FORM 10-KSB

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

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

For the Fiscal Year Ended December 31, 2002

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

For the Transition Period from  ________ to ________

Commission File #0-11078

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

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

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

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

(405) 840-6031
--------------
(Registrant's telephone number)

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

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

Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.

YES  X    NO ___

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form 10-
KSB.  [ X ]

Revenues for the year ended December 31, 2002:   $8,483,160

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked price
of such common equity, as of a specified date within the past sixty
days: $1,050,578 based on 7,504,127 shares at $.14 per share, the
last sale price of the common stock on March 14, 2003. (For purposes
of calculating this amount only, all the directors and executive
officers of the issuer have been treated as affiliates.)

Number of shares of the issuer's common stock outstanding as of
March 14, 2003: 14,367,461

Transitional Small Business Disclosure Format   YES   NO  X

TABLE OF CONTENTS TO FORM 10-KSB


PART I


                                                       Page Number


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


PART II


Item 5     Market for Common Stock and Related
           Stockholder Matters                              14
Item 6     Management's Discussion and Analysis
           or Plan of Operation                             14
Item 7     Financial Statements                             16
Item 8     Changes In and Disagreements with
           Accountants on Accounting and Financial
           Disclosure                                       16


PART III


Item 9    Directors, Executive Officers, Promoters,
          and Control Persons; Compliance with
          Section 16(a) of the Exchange Act                 17
Item 10   Executive Compensation                            19
Item 11   Security Ownership of Certain Beneficial
          Owners and Management                             22
Item 12   Certain Relationships and Related Transactions    23
Item 13   Exhibits and Reports on Form 8-K                  24


THE AMERICAN EDUCATION CORPORATION


FORM 10-KSB


PART I


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

General
-------

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

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

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

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

The Company's primary business is the development and marketing of
educational software to elementary, middle and secondary schools,
adult literacy centers and vocational, junior and community
colleges. The Company develops software for Windows, registered
trademark, Macintosh, registered trademark, Unix, registered
trademark, and Linux, registered trademark, operating systems.
Since 1995 the Company's revenues primarily have been derived from
the sale of its principal product family, the A+dvanced Learning
System, registered trademark,("A+LS" registered trademark), a
comprehensive courseware offering developed by the Company. A+LS is
currently shipping in Version 2.15.  In early 2001, the Company
released the A+nyWhere Learning System, registered trademark, a Java,
trademark, based program designed to be the Company's future
delivery platform for its extensive grade level 1-12 educational
content and assessment tools.  This new product family was well
received by the school market and as a component of total revenues
has made steady progress with respect to its relative percent
of total net revenues since its early 2001 release.

The Company acquired two businesses in 1998, Projected Learning
Programs, Inc. ("PLP") and Learning Pathways, Limited ("LPL").
These organizations are primarily resellers of other publishers'
products and operate as subsidiaries of the Company.  In 2001,
management elected to wind down and ultimately discontinue the
catalog selling operations of the PLP subsidiary as a result of the
marketplace moving to increasing use of the Internet and the cash
use intensity of this type of business.  LPL, the Company's Derby,
United Kingdom subsidiary was acquired in late 1998.  In the latter
part of 2000, LPL substantially completed the process of converting
the Company's A+LS curriculum content to a product presentation that
is suitable for British educators and schools.  LPL also undertook
the development of new content specifically focused on the UK's new
literacy and numeracy instructional requirements during 2001 and
significant portions of this new product offering were completed
during the 2001 fiscal year.  LPL's revised and expanded product
family was substantially released to the UK school market during the
2001 fiscal year.  The Company purchased Dolphin, Inc., ("Dolphin")
in December 1999.  Dolphin is an established, 13 year-old developer
of educational software for many of the world's leading textbook and
electronic publishers.  Dolphin was purchased to provide additional
depth to the Company's development activities and, through its
ongoing industry contacts, to assist the Company in initiating
partnering opportunities in the areas of content development,
marketing and business development.

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

The Company's products are sold through school dealers, an in-house
employee sales force, and through direct mail programs. The
Company's products are sold for use in elementary, middle and high
schools, libraries, adult learning centers, correctional
institutions, community colleges, universities, private industry,
and to a limited extent, for home-based schooling.  Approximately 83%
of the Company's 2002 sales were to the domestic U.S. school market and
17% to the international markets.  Future sales to international markets
are expected to increase as a percentage of total revenues as a result
of the LPL acquisition and as a result of distribution or other market
development partnerships, which have been entered into in Jordan and
Malaysia.

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

The Company is in a technology-based business and is an active
developer of diagnostic and prescriptive assessment testing and
curriculum software applications to facilitate the delivery of its
assessment testing and instructional content in a networked
environment, which includes the Internet.  A significant percentage
of the Company's current revenues are derived from sales to schools
that deliver curriculum content on a local area network ("LAN")
within a single school site.  The rapid adoption of fiber optic-
based wide-area networks ("WAN"), and increased Internet usage
provides for future growth opportunities for the Company.  In late
2000 the Company began the testing and delivery of its content
online.  Through the roll out and release of the A+nyWhere Learning
System the Company, at December 31, 2002, had in excess of 140
schools in 10 states using online curriculum content for both school
and home-based students.  Online delivery of content is a rapidly
growing element of the Company's business and the number of
institutions under contract to the Company grew from 27 schools in
2001 to 140 schools, or a 500% increase.  These users are largely
supported on company maintained server facilities in Oklahoma City
and at Sprint's eSolutions facility in Dallas, TX.  Management believes
that it has in place the development technology and programs to allow
it to capitalize on these rapidly developing changes in the structure
of the delivery of electronic-based instruction utilized by school
districts in future years.

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

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

The Company engages in extensive efforts to develop new programming
technology as well as new curriculum content and academic skills
assessment tools.  As a result of this effort, the Company now supports
all contemporary Macintosh, Windows, Novell, Unix and Linux operating
systems with one of the largest curriculum offerings in the core subject
areas for grade levels 1-12.  The Company now publishes under its
various A+, registered trademark, brands 147 separate software titles
with approximately another 16 titles in revision or development for
release in early 2003.  The currently released products all carry 2000
or later copyrights reflecting the Company's commitment not only to
development of content, but maintaining the currency of its products.

The Company's educational software for the elementary, middle and
high school markets is designed for use in classroom instruction and
stresses usefulness to the instructor as well as the student.  There
is a growing use of both LAN, WAN and Internet technologies in
schools and school districts and the Company provides versions that
perform in these environments.  The Company's products for schools
are designed for the professional educator and feature a management
function, which records assessment test and student activity data
for both individual student and class academic performance.  This
management function also provides for a wide range of performance
reports, lesson materials, tests and assignments that are required
to meet the No Child Left Behind initiative of the Federal
Government.  A hallmark feature of the Company's products is a
unique authoring tool, which allows the educator to add, modify and
expand both graphics and text to the curriculum content provided by
the Company.  The Company's software is correlated to over 80 major
national and state standards so that educators can develop specific
lesson plans to assist students with a course of study that is
directly related to specific learner objectives, or individual
student skill deficiencies.  The Company's computer software
products are carefully designed to be utilized without extensive
user experience with computer operations.

