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, 1998

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

For the Transition Period from  ________ to ________

Commission File #0-11078

THE AMERICAN EDUCATION CORPORATION
(Exact name of registrant as specified in its charter)

Colorado 
(State or other jurisdiction of incorporation, or organization)
 
84-0838184 
(IRS Employer Identification number)

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

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

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

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

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

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

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

Revenues for the year ended December 31, 1998	 
$6,022,121

On March 16, 1999 the aggregate market value of the Common Stock 
of the issuer held by non-affiliates based on the last sale 
price of the registrant's Common Stock on such date, was 
approximately $5,851,423.

Number of shares of the issuer's common stock outstanding as 
of December 31, 1998:  13,423,076

Transitional Small Business Disclosure Format
YES      NO  X




TABLE OF CONTENTS TO FORM 10KSB
----------------------------------------------



PART I


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


PART II


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


PART III


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


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

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

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

In August 1991, at a meeting of the Company's shareholders, the purchase of 
the assets of American Educational Computer, Inc. was ratified, a new class 
of Preferred Stock was authorized and the shareholders approved the change 
of the Company's name from Plasmedics, Inc. to The American Education 
Corporation.

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 both Windows and Macintosh operating systems.  The 
Company's revenues are primarily derived from the sale of its principal 
product family, the A+dvanced Learning System, registered (A+LS, registered), 
a comprehensive courseware offering developed by the Company.  A+LS is currently
shipping in version 2.12 or V2.0.  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.  These two subsidiaries now represent 
new channels of distribution or access to new markets or market segments for 
the Company.  PLP, headquartered in Oklahoma City, is a direct mail, catalog 
reseller that prints and mails twice a year a total of ten specialty catalogs.
These catalogs are mailed to approximately 220,000 educators located in 23,000
high schools and vocational, junior and community colleges.  LPL, the Company's
Derby, UK subsidiary acquired in late 1998, is the exclusive schools and 
libraries distributor of the print, multimedia and online versions of World 
Book Publishing's World Book Encyclopedia in Great Britain.  LPL, in the latter
part of 1998, also began the process of converting the Company's U.S.-based 
curriculum content to a product presentation that is suitable for British 
educators and schools.  LPL should release this revised product family directly
to the UK's school market in the latter half of 1999. 

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 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 
product offering.

The Company's products are sold by school dealers, catalog companies, 
direct telephone sales and mail.  Approximately 94% of the Company's 1998 
sales were to the domestic U.S. school market.  Future sales to international
markets are expected to increase as a percentage of total revenues as a 
result of the LPL acquisition in the fourth quarter of 1998.  The products are 
sold for use in elementary, middle and high schools, libraries, adult learning 
centers, correctional institutions, private industry, and to a limited 
extent, for home-based schooling.

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.  Currently, the Company utilizes an in-house employee sales force 
as well as 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 catalog companies, which 
market other publishers' products to the school and library markets.

The Company is in a technology-based business and is an active developer of 
software applications to facilitate the delivery of its content in a network 
environment.  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 the Internet pose new challenges, 
while providing growth opportunities for the Company.  Management believes 
that it has in place the development programs to allow it to capitalize on 
these rapidly developing changes in the structure of the school market and 
the school districts that comprise the total marketplace.

Principal Products.
-------------------

Educational Software

The Company acquired (through its acquisition of AECI) ownership of software 
titles and a series of exclusive and non-exclusive licenses to develop and 
market educational software products based upon certain courseware in reading,
English, spelling, social studies, bilingual language development and early 
childhood development.  Since the acquisition of AECI, the Company has engaged 
in extensive development efforts to develop new programming technology as well 
as new curriculum content and academic skills assessment tools.  As a result 
of this effort, the Company now supports all contemporary Macintosh and 
Windows operating systems with one of the largest curriculum offerings in the
core subject areas for grade levels 1-12.

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 local and 
wide-area network technologies in schools and school districts and the Company 
provides versions that perform in these environments.  The Company's products 
for schools and the professional educator versions feature a management function
that records both individual student and class academic performance.  This 
management function also provides for a wide range of performance reports, 
lesson materials, tests and assignments.  A hallmark, unique feature of the 
Company's products is an authoring capability that 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 most national test and 
major state objectives 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 form of content 
and delivery.  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 offer educational 
content substance that is highly specific to grade and age level.  These 
products allow full educator control of the content delivery rather than one 
that is controlled by the software.  Various software tools, such as the 
Company's products for assessment and testing, and products that allow the 
use of the Internet as a source of instruction, provide educators with the 
means to effectively utilize the Company's products as a comprehensive 
supplemental instructional solution.  In addition, the Company's product 
design is modular so that each title sold by the Company has an integral 
management 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 utilized in a LAN environment.  
To monitor and facilitate student performance in this environment, a class of 
software referred to as a "managed solution" has evolved.  This solution is 
typically defined as an Integrated Learning System ("ILS").  This approach 
provides 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 where 
relevant.  These capabilities and range of other functions assist the educator 
in directing the use, and understanding the effectiveness, of the software 
while managing the efficiency of the learning process.  Management believes 
that fewer than six companies in the educational software industry provide a 
comprehensive, fully-managed instructional software solution that is comparable 
to the products provided by the Company.

A+dvanced Learning System, registered

A+LS, V2.0, from an educational content perspective, has been designed as a 
comprehensive grade level 1-12 core curriculum solution.  It is a product 
family comprised of 93 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 provides 
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 
primary, 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, test and essay.  These 
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 insert 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 
that might require specific emphasis to correct skill deficiencies.  
Approximately 6000 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 early 1998, the Company released a major content extension of the A+LS 
elementary and middle school curriculum to extend the Company's range of 
software publications through grade level 12.  One A+SSESS! title was also 
developed to support the assessment and testing requirements for this 
comprehensive high school level product offering.  These secondary grade 
level products were well received by the marketplace and were important 
factors in the continuing expansion of the Company's 1998 revenues, not 
only in the sales of product related revenues, but the more complete product 
offering allowed the Company to secure more district-wide adoptions.

Throughout 1998, the Company has maintained active development efforts in 
updating and expanding both its technology and curriculum offerings for the 
A+LS product family.  The Company initiated in early 1998 what it views as a 
major redesign of its earlier versions of its software technology (V1.0, 
V2.0) with a new Java-based offering planned for introduction in late 1999.  
This new technology will support the Internet delivery of the Company's 
curriculum and should provide for additional revenue opportunities with its 
existing and future school customers.  Throughout the 1998 year, portions of 
the current curriculum content were expanded and realigned to meet new academic 
standards or to provide for necessary updates to important subject areas such 
as reading, the sciences and social studies.

A+SSESS! TM

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.  A+SSESS! has been designed as a companion to A+LS's 
extensive curriculum content as a tool to assist educators in determining 
student skill levels and optimal placement in all A+LS subject areas.  A 
pretest 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 2000 schools have purchased the product. 

A+Net TM

The Company released the A+Net product in May of 1998 as a tool to provide 
educators the means to effectively utilize the Internet as an instructional 
medium while providing for student accountability. A+Net was specifically 
designed to utilize the Internet's rich and varied content as the source for 
study material and to allow the educator to author test and essay questions 
to measure student knowledge gains as a result of access to Internet-based 
educational content.  A+Net has an identical management function that is 
fully compatible with the Company's A+dvanced Learning System's management 
system for its comprehensive reading, writing, mathematics, science, social 
studies and language arts software offering for grades 1-12.  A+Net allows 
educators to capture selected Internet site content in A+Net's specially 
designed Study the Lesson browser and save this material to a hard drive.  
Educators can then author test questions and critical thinking skill problems
while offline for subsequent use in an instructional setting.  A+Net's 
sophisticated class and student manager functions will randomize test 
questions and provide detailed student activity and grade reports.

