORPORATION 
NOTES TO FINANCIAL STATEMENTS 
December 31, 1995 
 
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 incurred continuous 
losses and has not generated sufficient working capital to 
support its operations. The Company has an accumulated 
deficit of $5,498,520, and an excess of current liabilities 
over current assets of $1,576,006 at December 31, 1995. 
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. 
(See Note 11-Subsequent Events). 
 
Accounts receivable factoring 
-----------------------------
 
During 1995, the Company factored certain of its receivable 
with recourse to a related party shareholder. Total 
receivable factored for the year was $1,049,680. Of this amount, 
$255,743 is due to the factoring company in the form of a 
note payable at December 31, 1995. This note was 
subsequently converted to common stock in June 1996. Factoring 
expense for 1995 and 1994 was $31,736 and $54,892, 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. Revenue and expense include $77,239 of such non-
monetary transactions for the year ended December 31, 1995 
and $-0- for 1994. 
 
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, 1995 were valued at $891,825 
with additional costs capitalized of $166,528 during 1995. 
 
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 $46,281 and $46,272 for 1995 and 1994, 
respectively. 
 
Inventories 
-----------
 
Inventories are stated at the lower of cost (first-in, 
first-out) or market and consist primarily of materials, 
labor and overhead. The components of computer software 
inventories at December 31, 1995 are as follows: 

<TABLE>

<S>                                 <C>
Raw materials	                      $  29,986 

Less: Impairment reserve      	       (10,000) 
                                    ----------
Inventory, net of reserves	         $  19,986 

</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 $25,249 and $22,468 for 1995 
and 1994, respectively. The components of property and 
equipment at December 31, 1995 are as follows: 

<TABLE>

<S>                                           <C>
Computer equipment	                           $ 	47,637 
Furniture, fixtures and office equipment 	      	83,223 
Leasehold improvements 	                         	4,255 
                                              ---------
Total property and equipment                  $ 135.115
                                              =========
</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. At December 31, 1995 and 
1994 cash and cash equivalents include demand deposits with 
banks. 
 
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. 
 
2. Exercise of options to purchase common stock 
-----------------------------------------------
 
During 1995, a shareholder exercised options to purchase 
173,647 shares of common stock for cash at $.50 per share. 
As of December 31, 1995, options for 100,000 shares of 
common stock at $.20 per share remained outstanding. These 
options were exercised in July 1996. Outstanding warrants to 
purchase common stock at $.50 per share totaled 286,517 
shares at December 31, 1995. These warrants were exercised 
in September 1996. 
 
3.	Common and Preferred stock 
-----------------------------
 
During 1994, 1,375,000 shares of common stock were issued 
for cash at a price of $.40 per share. An additional 40,000 
shares were issued for cash at a price of $.50 per share. A 
note payable and accrued interest totaling $154,430 was 
converted to 754,053 shares at a price of $.205 per share. 

4. Notes payable
----------------
<TABLE>

<S>                                                            <C> 
Convertible note payable to a shareholder; interest at 12% 
per annum due quarterly; principal due July 15, 1995; unpaid 
interest and principal balance convertible to $.025 par 
value common stock at a rate ranging between $.1346 and $.50 
per share; collateralized by virtually all of the assets of 
the Company. A portion of this debt and the related accrued 
interest were converted to common stock during 1993 and 
1994. $105,520 principal plus accrued interest was converted 
to common stock on June 30, 1996. The balance of $50,000 is 
also convertible to common stock and matures June 30, 1998.     $ 155,520 
 
Convertible notes payable to shareholders; interest at 12% 
due quarterly; principal due June 30, 1996; unpaid interest 
and principal balance convertible to $.025 par value common 
stock at rate of $.50 per share; subordinated to all other 
notes of the Company, except for those notes created through 
the settlement of accounts payable. $100,000 principal plus 
accrued interest was converted to common stock on June 30, 
1996.                                                             100,000
 
Convertible notes payable to individuals; interest at 12% 
due quarterly; principal due June 30, 1996; convertible to 
$.025 par value common stock at a rate of $.50 per share; 
subordinated to all other notes of the Company, except for 
those notes created through the settlement of accounts 
payable.  One of these notes with an outstanding balance of 
$66,667 is with a shareholder of the Company. $110,000 
principal plus accrued interest was converted to common 
stock on June 30, 1996.                                           110,000
 
Convertible note payable to a shareholder, interest at 10% 
per annum due quarterly; principal due by December 15, 1997; 
unpaid principal and interest balance convertible to $.025 
par value common stock at $.50 per share; collateralized by 
virtually all of the assets of the Company. $137,525 
principal plus accrued interest was converted to common 
stock on June 30, 1996.                                           137,525
 
Account payable converted to a note, due July 15, 1995, 
eighteen equal principal payments plus accrued interest of 
10% per annum are due monthly through maturity, subordinated 
to all other notes of the Company. The note was in default 
at December 31, 1995 with default interest at 18%. In June 
1996, the debt was partially converted to stock and a new 
note for $20,000 due in 24 installments beginning July 1, 
1996.                                                              33,201
 