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

The majority of the Company's installed base is currently utilized
in a LAN environment as a LMS.  The LMS allows teachers and school
administrators to monitor and facilitate student performance, which
is increasingly important in a national environment where school
accountability is a prominent trend.  This approach provides
complete district, school and educator control of class and student
lesson assignments, individualized paths of study, skills
assessment, authoring, testing, reporting and the integration of
third-party and Internet-based content.  These capabilities and
range of reporting, and documentation of individual student
functions assist the educator in directing the use, and
understanding the effectiveness, of the software while improving the
efficiency of the learning process.  Management believes that fewer
than six companies in the educational software industry provide a
comprehensive, fully managed instructional LMS software solution
that is comparable to the products provided by the Company.

A+dvanced Learning System, registered trademark, Version 2.15
-------------------------------------------------------------

A+LS, V2.15, the currently shipping version has, from an educational
content perspective, been designed as a comprehensive grade
level 1-12 core curriculum solution.  It is a product family
comprised of 147 subject titles that provide for an interactive
multimedia instructional environment with extensive sound and
graphics.  Major subject areas covered are: reading, writing,
mathematics, science, history, geography and language arts.  Each
ascending grade level of the product family presents increasingly
more complex concepts that provide overlapping, subject matter
reinforcement by grade level.  As a body of published work, it is
one of the most extensive in the industry for the elementary, middle
and secondary grade levels.  A+LS's content is divided into subject
titles, each containing a number of lessons; each lesson containing
a number of activities such as study, practice exercises, test and
essay.  These instructional activities are further supported by
skill assessment tests for all subject areas and lesson-related
activities.  This design facilitates the use of the advanced A+LS
class and student management system to pretest, posttest and to
record academic gains, to maintain this data and report on
individual student and class activities.  Educators may select a
series of specific lessons across all subject areas to create a
curriculum plan for a specific time period, while specifying
independent mastery levels for each lesson for a class, group or an
individual student.  They may also integrate third party publishers'
materials into a specified course of study for enrichment or
remediation activities.  The product design also permits the
development of individualized courses of study for the at-risk or
special education student, which might require specific emphasis to
correct skill deficiencies.  Approximately 10,000 schools, centers
of adult literacy and correctional institutions have adopted
appropriate title and subject area components of this product family
since its introduction in mid-1995.

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

Throughout 2002, the Company has maintained active development
efforts in updating and expanding both its technology and curriculum
offerings for the A+LS product family.  During the year,
approximately 9 individual titles, reflecting offerings in both
English and Spanish languages, were developed and or updated.  At the
same time, the Company substantially completed the process of converting
titles from Version 2.15 formats to Version 3.0 and Version
4.0 formats.  This expanded, updated curriculum offering should
provide for additional revenue opportunities with its existing and
future school customers.  In addition, during fiscal 2002
significant portions of the Company's current assessments and
standards database was expanded, updated and realigned to meet new
or revised state and national academic standards.

A+SSESS!, Version 2.15
----------------------

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


A+nyWhere Learning System, Version 3.0, Version 4.0
---------------------------------------------------

The design approach of this new product family will maintain the
excellent features of the A+dvanced Learning System and A+SSESS!
product families and the means to move current and updated content
to the Java platform.  The product was released early in the 2001
fiscal year.  The process of transferring the Company's extensive
147-title content to this new environment is ongoing and at year end
2002 approximately 80% of the Company's content had been converted
to this platform. By July of 2003, the Company expects to have this
conversion process complete.

The A+nyWhere Learning System makes use of standardized Structured
Query Language ("SQL") and Open Database Connectivity ("ODBC")
technology to ensure transferability of student data between the
system and existing customer databases.  The powerful class and
student management features of this product provide the means to
link and transfer student performance data to most school and
district central records.  These features also include the ability
to dynamically assess student capabilities against specific
individual state standards, and prescribe individualized
remediation.

During 2002 the Company completed development and released the
A+nyWhere Learning System Version 4.0, the browser-based version of
Version 3.0.  This version has most of the features of Version 3.0,
but is designed to be delivered in standard internet browsers.
Importantly, Version 4.0 utilizes all of the curriculum and assessment
content resources of Version 3.0.  Further, the browser-based delivery
can be used as an independent, stand alone solution as well as in
combination with a Version 3.0 installation.  This design approach
is a major selling feature allowing schools to deploy as single,
common instructional resource from a single vendor throughout a
community or campus, simplifying use, training and data collection
processes.  In addition, the ability to deploy in LAN, WAN and
Internet configurations provides the school with a long term
solution to utilize computer and bandwidth resources as these
are upgraded over time.

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

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

The Company initiated development of the A+ University, a product
training and staff development product line, which is designed to
instruct school administrators, curriculum specialists and teachers
in the use of the Company's various products.  Initial release of
this new product family occurred in the second quarter of 2002.
It is believed that this product family should become an important
source of incremental revenue from existing and new customers
in future years.


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

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

During 2002, the Company entered into agreements with Educational
Testing Service ("ETS") and GoKnow, Inc. to significantly enhance
its content offerings. The agreement with ETS makes the E-Rater
online essay grading service available through the managed A+LS
system, and the Company released three new subject titles based on
E-Rater in late 2002. GoKnow provides A+LS with access to its
Artemis service, which makes controlled access to pre-screened,
educationally sound web sites available, and provides technologies
for efficiently using them. The Company expects to release three new
subject titles using the Artemis technology in 2003. These titles
will be research-oriented Science projects and will help the Company
round out its offerings for instruction of national Science
standards.

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

During 2002, the Company entered into a number of discussions with
US and UK-based publishers, hardware suppliers, and other
organizations associated with the educational marketplace.  The
purpose of these discussions is to license company technology,
strengthen or to develop new channels of access to the marketplace
utilizing the Company's content and technology.  A number of these
arrangements were consummated in 2002 and have been announced in
company or subsidiary press releases or literature. Several other
strategic partnering projects initiated in 2002 are still under
development, or are currently subject to confidential disclosure
restrictions.

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

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

The U.S. School Market
----------------------

The U.S. school market for educational software in calendar 2002 has
experienced little or no growth.  The principal cause is believed to
be delays and deferment of expenditures by schools as a result of
recessionary pressures and significant budget deficits at the individual
state level. In the United States, future market growth is expected to be
driven by record student enrollments in primary through secondary
schools projected through the year 2008.  The U.S. market is currently
comprised of 15,000 school districts that control 111,000 schools.
Many states in the South and Southwest with high population growth
projections are expected to have expansion of student populations
exceeding 20% during the next several years.

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

Market growth is also expected to effect significant changes in the
use and increased adoption of technology to cope with teacher and
physical facility shortages in an attempt to gain increasing
efficiency and to secure more accountability for academic
performance at the individual school and district level.  To meet
the future challenges, schools are expected to embrace the increased
use of a range of technologies including the areas of database
management, e-learning through the Internet and its capabilities.
In addition the current administration's initiatives such as the
21st Century and Reading First grant programs, combined with the "No
Child Left Behind" initiative is expected to provide additional
impetus to market growth in 2003 and future years.