A+LS/MediaWeaver TM

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

New A+ TM

Introduced in 1994, New A+ is the predecessor product family to A+LS.  It is 
comprised of 14 subject titles in the areas of language arts, social studies 
and science and is available in network, lab pack, school stand-alone, site 
license, and home versions for Windows, Macintosh and DOS platforms.  New A+ 
has a management system, which records student grades and activities and 
allows full authoring.  It does not provide the multimedia functions, managed 
lesson sequences or third-party program capabilities that have been incorporated
in A+LS.  New A+, which is installed in approximately 1,500 schools nationwide, 
remains a viable alternative for schools with older hardware that will not 
support the operating requirements of A+LS V2.0.  Macintosh, Windows, Windows 
NT and DOS are fully supported. 

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

The Company is actively pursuing and is being pursued by third-party publishing
and marketing companies which have curriculum content that is complementary 
to the publications of the Company.  Many of these companies do not have the 
software management technology or distribution resources of the Company.  These
relationships are sought by the Company to supplement and complement the 
content of existing and planned A+LS subject matter.  The Company has reached 
agreements with Teaching Technologies, Inc. (TTI) and World Book Publishing 
(WB) to enter into both content and cooperative marketing programs which should
be launched in mid-1999.  TTI is publishing its Year In The Internet, an 
11-title series, in the Company's A+Net software application to provide for 
Internet-based instructional content in language arts, social studies, science
and mathematics.  WB is providing a special version of its industry-leading 
multimedia World Book Encyclopedia to which the Company will correlate selected
A+LS titles and lesson material.  This will provide the Company's customers 
with what is believed to be an industry first, a completely integrated 
curriculum and reference resource for instruction.  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.

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 version modified
for this application.

The U.S. School Market

The U.S. school market for educational software is growing at approximately 
17%-20% per annum according to industry sources.  In order for the Company to 
take advantage of this fast growing market it must expand its authorized school
dealer sales base.  Although significant progress was made in 1998 in the school
dealer recruiting program, a major objective is to continue to expand the 
Company's school dealer base of organizations calling on and selling into the 
public school market.  The Company achieved agreement or otherwise secured 
effective representation in several important, previously uncovered, 
geographical areas of the country by the fourth quarter of 1998 and believes 
that it now covers most important national markets.

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 1998 the government initiated
Phase 1 of The National Grid for Learning (NGfL) program to invest substantially
in computer hardware infrastructure, Internet access, educator training and 
instructional software technologies for the UK's schools.  Management believes 
that this market will experience higher rates of growth in funding for 
educational technology, at the individual school level, than the U.S.  The NGfL
funding is scheduled to continue through two additional phases and management 
believes that this positive growth trend will continue into the year 2002.  In 
addition, many former British commonwealth nations utilize the UK's
instructional regimen and 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.   In 1998,  the Company established additional 
installations in state and municipal centers of literacy and the juvenile and 
adult corrections market segments.  Preliminary information from these 
installations is that the Company's products are highly effective in preparing 
adults for high school equivalency tests and other recognized measurements of 
literacy.  These markets are growing in excess of 20% per annum according to 
industry sources.  In some cases, these market segments are served by 
specialized distribution and the Company is seeking to secure additional 
dealers to support its expansion efforts in this area.

The Home Market

The Company is not currently active in this market segment, which offers future 
opportunities for growth and additional financial returns on the Company's 
investment into content development.  Management believes that there is an 
opportunity to move into this segment of the market with its current products.
The home education is growing at rates exceeding 15% per year, according to 
industry sources.  Many families are choosing to educate their children at home
versus the traditional school education channels or to be actively involved 
in providing additional academic emphasis through home supervised study.  
Management believes that the Company's products are designed in a manner to 
appeal to the home educator who is seriously involved in the educational 
process of their children.  In addition, the Company has invested heavily in 
the correlation of its products to most national and state instructional 
objectives.  These correlations should provide additional value-added support 
to the use of its products by the home educator.  The Company has completed 
the work on a home version of the complete A+LS family in 1998.  This version 
will be available for release in 1999.

In competing for the home market, the Company will face stiff competition in 
the traditional retail outlets.  The Company does not have the financial 
resources to effectively compete in the traditional retail market channels.  
The Company must, therefore, market its products through partners, 
unconventional or emerging channels.  This includes developing partnerships 
with organizations who deal directly with the marketing of products to the 
home and/or emerging Internet e-commerce opportunities.  

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

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

On June 16, 1995, the Company filed for the separate and expanded use of its 
A+ registered mark as A+dvanced Learning System with its logo design to 
describe and identify this extensive family of educational software products 
released in the latter part of fiscal 1995.  This mark was registered with 
the United States Patent Office on Principal Register, register number 
2,038,275, on February 18, 1996. 

The Company filed for additional separate and expanded use of its A+ registered
mark for use as A+SSESS! and A+Net in the fourth quarter of 1997 and continued
filing activities on these marks during 1998.  In addition, during 1998 the 
Company also executed additional filings in the United Kingdom anticipating 
the use of its various A+ brands in that country.  The use of the Company's 
distinctive A+ logo are viewed as integral, distinctive brand elements to the 
Company's A+dvanced Learning System product family.

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

The Company purchases unformatted 3 1/2" software diskettes and CD-ROM blanks 
from various sources.  The Company owns commercial quality, high speed software
duplication equipment and duplicates most of its software internally.  Large 
production runs on CD-ROM are contracted with outside duplicators to manage 
production costs.  The Company develops, with outside packaging developers, 
materials and packaging concepts, and internally authors necessary product 
manuals.  The Company leases high speed duplication equipment that is suitable 
for small, or initial production of catalogs and manuals.  The Company secures 
product packaging from external sources and performs quality control, final 
assembly, inventory and distribution on most orders received.  Large production 
runs of manuals and literature are contracted to outside printers.  The Company 
has no dependence on any individual supplier.

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

At December 31, 1998, the Company employed thirteen full-time development and 
support personnel in its product development efforts.  These individuals are 
responsible for the new 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 resources.  

At December 31, 1998, the Company employed four 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 $656,238 in software research and development 
costs in 1998.

Distribution and Sales Programs.
--------------------------------

In marketing its products, the Company utilizes approximately 50 independent 
school dealers and 7 catalog houses to reach its school-based customers.  In 
late 1998, the Company began to develop an internal direct telephone sales 
staff to provide support to its distributors and to access customers in rural 
areas not easily reached by its distributors.  This internal direct sales 
team was comprised of five individuals at December 31, 1998.

Backlog.
--------

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

The Company sells its A+LS product family almost exclusively to schools 
through various school dealers of educational materials.  In 1998, no 
individual customer accounted for more than 10% of total revenues. In 1997, 
one customer, National School Services, accounted for $506,009 or 13.8% of 
revenues.  

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

The educational software industry is highly competitive and subject to rapid 
change.  There are a large number of companies developing educational software 
products.  Many of these companies are better known and have substantially 
greater financial, marketing and technical resources than the Company.  Such 
participants are textbook publishing companies 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, 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. 

The Internet and the delivery of curriculum by electronic means may have the 
capacity to alter the competitive environment and the current means of access 
to the school and home customer.  The Company, in the judgment of management,
has programs to develop the technology to remain competitive in this future 
environment.  Programs to identify future partners and the means to exploit 
the Company's investment in both technology and content are currently active.