Note payable to factoring company owned by a shareholder, 
with 10% interest, due December 31, 1996. Principal plus 
interest converted to common stock on June 30, 1996.              255,743 
                                                                 ---------
	Total notes payable	                                             791,989 
 Less current portion                                            (726,989)
                                                                ----------
	                                                               $  65,000 
                                                                ==========
</TABLE>

Aggregate maturities of notes payable are as follows: 

<TABLE>

          December 31,
          ------------
          <S>                                                   <C>  
          1996                                                  $ 726,989
          1997                                                     10,000
          1998                                                     55,000 
          1999                                                         -- 
          2000                                                         -- 
                                                                ---------
                                                                $ 791,989   
                                                                =========
 
</TABLE>
 
Interest incurred on these notes for the years ended 
December 31, 1995 and 1994 totaled $106,261 and $67,177, 
respectively. 
 
5. Royalty agreements 
---------------------
 
Several of the Company's software tides 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 $10,064 and $45,412 in 1995 and 1994, 
respectively. 
 
6.	Operating leases 
-------------------
 
The Company leases office space under a lease which is in 
default and is therefore on a month to month basis. Rent 
expense totaled $59,235 and $56,357 for the years ended 
December 31, 1995 and 1994, respectively. The company was in 
arrears on rent payments in the amount of $19,862 at 
December 31, 1995. Subsequent to December 31, 1995, the 
Company entered into a new lease agreement for the same 
office space at a monthly rate of $5,247. The lease term is 
March 1, 1996 through February 28, 1999. 
 
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 as there was 
both an accounting and a tax loss for each of the periods 
presented. There are no significant timing differences 
between the reporting of income and expenses on a tax basis 
and on an accounting basis. 
 
The Company has available a net operating loss carry forward 
of approximately $4,831,000 expiring between the years 1997 
and 2010. A valuation allowance for the full amount of the 
related deferred tax asset of approximately $966,000 has 
been assessed. 
 
8. Related party transactions 
-----------------------------
 
The Company has various notes payable with shareholders 
(Note 4). Accrued interest related to these notes at December 31, 
1995 is $152,765. The related interest expense totaled 
$97,215 and $47,039 during 1995 and 1994, respectively. The 
accrued interest was converted to common stock on June 30, 
1996. 
 
During 1995 and 1994, the Company paid fees to a firm owned 
by the President in the amount of $94,349 and $88,083, 
respectively. These fees include consulting, travel 
reimbursement, temporary living expenses and other various 
business expenses totaling $39,177 and $41,107 in 1995 and 
1994, respectively. 
 
During 1995 and 1994, the Company also paid a director and 
shareholder $-0- and $12,600 in consulting fees, 
respectively. 
 
9.	Significant Customers 
------------------------
 
The Company sells its products almost exclusively to schools 
through various distributors of educational materials. 
During the years ended December 31, 1995 and 1994, ten 
percent or more of the Company's revenues were generated 
from individual customers as follows: 

<TABLE>
 
                                          December 31, 
		                                 1995	  	             1994 
                                   ------------------------- 
<S>                                <C>
United Marketing Associates	       $137,626	 10.7%  	$    -- 
Educational Resources			           $     --  10.3%   $68,969

</TABLE>
 
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 
(carried in the accompanying balance sheet net of 
amortization at $312,364) is being amortized may have to be 
accelerated. 
 
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. 
 
11.	Subsequent Events 
--------------------- 

The Company issued 160,000 shares of common stock for cash 
at $.50 per share in March 1996. In March 1996, the Company 
also issued 363,677 shares of its common stock valued at 
$.02 per share in exchange for accrued wages and fees owed 
to the officers and directors of the Company. Notes payable 
and accrued interest totaling $976,710 at June 30, 1996 was 
converted to 2,666,274 shares of common stock at rates 
between $.20 and $.75 per share. Stock options to purchase 
100,000 shares of common stock at $.20 per share were 
exercised for cash in July 1996. Warrants for 286,517 shares 
of common stock at $.50 per share were exercised in 
September 1996. In October 1996, trade debt of $11,747 was 
converted to 23,495 shares of common stock. 
 
Summary of 1996 Equity Transactions 

<TABLE>

Type of	                         # Shares 
Transaction		                    Issued	      Cash         Debt Conversion 
-----------                      ---------    ---------    ---------------
<S>                              <C>          <C>          <C>
Options and warrants exercised	    546,517    $ 243,258    $      --
Accrued compensation	              363,677           --       	7,298 
Convertible notes and accrued 
interest payable	                2,651,274           --      965,460 
Notes payable converted             15,000           --       11,250 
Accounts payable converted          23,495           --       11,747 
                                 ---------    ---------    --------- 
                                	3,599,963	   $ 243.258	   $ 995,755 
                                 =========    =========    =========
 
 
12. 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. 


</TABLE>