The International School Market
-------------------------------

With its acquisition of LPL, the Company has entered the school
market in the UK.  This market is approximately 20% the size of the
U.S. market and believed to be growing at an annual rate exceeding
20%.  In 1999, the British government continued implementation of
Phase 1 of The National Grid for Learning ("NGfL") and launched
Phase II of this program on April 1, 1999, to invest substantially
in computer hardware infrastructure, Internet access, educator
training and instructional software technologies for the UK's
schools.  The NGfL funding is scheduled to continue through one
additional phase released in 2002 and management believes that these
government school funding initiatives will continue through the year
2003.  Accordingly the UK market should experience rates of growth
in funding for educational technology, at the individual school
level, approximately the same as the U.S. market.  Many former
British Commonwealth nations utilize the UK's instructional model
and Company management believes that additional international
opportunities will emerge as a result of the Company's programs and
presence in the UK marketplace.

The Adult Literacy/Lifelong Learning Market
-------------------------------------------

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

The Home Market
---------------

The Company has not been active in marketing its products to this
market segment, which offers future opportunities for growth and
additional financial returns on the Company's investment into
educational content.   Management believes that there is an
opportunity to move into this segment of the market with its current
products and collateral support and training materials that will be
of value to home educators utilizing online, Internet capabilities
released in mid-2002.  The home education is growing at rates
exceeding 15% per year, according to industry sources.  Many
families are choosing to educate their children at home versus the
traditional school education channels or to be actively involved in
providing additional academic emphasis through home-supervised
study.  Management believes that the Company's products are designed
in a manner to appeal to the home educator who is seriously involved
in the educational process of their children.  In addition, the
Company has invested heavily in the correlation of its products to
most national and state instructional objectives.  These
correlations should provide additional value-added support to the
use of its products by the home educator. The Company will make use
of the Internet to reach the home market with various marketing and
distribution programs.

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

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

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

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

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

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

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

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

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

At December 31, 2002, the Company employed twelve (12) full-time
development and support personnel in its product development
efforts.  These individuals are responsible for the development of
new versions of the Company's software technology and the support of
current versions of its software offerings.

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

At December 31, 2002, the Company employed eight (8) full-time
education professionals in support of this effort.  These
individuals plan, manage and coordinate the efforts of up to twenty
independent educational consultants and graphic designers.

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

Costs incurred with product development are charged to research and
development expense until technological feasibility of a product is
established.  Thereafter, all software development costs are
capitalized and amortized on a straight-line basis over the
product's estimated economic life.  The Company capitalized
$1,493,300 in software research and development costs in 2002.
Amortization of product development costs for the year ended
December 31, 2002, was $1,160,717.

Distribution and Sales Programs

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

In marketing its products, the Company utilizes approximately 40
independent school dealers and four educational catalog houses to
reach its school-based customers.  During 2002, the Company hired
and employed both field and in-house sales forces to provide support
to its dealers and to improve its access to school customers in
rural areas not easily reached by its dealers.  This sales team was
comprised of three individuals at December 31, 2002.

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

The Company views the Internet as a channel for future sales growth
and means to develop new customer service and support programs.  In
addition, the Internet has become a valuable adjunct for improved
customer service and support on product use and technical matters.
During 2002, the Company invested substantial resources in
improving and expanding its Internet presence and e-commerce
capabilities for all business units. The Company employs full time
personnel to update its web sites functionally and graphically its
www.amered.com, www.dolphinsoft.com, www.learnpath.com, and
www.learnaplus.com URL's. At the end of 2002, the Company has
five active Internet site facilities.

Backlog
-------

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

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

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

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

The Company sells its A+LS product family almost exclusively to
schools through various school dealers of educational materials.  No
individual customer accounted for more than 10% of total revenues in
2001 or 2002.

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

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

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

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

Employees
---------

As of December 31, 2002, the Company had 59 full-time employees in
its domestic operations and 13 full-time employees in its UK
subsidiary. The Company believes that its relationship with
employees is satisfactory.


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

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

Dolphin, Inc., a wholly owned subsidiary, leases 6,584 sq. ft. of
office space in Gibbsboro, New Jersey, under a lease agreement
expiring May 31, 2004.  Monthly lease expense is $9,130.

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

Total corporate cost of leased facilities was $278,103 for 2002 for
the Company's Oklahoma, New Jersey and Derby, UK facilities.  Cost
of leased facilities for 2001 was $294,806.


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

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


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

There were no matters submitted for a vote of the security holders
during 2002.


PART II
-------


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

As of December 31, 2002, there were approximately 2,300 record
holders of the Company's common stock. Since its initial public
offering in 1982, the Company's securities have been traded in the
over-the-counter market. The following is a summary of the high and
low price for each of the 2002 and 2001 quarters.


                                          2002            2001
                                          ----            ----
                                      HIGH     LOW     HIGH     LOW
                                      ------------     ------------

Quarter Ending March 31              $0.48   $0.26    $0.97   $0.52
Quarter Ending June 30               $0.40   $0.24    $0.80   $0.40
Quarter Ending September 30          $0.35   $0.18    $0.60   $0.35
Quarter Ending December 31           $0.22   $0.07    $0.50   $0.28

The above information was obtained from the National Association of
Securities Dealers. The quotations reflect inter-dealer prices,
without retail mark-up, markdown, or commission and may not
represent actual transactions.

Dividends
---------

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


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

Certain matters discussed herein (including the documents incorporated
herein by reference) are forward-looking statements intended to
qualify for the safe harbors from liabilities established by
the Private Securities Litigation Reform Act of 1995.  These forward-
looking statements can generally be identified as such because the
context of the statement will include words such as the Company
"believes," "plans," "intends," "anticipates," "expects," or words of
similar import.  Similarly, statements that describe the Company's
future plans, objectives, estimates, or goals are also forward-looking
statements.  Such statements address future events and conditions
concerning capital expenditures, earnings, litigation, liquidity,
capital resources and accounting matters.

Actual results in each case could differ materially from those
currently anticipated in such statements as a result of factors such
as future economic conditions, changes in customer demands, future
legislative, regulatory and competitive developments in markets in
which the Company operates and other circumstances affecting
anticipated revenues and costs.

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

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

As of December 31, 2002 the Company's principal sources of liquidity
included cash and cash equivalents of $74,405, net accounts receivable
of $2,001,019 and inventory of $36,444. The Company's net cash
provided by operating activities during the year ended December 31,
2002 was $1,887,086 compared to $1,895,493 for the same period in
2001. Net cash used in investing activities for the year ended
December 31 decreased by 24% from $2,024,372 in 2001 to $1,543,107 in
2002, and was comprised primarily of investment in capitalized
software development costs. During the year ended December 31, 2002,
total debt was reduced by $881,626.

At December 31, 2002, the Company had working capital of $(571,256)
compared to $1,104,623 at December 31, 2001. The majority of the cash
for the Dolphin acquisition in late 1999 was borrowed under a portion
of the Company's lines of credit and has, in the past, been recorded
as long-term debt. The maturity date of this term debt is April 30,
2003 and therefore at December 31, 2002 has been classified as
current, resulting in a negative working capital position. In addition,
a $275,000 revolving facility expired on February 4, 2003 and has not
yet been renewed or replaced. The Company is currently negotiating a
restructuring of its debt with several financing sources. This
includes convertible debt and/or preferred share issuance discussions
that have occurred in the first quarter of 2003 with its principal
shareholders.

With the expansion of the Company's product lines, the addition of new
products and markets and the increase in school spending that the
Company expects to see in 2003, management believes that the Company
will return to a pattern of growth similar to that demonstrated in
prior years. Management believes that it can undertake this expansion
with most of the Company's working capital requirements secured from
its operating cash flows.  If successful, the Company should be able
to enhance the liquidity of the business and the overall strength of
the Company's balance sheet and financial position.