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

As of December 31, 1998, the Company had forty-one (41) full-time employees 
in its domestic operations and six (6) full time employees in its foreign 
subsidiary.  The Company believes that its relationship with employees is 
satisfactory.


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

The Company rents office space under a lease agreement dated March 1, 1999, 
which extends through February 2002. The lease covers a total of 17,619 
square feet at a base rate of $10,437 a month through February, 2000, and 
$10,943 thereafter until the expiration of the lease. Total office rent 
expense for the years ended December 31, 1998 and 1997, was $99,041 and 
$68,426, respectively.


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

On July 8, 1997, the Company filed a complaint in the United States District 
Court for the Western District of Oklahoma against Jostens Learning Corporation 
("Jostens"). The complaint alleged, among other things, that Jostens had 
improperly adopted and used the mark "A+" and "A+dvantage" in connection with 
its educational software, and that Jostens' confusingly similar mark has 
caused damage to the Company. The complaint requested, among other things, 
monetary damages, and injunctive relief. On June 24, 1998 the Company and 
Jostens reached a mediated settlement, without proceeding to trial, that was 
favorable to the Company.

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

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

No matters were submitted to a vote of the security holders during the fourth 
quarter ending December 31, 1998.


PART II


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

As of December 31, 1998, there were approximately 2,500 record holders of the 
Company's common stock. Since its initial public offering in 1982, the Company's
securities have been traded in the over-the-counter market.  There have been 
no market makers for the Company's common stock for the past two years. The 
following is a summary of closing bid and ask prices for each of the 1998 and
1997 quarters.



                                   1998                1997
                                   ----                ----
                              BID      ASK        BID       ASK
                            ---------------        -------------

Quarter Ending March 31      1       1 1/16        1/2      3/4

Quarter Ending June 30       1 1/4   1  1/2       23/32    15/16

Quarter Ending September 30    7/8   1 1/32       1        1 1/8

Quarter Ending December 31   1 3/32  1  1/4        3/4    1 1/32


The quotations reflect inter-dealer prices, without retail mark-up, mark-down,
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.

Sales of Common Stock
---------------------

In February, 1998, the Company issued 175,000 shares of common stock as a 
portion of the purchase price of the acquisition of Projected Learning Programs,
Inc.

In November, 1998, the Company issued 510,030 shares of common stock as a 
portion of the purchase price of the acquisition of Learning Pathways, Ltd.

During the year ended December 1, 1998, 45,200 shares of common stock were 
issued as a result of exercise of options by current and former employees of 
the Company.

The Company relied upon the exemption from registration provided by Sections 
4 (2) or 4 (6) of the Securities Act.
           
 
Item 6.     Management's Discussion and Analysis or Plan of Operation.
-------     ----------------------------------------------------------

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

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

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

The Company has invested significantly in personnel additions, the development 
of new products and the acquisition and licensing of new products to improve 
the ability of the organization and its published products to meet the needs of 
the marketplace.  These changes were required to update and expand the 
Company's product offerings.  To finance the business, management has utilized 
long-term, subordinated debt from private investment sources, secured bank 
revolving credit lines, and lease financing sources.  

Management anticipates that the Company will be able to meet the preponderance 
of its financial needs from internally generated funds in 1999.  However, 
additional financing may be required to accelerate the Company's growth and 
to take advantage of strategic growth opportunities through acquisitions that 
may exist in the electronic media for education industry.  In addition, 
management is focused on the need to gain software industry standard valuations
on the business and recognition of its potential for future profitable growth.
In order to gain this recognition, the Company may undertake additional 
financing to strengthen its financial position and to provide management with
the flexibility offered by this strength to deal with value enhancement options 
that may be presented in the future.

As of December 31, 1998 the Company's principal sources of liquidity included 
cash and cash equivalents of $720,838, net accounts receivable of $1,396,021 
and inventory of $96,248. The Company's net cash provided by operating 
activities increased by 78% from $741,305 in 1997 to $1,316,544 in 1998. Net 
cash used in investing activities increased by 55% from $649,748 in 1997, to 
$1,007,668 in 1998, and was comprised primarily of investment in capitalized 
software development costs and the cash portion of the purchase price of 
acquisitions.  At December 31, 1998, the Company had working capital of 
$1,398,258 compared to $347,560 at December 31, 1997.    

The amount of inventory needed to support expanding software sales is minimal 
since the Company has a "just in time" inventory plan that can create the 
appropriate media (diskettes and CD-ROM's) on an almost as needed basis. The 
amount of physical space required for inventory storage has declined as the 
Company has shifted to the CD-ROM delivery system. For those items that must 
be inventoried, such as the World Book products in the United Kingdom or items 
offered through catalog sales, management strives to keep such amounts to a 
minimum while providing timely service to the Company's customers. Management 
anticipates that the working capital requirements to support continued expansion
will be funded from continuing operations or short term lines of credit with 
banks.

With the expansion of the Company's product lines and the addition of new 
products and markets through its subsidiaries acquired in 1998, management 
believes that the Company can continue to grow at a rate similar to that 
experienced in 1998 compared to 1997. Management believes that it can 
undertake this expansion with most of the Company's working capital requirements
secured from its operating cash flows.  If successful, the Company should 
continue to enhance the liquidity of the business and the overall strength of 
the Company's balance sheet and financial position.

Additional working capital beyond that available within the Company has been 
and may be required to expand operations.  Management has and will consider 
options available in providing such funding, including debt financing and 
capital enhancement. At December 31, 1998, the Company had available bank 
credit lines for working capital totaling $1,350,000 of which $1,284,000 was 
unused. 


Impact of The Year 2000
-----------------------

Many existing computer systems use only the last two digits to identify years 
in the date field. As a result, those systems may not be able to properly 
identify the correct year after the beginning of the year 2000, believing that
"00" is referring to the year 1900. Systems that do not properly recognize the 
correct date could generate erroneous information or cause a system to fail. 
This potential problem is generally referred to as the "Year 2000 Issue." 

The Company is continuing its review and assessment of the potential effect 
of the Year 2000 Issue. Thus far, the Company has completed the initial review 
of its information technology systems, including both software and hardware, 
and determined that they appear to be Year 2000 compliant. Additionally, the 
Company had previously planned to upgrade its accounting and reporting systems 
independent of Year 2000 considerations and has selected a Year 2000 compliant
system that is anticipated to be installed by June 30, 1999. This installation 
date has not been accelerated by Year 2000 concerns.

The Company has tested the educational software systems that it produces for 
sale and believes they are Year 2000 compliant.

The Company is currently in the process of contacting critical suppliers of 
products and services to determine the extent to which the Company may be at 
risk if such parties fail to resolve their own Year 2000 Issues. The Company 
will assess and attempt to mitigate any risks that may be perceived by such 
possible failures. The effect, if any, on the Company's results of operations 
from the failure of third parties to be Year 2000 compliant cannot be reasonably
estimated.

The Company is still evaluating its non-information technology systems such as 
telephones, utilities, alarm systems and climate control systems and expects 
to complete its evaluation by June 30, 1999. Based on its preliminary 
assessment, the Company currently believes that these systems are or will be 
Year 2000 compliant. The Company has not yet developed a contingency plan but 
will determine if it appears one may be necessary as the current assessment is 
refined.

Based on the Company's overall current assessment to date, no matters have been 
identified and the Company does not currently believe that the Year 2000 Issue
will have a material adverse effect on the Company's financial position or 
results of operations. The Company also believes any costs that may be incurred
relating to the identification or remediation of Year 2000 issues will not be
material. The Company's beliefs and expectations, however, are based on certain
assumptions that may prove to be inaccurate, especially those relating to third 
parties over which the Company has no control. Potential sources of risk include
the inability of suppliers of goods or services to be Year 2000 compliant, 
which could result in delays in product deliveries or disruption of distribution
channels.



Results of Operations

Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended 
December 31, 1997.
------------------------------------------------------------------

The following is a discussion of the results of operations for the fiscal year 
ended December 31, 1998, as compared to the fiscal period ended December 31, 
1997.

Net revenues for the twelve months ended December 31, 1998, totaled $6,022,121
compared to net revenues of $3,670,654 for the year ended 1997.  This represents
an increase of 64% in net revenues over the prior fiscal year.  The increase 
in net revenues is primarily attributed to increased acceptance of the A+dvanced
Learning System family of products, the release of new subject titles associated
with this product during the first half of 1998 and the consolidation of LPL 
and PLP into the Company's financial results.

Cost of goods sold as a percentage of net revenues for the year ended December
31, 1998 increased to 11.8% from 7.3% in 1997.  This increase is attributed to
a change in the Company's product mix by the addition of lower gross margin 
products sold by Projected Learning Programs and Learning Pathways, Limited.  
Cost of goods sold represents the actual cost to produce the software products,
or in the case of PLP or LPL the cost to acquire software from other publishers,
and includes certain allocated overhead costs.  Excluding the costs of allocated
overhead, the Company's principal product family, A+LS, provided gross profit 
margins averaging 95% in 1998.  Consolidated Company gross margins are expected
to trend down slightly in the future as lower gross margins on PLP catalog sales
and LPL sales of World Book products become a higher percentage of total 
corporate revenues.

Total operating expenses recorded for the year ended December 31, 1998 were 
$3,592,543, or 60% of net revenues, compared to $2,514,394, or 68%, for the 
previous fiscal year. The decrease in operating expenses as a percentage of 
net revenue is primarily due to volume related efficiencies where the operating
costs are fixed or controllable. As a component of total operating expenses, 
selling and marketing costs increased from $1,510,084 in fiscal 1997 to 
$1,802,841 in fiscal 1998. The increase in 1998 selling expenses is a direct 
result of increased selling efforts required to support the higher sales levels
attained. Operations expense increased to $244,557, or 4.0% of net revenues in
fiscal 1998, compared to $95,679, or 2.6% of net revenues in fiscal 1997.  This 
increase is attributable to increases in curriculum development costs and 
expansion of the quality control and technical support departments.  General 
and administrative expenses increased to $1,264,641 in 1998 compared to 
$763,794 in 1997, but remained relatively unchanged as a percent of net revenues
at 21.0%.  This increase in costs is related to expanded administrative and  
support staff added as a result of the expanding customer base, and the addition
of the administrative costs of PLP and LPL into the consolidated results.  
Additionally, one time costs for investment banking fees and professional costs
related to expansion of the business and analysis of various alternatives to 
increase the value of the Company were incurred in fiscal 1998.

Costs incurred in conjunction with product development are charged to research 
and development expense until technological feasibility is established.  During
fiscal 1998, the Company capitalized $656,238 of product development costs, and 
net of accumulated amortization had capitalized software costs of $1,181,754 
at December 31, 1998.  During 1998, the Company completed a major content 
extension of the A+LS elementary and middle school curriculum and one companion
A+SSESS! Module.  In addition, the Company completed development of A+Net, and 
the A+LS Home version.  The Company also made substantial progress in 
development efforts on revised, updated and expanded curriculum offerings and 
a new Java-based Version 3.0 of the A+dvanced Learning System product family.

Interest expense was $24,986 in 1998 compared to $6,919 in 1997. This increase
results from interest on the Company's acquisition debt and the use of debt to
finance certain capital assets.

Pre-tax income increased by 70% to $1,707,955 from $1,001,910 in 1997.  This 
increase is a result of the higher net revenues noted above in addition to the
decrease in operating costs as a percentage of net revenues.  Net income form 
1998 was $982,311 compared to a proforma amount of $686,346 in 1997, which 
recognizes the after-tax effect of fiscal 1997 earnings on the same basis as 
fiscal 1998.  The reported 1997 results were impacted by a one time, 
non-recurring change in the valuation allowance relating to net operating loss 
carryforwards in the net amount of $1,825,206 which was recorded as an asset 
on the balance sheet as well as recognized on the statement of income.  
Management believes that with the increase in the Company's product offerings,
the addition of new products and markets through its subsidiaries acquired in 
1998 and increased selling efforts through expanded third party and school
dealers, the Company is now positioned to continue to expand sales results from
the home and school education markets.

Beginning in 1997, the Company's past financial constraints and need to access 
external capital sources began to abate as a result of significant improvements
in revenues and cash flows from operations.  This favorable trend continued 
throughout 1998.  The Company's cash position at the end of fiscal 1998 improved
by $437,202 or 154% over the cash position at the end of 1997 fiscal period.  
Working capital increased 302% from $347,560 at the end of 1997 to $1,398,258 at
December 31, 1998.

Company management believes that significant future opportunities exist in the 
school, adult literacy and home markets for future Company growth. In 1998, 
management undertook to position the Company in what it believes is a fast 
growing segment of the educational market. The Company is now equipped with 
A+LS Macintosh and Windows software program engines that facilitate the low 
cost and rapid development of new subject titles.  In addition, the Company 
has expanded its content and intellectual property base with the internal 
development of substantial educational content for its current and future 
products.  Management believes, as a result of these recent curriculum and 
technical developments, that the Company is well positioned to compete in the 
major market segments of the educational technology industry.  The Company's 
competitive position is further enhanced by its growing employee base of 
skilled technical and business professionals that has aided the development 
of new industry partnerships during 1998.  These elements combine to form a 
stronger overall corporate foundation that, combined with growing markets and 
expanding marketing and distribution strengths, provides a greatly improved 
internal and external environment for the Company's future operations.  

The Company has taken the Internet into consideration in its Version 3.0 
planning and believes it represents a potential new, future channel of 
distribution for both products and services.  During 1998, the Company 
continued strategic planning for the development of programming technology 
and curriculum content to take advantage of the Internet, which it views as 
a developing and emerging channel.  Management believes that the Internet will 
become an important future factor in the Company's delivery of new products 
and services.


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 & Bozalis, P.C. has audited the Company's financial statements
for the years ending December 31, 1994 through 1998.  There are no disputes with
the previous or current 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, or 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     57      President, Director,           1989
                              Chief Executive Officer

Thomas Shively        45      Executive Vice President and    
                              Chief Operating Officer 

Neil R. Johnson       48      Vice President and
                              Chief Financial Officer

Jeffrey E. Butler, 
Jr.                   34      Vice President Sales and 
                              Marketing

Monty C. McCurry      53      Director                       1989  

Newton W. Fink        62      Director                       1991

Stephen E. Prust      54      Director                       1992

Geoffrey Glossop      50      Director                       1998


Business Experience.
--------------------

JEFFREY E. BUTLER was named a director of the Company in August 1989 and was 
elected Chief Executive Officer and President on March 31, 1990. Since 1985, 
Mr. Butler has been a management consultant to businesses in the biotechnology; 
computer science; software; educational and entertainment video industries. Mr. 
Butler also served as a director to Video Professor Industries, Inc., a public 
corporation, from February 1, 1989 to October 31, 1990, when he resigned this 
directorship. Prior to establishing his personal services business, Mr. Butler 
was, from 1980 to 1985, the Chief Executive Officer and President of Infomed 
Corporation, an Englewood, Colorado-based provider of computer diagnostic 
equipment and data management services to hospitals, leading corporations and 
physicians.  Prior to 1985, Mr. Butler was employed by Sandoz, Ltd., Corning, 
Inc. and the Becton Dickinson Corporation in middle and senior management 
positions. 