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

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

Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended
December 31, 2001

The following is a discussion of the results of continuing operations
for the fiscal year ended December 31, 2002, as compared to the fiscal
period ended December 31, 2001. The results of Projected Learning
Programs, Inc., which ceased operations on December 31, 2001, have
been shown as discontinued operations in the statement of income for
2001.

Net consolidated revenues for the twelve months ended December 31,
2002, totaled $8,483,160 compared to net revenues of $8,902,467 for
the year ended 2001.  This represents a decrease of 5% in net
consolidated revenues over the prior fiscal year.  The decrease in net
revenues is attributable to a combination of increases in sales at
Dolphin being offset by decreases in sales at AEC and to a larger
extent at LPL.  Dolphin received a number of contract awards in late
2001 and early 2002 that resulted in increased sales over the prior
year. AEC's revenues, while down 3% from the prior fiscal year due
primarily to educational budget cuts by state governments, showed
substantial improvement over the prior year in the third and fourth
quarters with growth in the last six months of the fiscal year
reflecting a 23% increase over the comparable 2001 six month period
and fourth quarter increases of 49% over the same 2001 quarter.
Significant growth in the Company's online business was noted in the
last half of the year with over 100 new school customers signed during
the last half of 2002.  These trends are expected to continue
throughout 2003 and given the fixed nature of the Company's cost
structure should provide for substantial improvement in profitability
and cash flows. Sales at LPL decreased 27% over 2001 fiscal year
and primarily is a result of government delays in the U.K. in funding
educational initiatives.

Cost of goods sold as a percentage of net revenues for the year ended
December 31, 2002 decreased to 24.0% from 25.4% in 2001. This change
is attributed to a reduction in cost of goods sold at LPL resulting
from a decrease in the amount of sales including lower margin
computer hardware over 2001.  Cost of goods sold represents the actual
cost to produce the software products, or in the case of LPL the cost
to acquire software and hardware from other vendors for resale and
includes certain allocated overhead costs.  The Company's principal
product family, A+LS, provided gross profit margins averaging 94% in
2002.

Total operating expenses recorded for the year ended December 31,
2002, were $7,241,112 or 85% of net revenues, compared to $6,929,808
or 78%, for the previous fiscal year. The increase in operating
expenses as a percentage of net revenues is primarily due to the fixed
nature of the Company's expenses, and increases in amortization of
product development costs, in the face of declining revenues. As a
component of total operating expenses, selling and marketing costs
increased from $2,493,604 in fiscal 2001 to $2,628,639 in fiscal 2002.
This increase is due to a higher percentage of sales being subject to
distributor commissions. Operations expense increased to $397,725 in
fiscal 2002, compared to $304,150 in 2001, as a result of an increase
in costs for essential technical support for our customers. General
and administrative expenses decreased 6% to $3,054,031 in 2002
compared to $3,253,603 in 2001.

During 2002, it became evident at both LPL and Dolphin that because of
the fixed nature of costs as noted above, the cost structures were too
high based upon the amount of revenue generated, resulting in losses
at both subsidiaries. At LPL, the managing director resigned in June
and the decision was made to reduce the staff from 24 employees to 7
employees. Due to severance and benefit rules in the U.K. the effects
of this reduction, along with the corresponding reduction in benefits
and other associated administrative costs, did not fully impact LPL
until the beginning of 2003. At Dolphin, changes in subsidiary
management were implemented and personnel levels were reduced from 23
employees to 12 beginning in the third quarter and the use of contract
programmers was discontinued. Total cost savings to be realized from
these completed actions at the subsidiary business units are projected
to approximate $850,000 in 2003. In addition, certain future costs at
AEC have also been reduced through scale back in hiring plans and a
reduction in total employment levels through natural attrition. These
actions have resulted in the Company's lowest overall cost structure
since early in fiscal 2000 as the Company enters the 2003 fiscal year.

Costs incurred in conjunction with product development are charged to
research and development expense until technological feasibility is
established.  During fiscal 2002, the Company capitalized $1,493,300
of product development costs, and net of accumulated amortization had
capitalized software costs of $4,610,365 at December 31, 2002.
Amortization of product development costs was $1,160,717 for 2002, a
32% increase over the $878,451 amortized in 2001. During 2002, the
Company made substantial progress in development efforts on revised,
updated and expanded curriculum offerings and completed the release of
the browser-based (Version 4.0) of the A+nyWhere Learning System
product family. The increase in amortization expense is a result of
this increase in capitalized development costs associated with these
essential investments in the Company's future and competitive
position.

Interest expense was $81,263 in 2002 compared to $121,326 in 2001
reflecting the lower amount of debt and lower interest rates in effect
in 2002. The Company had a net loss from continuing operations of
$(761,884) in 2002 compared to a net loss from continuing operations
of $(222,849) in 2001 as a result of the decrease in revenue noted
above. Net losses increased from $(541,579) in 2001 to a loss of
$(761,884) in 2002. All of the net losses were generated by the
LPL and Dolphin business units, while AEC's operations were profitable
for the year. This loss represents approximately $.05 per common
share.

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

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


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

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


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

Steakley, Gilbert & Morgan, P.C. has audited the Company's financial
statements for the years ending December 31, 1994 through 2002.
There are no disputes with the independent accountants regarding
matters of accounting or reporting.



PART III
--------

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

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


Name                  Age     Position            Director Since
-----------------------------------------------------------------
Jeffrey E. Butler     61      President, Director,           1989
                              Chief Executive Officer

Thomas A. Shively     49      Executive Vice President and
                              Chief Operating Officer

Neil R. Johnson       52      Vice President and
                              Chief Financial Officer

Monty C. McCurry      57      Director                       1989

Newton W. Fink        66      Director                       1991

Stephen E. Prust      58      Director                       1992

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

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

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

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

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

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

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


Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and holders of
more than 10% of the Common Stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of
changes in ownership of the Common Stock.  Based solely upon a
review of Forms 3, 4 and 5 furnished to the Company with respect to
the year ended December 31, 2002, to the best of the Company's
knowledge, the Company's directors, executive officers and holders
of more than 10% of its Common Stock timely filed the reports
required by Section 16(a).


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

Cash Compensation
-----------------

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


                         Summary Compensation Table
                                                                Long-Term
                                 Annual Compensation          Compensation
                            ------------------------------ ----------------
                                                Other
Name and Principal                             Annual       Stock     Stock
    Position         Year   Salary  Bonus  Compensation(1) Options   Awards
----------------------------------------------------------------------------
Jeffrey E. Butler,   2002  $120,462 $     0    $      0    100,000      --
President and Chief  2001   120,000  18,480       2,700(2)       0      --
Executive Officer    2000   106,845  13,588           0     40,000      --

Thomas A. Shively,   2002  $115,442 $     0    $      0     60,000      --
Executive Vice       2001   115,000   1,467       2,700(2)       0      --
President            2000   105,000  12,090           0     40,000      --

Neil R. Johnson,     2002  $ 98,879 $     0    $      0     60,000      --
Vice President and   2001    98,500   1,256       2,025(2)       0      --
Chief Financial      2000    89,840   6,620           0     25,000      --
Officer


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

(2) In 2001, Mr. Butler was awarded 10,000 shares of Common Stock,
Mr. Shively was awarded 10,000 shares of Common Stock and Mr.
Johnson was awarded 7,500 shares of Common Stock  for services
rendered.


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

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

Messrs. Thomas A. Shively, and Neil R. Johnson also have employment
agreements with the Company.  These agreements also provide for
severance payments and repurchase of a portion of their beneficial
stock ownership in the event of a change in control.

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

The shareholders approved an Incentive Stock Option Plan for
employees, including officers, during 1998, and approved amendments
to the plan in 1999, 2000 and 2001 to increase the number of shares
available. The total common shares issuable under this plan are
2,650,000 shares. The Board of Directors acts as the Compensation
Committee ("Committee"). The Committee of this Plan determines the
employees who will receive options to purchase common shares and the
number granted. Option prices will be the fair market value at date
of grant. Options are exercisable as deemed by the Committee and
terminate within ninety days of employment termination, or as
designated by the Committee. In no event shall an option be
exercisable more than ten years from the date it is granted. No
options may be issued under this plan after March 31, 2008. Since
its inception, 2,717,500 options have been granted, 1,145,360 have
expired, and 180,970 options have been exercised. At December 31,
2002, there were 1,391,170 options outstanding under this Plan.

In March 1996, a Non-Qualified Stock Option Plan was approved by the
Board of Directors. Since its inception non-qualified stock options
to purchase a total of 1,719,695 shares of restricted common stock
have been issued, 601,919 have expired and 195,700 have been
exercised. At December 31, 2002, there were 922,076 options
outstanding.

Stock Option Grants In 2002
---------------------------

                   Options   Percentage of Total  Exercise
                   Granted    Options Granted to    Price    Expiration
Name               (Shares)    Employees in 2002 (Per share)    Date
---------------------------------------------------------------------------
Jeffrey E. Butler  100,000           9.6%          $.25  February  25, 2005
Thomas A. Shively   60,000           5.8%          $.25  February  25, 2005
Neil R. Johnson     60,000           5.8%          $.25  February  25, 2005


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

No executive officer exercised options during 2002. The following table
sets forth, for the executive officers named in the Summary Compensation
Table above, the year-end value of unexercised stock options:

                         Number of Securities        Value of Unexercised
                        Underlying Unexercised          In-the-Money
                          Options at Year-End         Options at Year-End
Name                  Exercisable/Unexercisable    Exercisable/Unexercisable
----------------------------------------------------------------------------
Jeffrey E. Butler         423,467/33,333                    $0/$0
Thomas A. Shively         313,276/20,000                    $0/$0
Neil R. Johnson            65,000/20,000                    $0/$0

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

In 2002, the Company's non-employee directors each received
qualified options to purchase 33,000 shares of the Company's common
stock and non-qualified options to purchase 27,000 shares of the
Company's common stock at $.13 per share. The directors received no
compensation, other than the options, for services in such capacity.

The shareholders  approved a Director's Stock Option Plan during
1998 and approved an amendment to the Plan in 2001 to increase the
number of shares available. The total common shares issuable under
this Plan are 200,000 shares. Each outside director initially
elected or appointed after March 27, 1998, shall be granted options
to purchase 5,000 shares of common stock at the fair market value at
the date of the grant. Additionally, each outside director shall
automatically be granted an option to purchase 3,000 shares  of
common stock in each succeeding calendar year through termination of
the Plan on March 31, 2008. Options granted are exercisable
immediately and for a period of three years after the date of the
grant or, if earlier, ninety days after the date when the
participant ceases to be a director of the Company. Since its
inception options to purchase a total of 192,000 shares of
restricted common stock have been issued and 30,000 have expired. At
December 31, 2002, there were 162,000 options outstanding.


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

The following table sets forth ownership of the common stock of each
director and officer, all officers and directors as a group, and
each person known or believed by the Company to have beneficially
owned five percent or more of the Company's outstanding common stock
as of March 7, 2003. Unless otherwise indicated, the beneficial
owner has sole voting and investment power over the common stock
listed below:





                                                    Shares Beneficially
                                                           Owned
                                                    --------------------
 Name/Address of Beneficial Owner  Title of Class   Number       Percent
------------------------------------------------------------------------
Jeffrey E. Butler (1)                Common       1,405,042       9.5%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Thomas A. Shively (2)                Common         549,664       3.7%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Neil R. Johnson (3)                  Common          77,500       0.5%
7506 N. Broadway Ext.,
Oklahoma City, OK 73116

Monty C. McCurry (4)                 Common         210,900       1.5%
2134 S. Eagle Ct.,
Aurora, CO 80014

Newton W. Fink (5)                   Common        175,400        1.2%
1143 Corinth Greene Dr.,
Sun City Center, FL 33573

Stephen E. Prust (6)                 Common         529,768       3.6%
9025 East Kenyon Avenue,
Denver, CO 80237

John D. Garber (7)                   Common       3,657,286      25.5%
7323 Linden Terrace,
Carlsbad, CA 92009

Robert Schoolfield (8)              Common       1,536,517       10.7%
5 Pleasant Cove,
Austin, TX 78746

The Pennsylvania State              Common         750,000        5.2%
University (9)
University Park, PA 16802

Officers and Directors              Common       2,948,274       18.9%
as a Group (6 persons)
(1) (2) (3) (4) (5) (6)


(1)  The amount and percentage figures include the possible exercise
of 356,800 common stock options with an exercise price of $.50 per
share and 66,667 common stock options at $.25 per share exercisable
within 60 days.
(2)  The amount and percentage figures include the possible exercise
of 273,276 common stock options with an exercise price of $.50 per
share and 40,000 common stock options at $.25 per share exercisable
within 60 days.
(3)  The amount and percentage figures include the possible exercise
of 25,000 common stock options with an exercise price of $.50 per
share and 40,000 common stock options at $.25 per share exercisable
within 60 days.
(4)  The amount and percentage figures include the possible exercise
of 81,000 common stock options with an exercise price of $.50 per
share, 3,000 common stock options at $.73 per share, and 60,000
common stock options at $.13 per share exercisable within 60 days.
(5)  The amount and percentage figures include the possible exercise
of 81,000 common stock options with an exercise price of $.50 per
share 3,000 common stock options at $.73 per share, and 60,000
common stock options at $.13 per share exercisable within 60 days.
(6)  The amount and percentage figures include the possible exercise
of 126,000 common stock options with an exercise price of $.50 per
share, 3,000 common stock options at $.73 per share, and 60,000
common stock options at $.13 per share exercisable within 60 days.
(7)  The amount and percentage figures include 3,192,286 shares of
common stock held by John D. Garber and Clare C. Garber as trustees
of the John D. Garber and Clare C. Garber Trust for which Mr. Garber
is the beneficiary; 440,000 shares of common stock held by John D.
Garber and Clare C. Garber, as trustees of the John D. Garber and
Clare C. Garber defined benefit plan and 25,000 owned personally by
Mr. Garber.
(8)  The amount and percentage figures include 737,528 shares of
common stock owned by the Schoolfield 1994 Charitable Unitrust for
which Mr. Schoolfield is the trustee; 614,607 shares of common stock
owned by Mr. Schoolfield individually; and 184,382 shares of common
stock owned by the Schoolfield Grandchildren's Trust for which Mr.
Schoolfield is the trustee.
(9)  In 1999, the John D. Garber and Clare C. Garber Trust donated
750,000 shares of the Company's common stock to The Pennsylvania
State University.