THOMAS A. SHIVELY joined the Company as Executive Vice President in September 
1991.  From 1990 to 1991, Mr. Shively was Vice President and General Manager 
of AVID Home Entertainment,  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.

JEFFREY E. BUTLER, JR. has been employed by the Company since March 1994. In 
July 1997, he was promoted from Director of School Sales to Vice President and 
an officer of the Company. Prior to joining the Company he was a senior product
manager with Birtcher Medical Systems, Inc. From 1990 to 1991, he was employed 
as a sales representative and a district sales manager with C. R. Bard, Inc. 
From 1985 to 1990, he was employed by the Ortho Diagnostics Division of Johnson
and Johnson as a sales representative. Mr. Butler graduated from the University 
of Colorado with a BA in Molecular and Cellular Biology in 1985.  Mr. Butler is
the son of the President of the Company.

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

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

STEPHEN E. PRUST has been a director of the Company since April 1992.  As a 
director, he has worked to develop special retail marketing strategies for the 
Company's software products. 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, he was the 
President of AVID Home Entertainment, a division of Live Entertainment, Inc., a 
major NYSE video production company.  From 1981 to 1990, Mr. Prust was a 
consultant to companies in the entertainment industry.  In 1975, Mr. Prust 
founded Dominion Music, Inc., a joint venture with K-Tel Records, Inc.  He 
served as President of Dominion Music until his personal interests in the 
venture were acquired by K-Tel in 1981.

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

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors, executive officers and holders of more than 10% of the 
Common Stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of the Common Stock.  Based 
solely upon a review of Forms 3, 4 and 5 furnished to the Company with respect 
to the year ended December 31, 1998, 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 Chief
Executive Officer.  No other executive officer was paid in excess of $100,000.

Summary Compensation Table

                         Annual Compensation        Long-Term Compensation

Name and Principal                                Profit    Stock      Stock
    Position          Year        Salary($)    Sharing ($) Options   Awards ($)
-------------------------------------------------------------------------------
Jeffrey E. Butler,
President and Chief
Executive Officer
(1) (2) (3)           1998        $89,355         $4,158    60,000   $5,000 (2)
                      1997         83,878              0         0        0
                      1996         60,570              0   352,000        0
  


(1)   Exclusive of personal benefits and other forms of non-cash compensation,
the aggregate value of which did not exceed the lesser of $50,000, or 10% of 
the cash compensation shown above.

(2)  In January, 1998 Mr. Butler received 10,000 shares of the Company's common
stock as a bonus for 1997.

(3)  Excludes $11,551 for 1997, in payments made to or in behalf of Mr. Butler
for reimbursement of relocation expenses to relocate from Denver to Oklahoma 
City.


Employment Agreement
--------------------

In December, 1998 the Company entered into an employment agreement with Jeffrey
E. Butler providing for a base salary of $95,086 and benefits, 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 Shively, Jeffrey E. Butler, Jr., and Neil R. Johnson also have
employment agreements with the Company.

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

The shareholders approved an Incentive Stock Option Plan for employees, 
including officers, during 1998.  The total common shares issuable under this 
plan is 750,000 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.  During 1998, 
498,000 options had been granted, 5,000 had expired, and no options had been 
exercised.  At December 31, 1998 there were 493,000 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 1,581,695 shares of restricted common stock at prices ranging from
$.50 to $.90 have been issued, 200,500 have expired and 45,200 have been
exercised.  At December 31, 1998, there were 1,335,995 options outstanding.
Certain of these options had an original expiration date of March 11, 1999. 
In February 1999, these options were extended for an additional three years
and now expire in 2002.

Stock Option Grants In 1998
---------------------------

The following table sets forth the information concerning the stock options
granted during the last fiscal year to the executive named in the Summary
Compensation Table.

                           Percentage of Total    
          Options Granted   Options Granted to  Exercise Price   Expiration
Name         (shares)        Employees in 1998    (Per Share)       Date
------------------------------------------------------------------------------
Jeffrey E.
Butler        60,000                7.7%              $.73     November 1, 2001
                     


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

No executive officer exercised options during 1998.  The following table sets
forth, for the executive officer named in the Summary Compensation Table above,
the year-end value of unexercised stock options.

                                                     Value of Unexercised
                         Number of Unexercised           In-the-Money
Name                      Options at Year-End         Options at Year-End
--------------------------------------------------------------------------

Jeffrey E. Butler              412,000                     $229,280



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

In 1998, the Company's non-employee directors each received 1,000 shares of 
the Company's common stock, and options to purchase 10,000 shares of the
Company's common stock at $.75 per share.  These options expire January 23,
2001.  The directors received no compensation, other than the shares and
options, for services in such capacity.

The shareholders approved a Director's Stock Option Plan during 1998.  The total
common shares issuable under this Plan is 100,000 shares.  Each outside director
initially elected or appointed after March 27, 1998, 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.  At December 31,
1998, no options had been issued or were outstanding under this Plan.


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

The following table sets forth ownership of the common stock of each director 
and officer, all officers and directors as a group, and each person known or 
believed by the Company to have beneficially owned five percent or more of 
the Company's outstanding common stock as of March 8, 1999. Unless otherwise 
indicated, the beneficial owner has sole voting and investment power over the 
common stock listed below:

Shares Beneficially Owned
                                  Title of Class
Name/Address of Beneficial Owner                     Number       Percent
----------------------------------------------------------------------------
Jeffrey E. Butler   (1)              Common       1,423,375         9.3%
4217 Old Farm Road  
Oklahoma City, OK 73120

Thomas A. Shively   (2)              Common         529,664         3.5%
14431-C North Penn 
Oklahoma City, OK 73134

Neil R. Johnson (3)                  Common          75,000         0.5%
6500 N.W. Grand Blvd. 
Oklahoma City, OK  73116

Jeffrey E. Butler, Jr. (4)           Common         333,919         2.2%
1813 Talequah
Edmond, OK 73013

Monty C. McCurry    (5)              Common         122,400         0.8%
2134 S. Eagle Ct.
Aurora,  CO 80014                        	

Newton W. Fink      (6)              Common          90,400         0.6%
1093 Lincoln   
Manteno, IL 60950                     

Stephen E. Prust    (7)              Common         434,768         2.8%
9025 East Kenyon Avenue
Denver, CO 80237       	

Geoffrey Glossop (8)                 Common         510,030         3.3%
Field House
6 Haley Croft
Duffield, Derbyshire, UK

John D. Garber (9)                   Common       6,038,286        39.6%
7530 Navigator Circle
Carlsbad, CA  92009                  

Robert Schoolfield (10)              Common       1,536,517        10.1% 
5 Pleasant Cove
Austin , TX  78746
 
Officers and Directors 
as a Group (8 persons)               Common       3,519,556        23.0%
(1) (2) (3) (4) (5) (6) (7) (8)                



(1)  The amount and percentage figures include the possible exercise of 
352,000 common stock options, with an exercise price of $.50 per share, and 
60,000 common stock options at $.73 per share.  Exclusive of 333,919 shares 
of common stock beneficially owned by Mr. Butler's son, Jeffrey E. Butler, Jr.
(2)  The amount and percentage figures include the possible exercise of 
259,195 common stock options, with an exercise price of $.50 per share, and 
70,000 common stock options at $.73 per share.
(3)  The amount and percentage figures include the possible exercise of 
75,000 common stock options, with an exercise price of $.73 per share.
(4)  The amount and percentage figures include the possible exercise of 
120,000 common stock options, with an exercise price of $.50 per share, and 
70,000 common stock options at $.73 per share.
(5)  The amount and percentage figures include the possible exercise of 
70,000 common stock options, with an exercise price of $.50 per share, 10,000 
common stock options at $.75 per share, and 3,000 common stock options at 
$.73 per share.
(6)  The amount and percentage figures include the possible exercise of 
70,000 common stock options, with an exercise price of $.50 per share, 10,000 
common stock options at $.75 per share, and 3,000 common stock options at 
$.73 per share.
(7)  The amount and percentage figures include the possible exercise of 
120,000 common stock options, with an exercise price of $.50 per share, 10,000 
common stock options at $.75 per share, and 3,000 common stock options at 
$.73 per share.
(8)   The amount and percentage figures include 510,030 shares of common 
stock held in trust for the benefit of the Glossop family.
(9)  The amount and percentage figures include 5,527,286 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 forwhich 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 71,000 shares of common stock owned by a company controlled by the Garber
family.
(10)  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.