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

The Company has a note receivable due from its Chief Executive
Officer, Jeffrey E. Butler, in the amount of $300,000 that was
advanced in October 2000. The Board of Directors and the major
stockholder approved this advance. The proceeds were used as part of
a settlement in a marital estate matter that allowed him to retain
his ownership position in the Company, which the Board of Directors
believed to be materially beneficial to the Company and its
stockholders. The note bears interest at the Company's lowest bank
lending rate (approximately 4.25% at December 31, 2002). Principal
and interest is due in one payment on October 26, 2003.



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

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

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

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

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

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

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

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

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

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

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

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

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

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

21         Subsidiaries of The American Education Corporation (filed
           herewith)

23.1       Consent of Steakley, Gilbert and Morgan


(b)  Reports on Form 8-K

None

SIGNATURES
----------

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

March 31,2003                            By:  /s/Jeffrey E. Butler
                                         ------------------------
                                         Jeffrey E. Butler,
                                         Chief Executive Officer
                                         Chairman of the Board
                                         Treasurer

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

Name                          Title                       Date
-----------------     -------------------------     ---------------
Jeffrey E. Butler     /s/Jeffrey E. Butler          March 31, 2003
                      Chief Executive Officer
                      Chairman of the Board
                      Treasurer

Neil R. Johnson       /s/Neil R. Johnson            March 31, 2003
                      Chief Financial Officer

Monty C. McCurry      /s/Monty C. McCurry           March 31, 2003
                      Director

Newton W. Fink        /s/Newton W. Fink             March 31, 2003
                      Director

Stephen E. Prust      /s/Stephen E. Prust           March 31, 2003
                      Director

THE AMERICAN EDUCATION CORPORATION



Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350



Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of
The American Education Corporation (the "Company") certifies that the
Annual Report on Form 10-KSB of the Company for the year ended December
31, 2002 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.



Dated:  March 31,2003                   By: /s/Jeffrey E. Butler
                                            -----------------------
                                            Jeffrey E. Butler,
                                            Chief Executive Officer

Dated:  March 31, 2003                  By: /s/Neil R. Johnson
                                            -----------------------
                                            Neil R. Johnson,
                                            Chief Financial Officer



This certification is made solely for purpose of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any
other purpose.



The American Education Corporation

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


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

Independent Auditors' Report                                  F-1

Financial Statements:

  Consolidated Balance Sheet, December 31, 2002               F-2

  Consolidated Statements of Income for the years
    ended December 31, 2002 and 2001                          F-3

  Consolidated Statements of Changes In Stockholders'
    Equity for the years ended December 31, 2002
    and 2001                                                  F-4

  Consolidated Statements of Cash Flows for the years
    ended December 31, 2002 and 2001                          F-5

  Notes to Consolidated Financial Statements                  F-7



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



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

INDEPENDENT AUDITORS' REPORT


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


We have audited the consolidated balance sheet of The American
Education Corporation as of December 31, 2002 and the related
consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the two years in the period ended
December 31, 2002.  These financial statements are the
responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements based on our
audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of The American Education Corporation as of December 31,
2002 and the consolidated results of its operations and cash flows
for each of the two years in the period ended December 31, 2002, in
conformity with U.S. generally accepted accounting principles.





STEAKLEY, GILBERT & MORGAN


Oklahoma City, Oklahoma
March 10, 2003




THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 2002

ASSETS
Current assets:
Cash and cash equivalents                                 $    74,405
Accounts receivable, net of allowance for
 returns and uncollectible accounts of
 $102,309 (Note 1)                                          2,001,019
Inventory (Note 1)                                             36,444
Prepaid expenses and deposits                                  62,758
Deferred tax asset (Note 6)                                    54,620
Note receivable from officer (Note 8)                         300,000
                                                           ----------
     Total current assets                                   2,529,246

Property and equipment, at cost (Note 1)                    1,237,222
Less accumulated depreciation and amortization               (900,213)
                                                           ----------
     Net property and equipment                               337,009
Other assets:
Capitalized software costs, net of accumulated
 amortization of $4,195,444 (Note 1)                        4,610,365
Goodwill, net of accumulated amortization of
 $369,097 (Note 1)                                          1,840,446
                                                           ----------
     Total other assets                                     6,450,811
                                                           ----------
     Total assets                                          $9,317,066
                                                           ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade                                     $  569,066
Accrued liabilities (Note 11)                               1,084,655
Accounts payable - affiliate                                   60,000
Deferred revenue                                              238,080
Notes payable and current portion of long-term
 debt (Note 4)                                              1,148,701
                                                           ----------
     Total current liabilities                              3,100,502

Other long-term accrued liabilities                           171,555
Deferred income tax liability - Long-term (Note 6)            206,952
Long-term debt  (Note 4)                                       26,549
                                                           ----------
     Total liabilities                                      3,505,558
                                                           ----------

Commitments and contingencies (Notes 5, 7, 10 and 12)             --
Stockholders' Equity  (Note 3)
Preferred Stock $.001 par value;
 Authorized-50,000,000 shares, issued and
 outstanding-none; liquidation preference-$.02 per share          --
Common Stock, $.025 par value;
 Authorized 30,000,000 shares; issued and outstanding-
 14,314,961 shares                                            357,874
Additional paid in capital                                  6,649,240
Treasury stock, at cost, 34,000 shares                        (19,125)
Retained deficit                                           (1,176,481)
                                                           ----------
     Total stockholders' equity                             5,811,508
                                                           ----------

     Total liabilities and stockholders' equity            $9,317,066
                                                           ==========

See accompanying notes and accountants' report.



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2002 and 2001



                                    2002                   2001
                                 ------------        --------------


Sales (Note 1)                   $ 8,483,160            $ 8,902,467

Cost of goods sold                 2,034,903              2,258,530
                                 -----------            -----------
Gross Profit                       6,448,257              6,643,937
                                 -----------            -----------

Operating expenses:
Selling and marketing (Note 1)     2,628,639              2,493,604
Operations                           397,725                304,150
General and administrative         3,054,031              3,253,603
Amortization of capitalized
 software costs                    1,160,717                878,451
                                 -----------            -----------

Total operating expenses           7,241,112              6,929,808
                                 -----------            -----------

Operating loss from
 continuing operations              (792,855)              (285,871)

Other income (expense):
Interest income                        5,188                 20,815
Interest expense                     (81,263)              (121,326)
                                 -----------            -----------

Loss from continuing
 operations before income taxes     (868,930)              (386,382)

Current income tax benefit           (16,016)               (27,593)
Deferred income tax benefit          (91,030)              (135,940)
                                 -----------            -----------
                                    (107,046)              (163,533)
                                 -----------            -----------

Loss from continuing
 operations                         (761,884)              (222,849)

Loss from discontinued operations
 (net of tax benefits 2001-$37,548)
 (Note 15)                                --               (318,730)
                                 -----------            -----------

Net loss                         $  (761,884)           $  (541,579)
                                 ===========            ===========

Earnings per share, basic and fully
    diluted: (Note 13)
Continuing operations            $      (.05)           $     (.02)
Discontinued operations          $        --            $     (.02)
                                 -----------            ----------
Net loss                         $      (.05)           $     (.04)
                                 ===========            ==========

See accompanying notes and accountants' report.



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2002 and 2001


                                            Additional                 Retained
                          Common Stock        paid in     Treasury     Earnings
                        Shares      Amount     Capital        Stock    (Deficit)
                        ------------------   -----------   ---------  ----------
Balance at
December 31, 2000     14,083,128   $352,078  $6,582,221   $ (19,125)  $ 126,982

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


Net loss                                                               (541,579)


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

Issuance of common
 stock for cash and
 services                 42,500     1,063        7,437

Net loss                                                              (761,884)

Comprehensive Income adjustment:
 Foreign currency
 translation                                     15,225
                      ----------   -------   ----------  ---------   ---------
Balance at
 December 31, 2002    14,314,961  $357,874   $6,649,240  $(19,125) $(1,176,481)
                      ==========  ========   ==========  ========  ===========


See accompanying notes and accountants' report



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002 and 2001


                                              2002            2001
                                          -----------     -----------

Cash flows from operating activities:
Net loss                                  $  (761,884)    $ (541,579)

Adjustments to reconcile net loss to net
 cash provided by operating activities:
Depreciation and amortization               1,354,088      1,507,569
Increase (decrease) in reserve
 for bad debts                                (70,084)        23,769
Services rendered for common stock              8,500         41,400
Deferred compensation                          64,920         51,810

Foreign currency translation                   15,225        (18,310)


Changes in assets and liabilities:
Accounts receivable                           621,663        889,081
Inventories                                    39,448         48,936
Prepaid expenses and deposits                  74,755        211,442
Accounts payable and accrued liabilities      595,707        (27,876)
Accounts payable - Affiliate                   60,000             --
Deferred revenue                               89,991         (1,207)
Income tax payable                           (106,746)       (40,117)
Deferred income taxes                         (98,497)      (249,425)
                                           ----------     ----------
Net cash provided by operating
 activities                                 1,887,086      1,895,493
                                           ----------     ----------

Cash flows from investing activities:
Purchase of property and equipment            (49,807)       (82,180)
Software development costs capitalized     (1,493,300)    (1,942,192)
                                           ----------     ----------
Net cash used in investing activities      (1,543,107)    (2,024,372)
                                           ----------     ----------

Cash flows from financing activities:
Proceeds received from issuance of debt            --        268,894
Principal payments on notes payable          (881,626)      (292,930)
Issuance of common stock for cash                  --          1,000
                                           ----------     ----------
Net cash used in financing activities        (881,626)       (23,036)
                                           ----------     ----------

Net decrease in cash                         (537,647)      (151,915)

Cash at beginning of year                     612,052        763,967
                                           ----------     ----------

Cash at end of year                        $   74,405     $  612,052
                                           ==========     ==========

Interest paid in cash                      $   83,929     $  128,088
                                           ==========     ==========

Income taxes paid                          $       --     $       --
                                           ==========     ==========


See accompanying notes and accountants' report.



THE AMERICAN EDUCATION CORPORATION
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Years Ended December 31, 2002 and 2001



During 2002 the Company issued 42,500 shares of common stock valued
at $8,500 for services provided by distributors.


See accompanying notes and accountants' report.



THE AMERICAN EDUCATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

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

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

Principles of consolidation

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

History and business activity

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

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

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

On November 25, 1998, effective October 1, 1998, the Company
purchased the business of Learning Pathways, Limited, ("LPL"), an
entity organized under the laws of the United Kingdom, pursuant to
an Agreement between the Company and the stockholders of LPL. The
transaction was accounted for as a purchase. Pursuant to the
Agreement, the Company paid the sellers 510,030 shares of the
Company's $.025 par value common stock and cash of $165,760. The
Agreement further provides that if LPL meets or exceeds certain
financial goals set forth in the Agreement, then the Company will
pay the sellers additional shares of the Company's common stock.
During 2000, an additional 63,754 shares were issued to the sellers.
The business of LPL principally is to distribute the Anywhere
Learning System in the United Kingdom. The results of operations of
LPL are included in the consolidated statements of income for the
two years ended December 31, 2002.

On December 24, 1999, the Company entered into a stock purchase
agreement to acquire 100% of the capital stock of Dolphin, Inc.,
("Dolphin") a New Jersey corporation. The transaction's effective
date was October 1, 1999. The purchase price was $1,800,000
consisting of cash payments totaling $1,752,000 and 35,148
shares of the Company's common stock valued at $48,000. The
acquisition has been accounted for as a purchase. Results of
Dolphin's operations are included in the consolidated income
statements for the two years ended December 31, 2002. Dolphin
provides software design services for unaffiliated customers.

During 2002 and 2001 net losses from foreign operations totaled
$(557,642) and $(87,687), respectively. No dividends were received
from the foreign entity.

Revenue recognition

The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountant's Statement of Position
97-2 and 98-9 on software revenue recognition.  The Company has
recognized revenue and a like amount of expense on products traded
for advertising and promotional services.  Sales revenue and selling
and marketing expense include approximately $153,465 and $237,375 of
such non-monetary transactions for the years ended December 31, 2002
and 2001, respectively. Revenue for software design services at
Dolphin is recognized on the percentage-of-completion method.

Capitalized software costs

Capitalized software costs consist of licenses for the rights to
produce and market computer software, salaries and other direct
costs incurred in the production of computer software and costs to
defend the Company's trademark.  Costs incurred in conjunction with
product development are charged to research and development expense
until technological feasibility is established.  Thereafter, all
software development costs are capitalized and amortized on a
straight-line basis over the product's estimated economic life of
between three and five years.  Capitalized software costs at January
1, 2002 were $7,312,509 with $1,493,300 additional costs capitalized
during 2002. Amortization expense totaled $1,160,717 in 2002 and
$878,451 in 2001.

Goodwill

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

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

Learning Pathways, Ltd.            780,399          (154,968)
Dolphin, Inc.                    1,429,144          (214,129)
                                ----------         ----------
                                $2,209,543         $(369,097)
                                ==========         ==========

Through 2001, goodwill was amortized with a fifteen year life.
Beginning January 1, 2002, goodwill is no longer amortized.
Impairment evaluations are made annually. Impairment costs and
amortization expense from continuing operations totaled $ -0- in
2002 and $147,412 in 2001.