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

In 1998, the Company paid deferred consulting fees and expense reimbursement 
amounts of $25,556 to AMD Corporation for amounts owed to Mr. Butler by the 
Company for services rendered and out-of-pocket expenses incurred prior to 
1997.  Mr. Butler is an officer of, and owns more than 10% of the equity 
ownership interest in, AMD Corporation.

In 1997, the Company paid $400 to Jeffrey E. Butler as reimbursement of expenses
incurred in connection with consulting services rendered by Mr. Butler to the 
Company. In addition, the Company also paid Mr. Butler $11,551 in reimbursement
of relocation expenses.

The Company paid Executive Resource Management $8,833 in 1998 and $1,733 in 
1997 for recruiting services rendered by that entity to the Company.  Monty C.
McCurry, who is a director of the Company, is an executive officer of, and 
owns more than 10% of the equity ownership interest in, Executive Resource 
Management.

In 1998 the Company's subsidiary, Learning Pathways, Ltd., paid Editplan 
Services, Ltd. a consulting fee of $37,000 to perform management services for 
LPL. Mr. Geoffrey Glossop is an executive officer of, and owns more than 10% 
of the equity ownership interest in, Editplan Services, Ltd.


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

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

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

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

3.2           Bylaws of The American Education Corporation (incorporated
              by reference to the Company's registration statement
              filed with the Securities and Exchange Commission on
              Form S-18 (File No. 2-78660-D))

4.1           Form of Stock Certificate (incorporated by reference to
              the Company's registration statement filed with the Securities
              and Exchange Commission on Form S-18 (File No. 2-78660-D))

10.1          Promissory Note issued by the Company to Rich Carle
              (incorporated by reference to the exhibit contained
              in the Company's Quarterly Report on Form 10-QSB for
              the fiscal quarter ended June 30, 1998)          

10.2          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)

10.3          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)

10.4          Loan Agreement and Promissory Note between the Company and
              UMB Oklahoma Bank (incorporated by reference to the exhibit
              contained in the Company's Quarterly Report on Form 10-QSB
              for the fiscal quarter ended June 30, 1998)

10.5          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.

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

21            Subsidiaries of The American Education Corporation
              (filed herewith)

27            Financial Data Schedule (filed herewith; electronic
              filing only)

(b)           Reports on Form 8-K

              (i)  Current Report on Form 8-K filed December 15,
                   1998 regarding the acquisition of Learning
                   Pathways, Limited.


________________________________________________________





SIGNATURES


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


The American Education Corporation

March 30, 1999                    By: /s/Jeffrey E. Butler,
                                     ----------------------
                                     Chief Executive Officer
                                     Chairman of the Board
                                     Treasurer

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

Name                          Title                    Date

/s/Jeffrey E. Butler    Chief Executive Officer    March 30, 1999
                        Chairman of the Board
                        Treasurer

/s/Neil R. Johnson     Chief Financial Officer     March 30, 1999

/s/Monty C. McCurry            Director            March 30, 1999


/s/Newton W. Fink              Director            March 30, 1999


/s/Stephen E. Prust            Director            March 30, 1999


/s/Geoffrey Glossop            Director            March 30, 1999



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, 1998              F-2

Consolidated Statements of Income for the years 
ended December 31, 1998 and 1997                           F-3

Consolidated Statements of Changes In Stockholders' 
Equity for the years ended December 31, 1998 and 1997      F-4

Consolidated Statements of Cash Flows for the years 
ended December 31, 1998 and 1997                           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, 1998 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, 1998.  These financial statements 
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, 
in all material respects, the consolidated financial position of The American
Education Corporation as of December 31, 1998 and the consolidated results of 
its operations and cash flows for each of the two years in the period ended 
December 31, 1998, in conformity with generally accepted accounting principles.

STEAKLEY, GILBERT & BOZALIS
Oklahoma City, Oklahoma
March 12, 1999

F-1

THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 1998

ASSETS
Current assets:
Cash and cash equivalents                              $  720,838
Accounts receivable, net of allowance for returns and 
uncollectible accounts of $98,515 (Note 1)              1,396,021
Inventory (Note 1)                                         96,248
Prepaid expenses and deposits                             324,647
                                                        ---------
Total Current Assets                                    2,537,754

Property and equipment, at cost (Note 1)                  438,931
Less accumulated depreciation and amortization           (195,538)
                                                        ---------
Net property and equipment                                243,393

Other assets:
Capitalized software costs, net of accumulated
amortization of $1,239,719 (Note 1)                     1,181,754
Goodwill, net of accumulated amortization of
$33,638 (Note 1)                                        1,009,651
Deferred income taxes (Note 6)                            857,550
                                                       ----------
Total other assets                                      3,048,955
                                                       ----------
Total Assets                                           $5,830,102

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade                                   $325,840
Accrued liabilities (Note 11)                             451,018
Accounts payable - Affiliates (Note 8)                    174,199
Notes payable and current portion
of long-term debt (Note 4)                                124,686
Foreign income taxes payable                               23,126
Deferred income taxes (Note 6)                             40,627
                                                        --------- 
Total current liabilities                               1,139,496

Long-term debt (Note 4)                                    85,742
                                                        ---------
Total liabilities                                       1,225,238
                                                        ---------

Commitments and contingencies (Notes 5, 7, 10 and 13)        --

Stockholders' Equity  (Note 3)
Preferred Stock $.001 par value;
Authorized-50,000,000 shares, issued and outstanding-none; 
liquidation preference-$.02 per share                        --
Common Stock, $.025 par value;
Authorized 30,000,000 shares; issued and outstanding-
13,423,076 shares                                         335,577
Additional paid in capital                              6,151,263
Retained deficit                                       (1,881,976)
                                                      -----------
Total stockholders' equity                              4,604,864
                                                      -----------
Total liabilities and stockholders' equity             $5,830,102

See accompanying notes and accountants' report.