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

Inventories

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

Property and equipment

Property and equipment is stated at cost.  Depreciation is provided
on the straight-line basis over the estimated useful life of the
assets, which is five years.  Depreciation expense totaled $193,177
and $221,816 for 2002 and 2001, respectively.  The components of
property and equipment at December 31, 2002, are as follows:


     Furniture, fixtures and office equipment          $  662,480
     Computers and software                               507,620
     Leasehold improvements                                33,283
     Vehicles                                              33,839
                                                       ----------
                                                        1,237,222
     Less: accumulated depreciation                      (900,213)
                                                       ----------

     Net property and equipment                        $  337,009
                                                       ==========

Statements of cash flows

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

Use of estimates

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

Fair value of financial instruments

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


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

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

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

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


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

                                  1998            1998

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

Number of shares under
options outstanding as of:

December 31, 2001    971,076      93,000        1,124,334    2,188,410
Shares granted        96,000      99,000        1,036,000    1,231,000
Shares exercised          --          --               --           --
Shares expired      (145,000)    (30,000)        (769,164)    (944,164)
                    --------     -------        ---------    ---------
December 31, 2002    922,076     162,000        1,391,170    2,475,246
                    ========     =======        =========    =========

Option price
 range per share $.13 - $.50  $.13 - $.73     $.25 - $.50


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

The following is a summary of common stock transactions during 2002:

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

Stock issued for cash and services
  totaling $8,500                             42,500         $.20

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

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


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

Line of credit with bank,
originated December 23, 1999,
matures April 30, 2003; initial
line - $1,145,000, payments of
$20,015 per month including interest
at prime rate (4.25% at December 31,
2002), remaining principal due at
maturity, secured by accounts
receivable and inventory            $642,162  $   --    $  642,162

Line of credit with bank, originated
December 23, 1999, matures April 30,
2003; initial line - $250,000,
payments of $6,000 per month
including interest at prime rate
(4.25% at December 31, 2002),
remaining principal due at maturity,
secured by accounts receivable and
inventory                            178,474      --       178,474

Lines of credit with bank,
originated April 30, 1999, to
December 23,1999, matures
February 4, 2003; maximum line -
$275,000, interest at the bank's
prime rate plus 3% (7.25% at
December 31, 2002), payable monthly,
principal due at maturity, secured
by accounts receivable and
inventory                            275,000      --       275,000

Installment notes payable to bank,
originated June 4, 1999, through
December 4, 2001 , matures February
24, 2003 through June 4, 2005;
principal and interest due in
monthly payments of $4,492, interest
at bank's prime rate plus .25%,
(4.5% at December 31, 2002); secured
by equipment                         53,065     26,549      79,614
                                 ----------  ---------  ----------

                                 $1,148,701  $  26,549  $1,175,250
                                 ==========  =========  ==========

Aggregate maturities of notes payable are as follows:

     2003          $1,148,701
     2004              22,831
     2005               3,718
                   ----------
                   $1,175,250
                   ==========

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

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

The Company leases certain office equipment with lease payments of
$2,099 and $914 per month. The agreements expire in August 2004 and
August 2007, respectively.

Dolphin, Inc., a wholly owned subsidiary leases office space in
Gibbsboro, New Jersey, for $9,130 a month under a lease agreement
expiring May 31, 2004. Dolphin, Inc. leases equipment for $530 a
month  until February  2005.

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

Total rent expense was $299,690 for 2002 and $310,603 for 2001.

Future rental commitments under lease agreements are as follows:

     2003          $  303,156
     2004             233,213
     2005             163,197
     2006              10,968
     2007               7,312

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

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

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

                                                 2002        2001
                                               -------     -------

Statutory federal income tax rate               (34.0%)    (34.0%)
State income taxes                               (6.0%)     (6.0%)
Write off of investment in subsidiary              --       (3.8%)
Amortization of goodwill                           --        2.4%
Nondeductible expenses                            3.0%        .2%
Foreign loss taxed at different rate             22.3%       1.1%
Other, net                                        2.4%      (2.2%)
                                               -------      ------
Effective income tax rate                      (12.3%)     (42.3%)


Deferred tax liabilities and assets at December 31, 2002 are
comprised of the following:

Deferred tax liabilities:
Capitalized software                                $1,609,452
Plant and equipment and related depreciation             9,970
                                                    ----------
  Total deferred tax liabilities                     1,619,422
                                                    ----------

Deferred tax assets:
Receivables and inventory valuation allowances          40,923
Net operating loss carryforward                      1,343,848
Vacation accrual and deferred compensation              68,622
Deferred revenue                                        13,697
                                                    ----------

  Total deferred tax assets                          1,467,090
                                                    ----------
    Net liability                                   $ (152,332)
                                                    ==========

Net deferred tax asset                              $   54,620
Net deferred tax liability                            (206,952)
                                                    ----------

    Net liability                                   $ (152,332)
                                                    ==========

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

The Company has available U.S. net operating loss carryforwards of
approximately $3,359,621 for regular tax purposes expiring between
the years 2003 and 2021.


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

Several of the Company's software titles are authored by independent
consultants for which royalty agreements exist.  These agreements
call for quarterly payments based upon a percentage of the net sales
of the particular titles.  These agreements expire in the years 2003
to 2007. Royalty expense totaled $201,785 and $221,362 in 2002 and
2001, respectively.

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

The Company has a note receivable from its President in the amount
of $300,000 which was advanced in October 2000. The note bears
interest at the Company's lowest bank lending rate (approximately
4.25% at December 31, 2002). Principal and interest is due in one
payment on October 26, 2003.

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

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

No individual customer accounted for more than 10% of sales in 2002
or 2001.

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.

The Company has employment agreements with its officers which
include salary terms and severance benefits.

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

Accrued liabilities are comprised of the following at December 31,
2002:

     Accrued interest                                 $    4,938
     Accrued payroll, taxes and benefits                 473,290
     Accrued commissions and royalties                   496,261
     Accrued professional fees                            23,050
     Accrued - other                                      87,116
                                                      ----------
                                                      $1,084,655
                                                      ==========

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

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

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

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

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

                                            2002         2001
                                         ----------   ----------

          Basic                          14,306,228   14,201,172
          Diluted                        14,306,228   14,201,172

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

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

The Company adopted a 401(k) Plan effective January 1, 1999. The
Plan allows eligible employees to defer part of their income on a
tax-favored basis into the Plan. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA). The Company may make contributions to the Plan as a
matching percentage or as a lump sum amount determined annually.


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

The consolidated financial statements include the assets,
liabilities and income of its foreign subsidiary Learning Pathways
Ltd. (LPL). The following is a summary of LPL's financial condition
at December 31, 2002 and the results of its operations for the year
then ended stated in U.S. currency:

     Total assets                   $  978,743
     Total liabilities              $  916,664

     Revenues                       $1,142,965

     Net loss                       $ (557,642)
     Foreign income tax benefit     $  (16,016)


15.  Discontinued operations
     -----------------------

Effective December 31, 2001 the operations of Projected Learning
Programs, Inc. were discontinued. The loss from discontinued
operations has been disclosed on the statement of income. Total
revenues from discontinued operations were $44,557 for 2001. All
assets and liabilities have been transferred to the parent
company.



Exhibit 11

Statement re: computation of per share earnings

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

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

                                       2002            2001
                                    ---------        ---------
     Basic                          14,306,228       14,201,172
     Diluted                        14,306,228       14,201,172

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




Exhibit 21

Subsidiaries of The American Education Corporation


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

Learning Pathways, Limited, a United Kingdom corporation

Dolphin, Inc., a New Jersey corporation


Exhibit 23.1

Consent of Independent Auditors


We consent to the incorporation by reference in the Registration
Statement (Form S-8) filed October 22, 1999, pertaining to The
American Education Corporation Stock Option Plan for Employees and
The American Education Corporation Directors' Stock Option Plans of
our report dated March 10, 2003, with respect to the consolidated
financial statement of The American Education Corporation included
in its Annual Report (Form 10-KSB) for the year ended December 31,
2002, filed with the Securities and Exchange Commission.

Steakley, Gilbert, & Morgan, P.C.


March 31, 2003
Oklahoma City, Oklahoma