F-2

	
	
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998 and 1997

                                      1998                 1997
                                      ----                 ----
Sales (Note 1)                    $6,022,121           $3,670,654
Cost of goods sold                   712,922              266,980
                                  ----------           ----------
Gross Profit                       5,309,199            3,403,674
                                  ----------           ----------
Operating expenses:
Selling and marketing (Note 1)     1,802,841            1,510,084
Operations                           244,557               95,679
General and administrative         1,264,641              763,794
Provision for bad debts               41,515               23,140
Amortization of capitalized 
software costs                       238,989              121,697
                                  ----------           ----------  
Total operating expenses           3,592,543            2,514,394	
                                  ----------           ----------
Operating income                   1,716,656              889,280

Other income (expense):
Interest and dividend income          16,285                4,203
Miscellaneous income                     --               115,346
Interest expense                     (24,986)              (6,919)   
                                   ---------           ----------
Net income before income taxes     1,707,955            1,001,910

Deferred income tax provision        712,527              306,052
Current income tax provision          13,117                9,512
Valuation allowance - change at
beginning of year (Note 6)               --            (1,825,206)	
                                 -----------            ---------
Net income                        $  982,311          $ 2,511,552	
                                 -----------            ---------
Earnings per share: (Note 14)
Basic                                   $.08                $.21 
Diluted                                 $.07                $.19 

See accompanying notes and accountants' report.

F-3


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997

                                         Additional
                     Common Stock          paid in       Retained
                     Shares     Amount     capital        deficit
                     -----------------   -----------     ---------
Balance at 
December 31, 1996   12,170,829 $304,271   $5,232,630    $(5,375,839)

Issuance of common 
stock for services      12,750      319        4,463            --

Net Income                                                2,511,552
                    ---------- --------   ----------    ------------
Balance at
December 31, 1997   12,183,579  304,590     5,237,093    (2,864,287)


Issuance of common 
stock upon conversion 
of debts               458,767   11,469       50,281            --

          
Issuance of common 
stock for services 
rendered                50,500    1,262       23,988            --

Issuance of common
stock for purchase
of subsidiaries        685,030   17,126      820,912            --

Issuance of common
stock for cash          45,200    1,130       21,550            --

Net Income                                                  982,311

Comprehensive Income
adjustment:
Foreign currency
translation adjustment                        (2,561)
                    ----------  -------      ---------  -----------
Balance at
December 31, 1998   13,423,076  335,577     6,151,263   $(1,881,976)



See accompanying notes and accountants' report.

F-4


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997

                                              1998         1997
                                          -----------    --------
Cash flows from operating activities:
Net Income                                 $  982,311   $2,511,552

Adjustments to reconcile net income 
to net cash provided by operating 
activities:
Deferred income taxes                         702,230   (1,519,154)
Depreciation and amortization                 339,164      194,792
Reserve for bad debts                          25,110       23,140
Gain on debt settlement                           --      (107,629)
Services rendered for common stock             25,250        4,782

Changes in assets and liabilities:
Accounts receivable                          (585,920)    (238,249)
Inventories                                   (43,421)       7,741
Prepaid expenses and deposits                (270,752)        (151)      
Accounts payable and accrued
liabilities                                    96,902      (76,290)
Customer deposits                             (29,036)     (68,741)
Income taxes payable                            1,387        9,512
Accounts payable - Affiliate                   73,319          --
Net cash provided by operating               --------      --------
activities                                  1,316,544      741,305

Cash flows from investing activities:
Purchase of subsidiaries                     (267,045)         --
Purchase of property and equipment           (115,527)     (85,582)
Software development costs 
capitalized                                  (625,096)    (564,166)
Net cash used in investing                   ---------    ---------
activities                                 (1,007,668)    (649,748)

Cash flows from financing 
activities:
Proceeds received from issuance of debt       170,724          --
Principal payments on notes payable           (65,078)      (1,268)
Issuance of common stock for cash              22,680          --
                                              --------    ---------
Net cash provided by (used in)                                    
financing activities                          128,326       (1,268)

Net increase in cash                          437,202       90,289

Cash at beginning of year                     283,636      193,347
                                             ---------    ---------
Cash at end of year                          $720,838     $283,636
                                             ---------    ---------
Interest paid in cash                        $ 16,647     $  1,919    

See accompanying notes and accountants' report.

F-5



THE AMERICAN EDUCATION CORPORATION
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Years Ended December 31, 1998 and 1997


The Company acquired office equipment under an installment plan in the amount
of $56,050 during 1997 and $55,496 in 1998. During 1998, convertible debt and 
accrued interest of $61,750 was exchanged for 458,767 shares of common stock.

The Company acquired two subsidiaries during 1998 for a combination of cash, 
debt and common stock. Projected Learning Programs, Inc. was acquired effective
January 1, 1998 by issuing a $50,000 note payable, 175,000 shares of common 
stock valued at $1.00 per share and cash of $100,000.

Learning Pathways, Limited was acquired effective October 1, 1998 for 510,030
shares of common stock valued at $1.30 per share and $165,760 of debt of which
$82,880 was paid prior to December 31, 1998.




See accompanying notes and accountants' report.

F-6
	


THE AMERICAN EDUCATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

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 Education Computer, Inc., and assumed specific trade accounts payable 
and other accrued liabilities related to that business.

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

On February 26, 1998, the Company acquired the business of Projected Learning 
Programs, Inc. ("PLP") pursuant to the terms of an agreement and Plan of 
Merger, among the Company, PLP, and PLP Holdings, Inc. (a subsidiary of the 
Company formed to accommodate the merger). The transaction is accounted for 
as a purchase. The Company paid the sellers $325,000 for the stock of PLP as 
follows: 175,000 shares of the Company's $.025 par value common stock, cash 
of $100,000 and a $50,000 promissory note. The business of PLP is to produce, 
publish and distribute computer software catalogs to various educational
institutions throughout the United States. The operations of PLP were relocated 
from California to Oklahoma City in March 1998.  The closing date of the 
transaction was effective as of January 1, 1998.

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 is 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. The business of LPL principally is to distribute 
the World Book Encyclopedia print and multimedia product line in the United 
Kingdom.

In 1998 net income from foreign operations totaled $45,940. No dividends were 
received from the foreign entity.

                                   
F-7


Revenue recognition

The Company recognizes revenue in accordance with the American Institute of 
Certified Public Accountant's Statement of Position 91-1 on software revenue 
recognition.  The Company has recognized revenue and a like amount of expense 
on products traded for advertising and promotional services.  Sales revenue 
and selling and marketing expense include approximately $775,045 and 
$1,051,289 of such non-monetary transactions for 1998 for 1997, respectively.
                                                                                
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, 1998 were 
$1,765,235 with additional costs capitalized totaling $625,096 and $31,142 
acquired with the purchase of Learning Pathways, Ltd. during 1998.  Amortization
expense totaled $238,989 in 1998 and $121,697 in 1997.

Goodwill

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

Projected Learning Programs -
1998                              $  325,000           $    (21,667)
Learning Pathways, Ltd. -
1998                                 718,289                (11,971)
                                  ----------           -------------
                                  $1,043,289           $    (33,638)

Goodwill is being amortized over fifteen years. Amortization expense
totaled $33,638 and $46,264 for 1998 and 1997, respectively.

Inventories

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

Property and equipment

Property and equipment is stated at cost.  Depreciation is provided on the 
straight-line basis over the estimated useful life of the assets, which is 
five years.  Depreciation expense totaled $44,869 and $26,831 for 1998 and 
1997, respectively.  The components of property and equipment at December 31, 
1998 are as follows:

Furniture, fixtures and office equipment              $  319,006
Office equipment financed under installment notes        111,546
Leasehold improvements                                     8,379
                                                      ----------
                                                         438,931	
Less:  accumulated depreciation                       $ (195,538)

Net property and equipment                            $  243,393


                                
F-8



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 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 and warrants to purchase common stock	

The shareholders approved an Incentive Stock Option Plan for employees during 
1998. The total shares issuable under this plan is 750,000. 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. The
total shares issuable under this Plan is 100,000. Each outside director 
initially elected or appointed after March 27, 1998, 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 and 
certain unexercised options under this plan will be extended beyond the original
expiration date of March 11, 1999, for a period of three years. The following 
table summarizes stock option plan activity:
                              
                                      (In Shares)
                              --------------------------
                                            
                                  1998            1998
                                                                          
                   1996 Plan  Director Plan  Employee Plan    Total 
                   ---------  -------------  -------------  --------- 
Number of shares
under options 
outstanding as of: 

December 31, 1997  1,203,195          --              --    1,203,195
               
Shares granted       280,500          --          498,000     778,500
Shares exercised     (45,200)         --              --      (45,200)
Shares expired      (102,500)         --           (5,000)   (107,500)
                   ----------      ------         --------   ---------
December 31, 1998  1,335,995          --          493,000    1,828,995

Option price range 
per share        $.50 - $.90                     $    .73

                                                  
F-9

3.     Common and preferred stock

The following is a summary of common stock transactions 
during 1998:
 
                                             		   	   
	                                 Number of           Price          
                                      Shares Issued      Per Share 
                                      -------------      ---------
    
Stock issued for services			              50,500         $     .50
Stock issued for cash upon 
exercise of stock options                 45,200         $     .50
Stock issued for acquisition 
of Projected Learning 
Programs, Inc.                           175,000         $    1.00
Stock issued for acquisition 
of Learning Pathways, Ltd.               510,030         $    1.30
Stock issued upon conversion of 
note payable and accrued interest 
to shareholders                          458,767         $     .13
           

The Company amended its Articles of Incorporation during 1998, increasing the 
authorized number of common shares to 30,000,000 shares with a par value of 
$.025 per share.

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 June 9, 1998, matures 
April 30, 1999; maximum line -
$500,000, interest at prime rate 
payable monthly (7.75% at December 
31, 1998), principal due at 
maturity, secured by accounts 
receivable and inventory         $  30,000      $      --     $ 30,000

Line of credit with bank, 
originated December 4, 1998, 
matures April 30, 1999; maximum 
line - $850,000, interest at 
prime rate payable monthly
(7.75% at December 31, 1998), 
principal due at maturity, 
secured by accounts receivable 
and inventory                       36,000             --       36,000

              
Note payable to affiliate for 
acquisition of subsidiary,
dated February 26, 1998, 
maturing March 5, 2000,
bearing interest at 10%, payable 
in 24 monthly installments. 
Original loan $50,000               25,812           4,557      30,369

Various installment notes payable, 
bearing interest at 9% - 9.6%, 
maturing between 2001 and 2002.
Monthly payments totaling $5,717. 
Collateralized by office equipment  32,874          81,185     114,059
                                  --------        --------    --------
                                 $ 124,686     $    85,742   $ 210,428


The Company anticipates that the bank lines of credit will be renewed upon 
their April 30, 1999 maturity.

Aggregate maturities of notes payable are as follows:

1999   $  124,686
2000       39,995
2001       27,888
2002       17,859
       ----------
       $  210,428

Interest incurred on notes payable for the years ended December 31, 1998 and
1997 totaled $14,075 and $5,710, respectively.
                                                               
F-10

5.     Operating leases

The Company rents office space under a lease agreement; dated March 1, 1996 
through February 1999; at the base rate of $5,247 a month.  On November 6, 
1997 the Company subleased additional office space for an initial base rental 
of $2,581 a month increasing to $3,073 over the term of the lease.  The leases, 
which expired February 28, 1999, were extended for three years. The new lease 
includes additional space and has an initial base rate of $10,437 per month.  
Total office rent expense for the years ended December 31, 1998 and 1997 was 
$99,041 and $68,426, respectively.

Future rental commitments under lease agreements are as follows:

                       Office Lease
                       ------------	
1999                     $ 121,110		
2000                       131,313		
2001                       131,313		
2002                        21,886
                         --------- 	
                         $ 405,622



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:

                                         1998                1997
                                        ------              ------
Statutory federal income tax rate        34.0%               34.0%
Prepaid advertising cost                  9.8%                 --
Allowance for uncollectible accounts     (1.3%)		            (3.3%)
Software amortization                      --                (8.2%)
Change in valuation allowance              --              (182.0%)
Property and equipment depreciation      (5.7%)                .4%
Accrued incentives                        4.2%                 --
Other, net                                1.0%	              8.1%
                                         -----              -------
Effective income tax rate                42.0%	            (151.0%)

F-11


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

                                         1998              1997
                                       --------           -------
Deferred tax liabilities:
Plant and equipment and related 
depreciation		                         $ 17,366		       $    1,785
Prepaid advertising                      67,027                 --
                                       --------          ---------
Total deferred tax liabilities         $ 84,393         $    1,785
          
Deferred tax assets:
Receivables allowance                  $ 26,400         $   13,122
Net operating loss carryforward         868,515          1,474,484
Capitalized software & other intangible 
and related amortization                  6,401             33,333
Valuation allowance                          --                 --
                                       --------         ----------
Total deferred tax assets               901,316          1,520,939      

Net deferred tax asset                 $816,923         $1,519,154
  
Prior to 1996, the Company had incurred net operating losses since its 
inception in 1981.  As a result, there was substantial doubt as to the 
realization of the $4,900,000 net operating loss carryforwards at December 
31, 1995.  The Company has subsequently utilized approximately $2,752,000 of 
net operating loss carryforwards during the years ending December 31, 1996 
through December 31, 1998.  Management believes that the Company will be 
generating net income in future years, and therefore, a deferred tax asset 
resulting from the net operating loss carryforwards, in the amount of 
$1,825,206, was recorded on the Company's financial statement at January 1, 
1997.  No valuation allowance has been recorded against the deferred tax 
asset.

The Company has available net operating loss carry forwards of approximately 
$2,100,000 for regular tax purposes and for alternative minimum purposes 
expiring between the years 2000 and 2012.

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 ranging from 1% to 5% of net collected sales on those
particular titles.  These agreements expire in the years 2000 and 2005. The 
Company entered into distribution agreements for the sale of other software 
curriculum and guidebooks during 1998.  Royalty expense totaled $145,605 and 
$38,390 in 1998 and 1997, respectively.

8.     Related party transactions	

The Company has an outstanding note payable, totaling $30,369 at December 31, 
1998, to a shareholder for part of the acquisition price of a subsidiary. The 
Company is also indebted to a shareholder for temporary advances of $91,319 
and owes $82,880 to an affiliate for the acquisition of a subsidiary. 

The Company paid accrued consulting fees to a company owned by its President 
in the amount of $25,556 during 1998 and $11,551 of relocation expenses during
1997.  Consulting fees totaling $8,833 and $1,733 were also paid to directors 
during 1998 and 1997, respectively.


                                              
F-12

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 revenues in 1998. In 
1997, the Company had one customer that accounted for more than 10% of total 
revenues; National School Services, $506,009 or 13.8%.  

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, 1998:

Accrued profit sharing                           $ 73,251
Accrued payroll and taxes                          44,517
Accrued commissions                                96,353
Accrued royalties                                  99,524
Accrued professional costs                         30,879
Accrued foreign taxes                              17,866
Accrued - other                                    88,628
                                                 --------
                                                $ 451,018

F-13


12.     Profit sharing plan

On July 1, 1997, the Board of Directors adopted a profit sharing Program whereby
5% of the Company's pretax profits are accrued to a profit sharing pool.  The 
amounts paid to individual employees will be determined based upon performance 
and upon annual salary.  Ten percent of the pool will be paid based upon 
employee performance and 90% of the pool will be allocated based upon annual 
salary.  The Company's profit sharing expense totaled $95,644 and $24,077 for 
1998 and 1997, respectively.

13.     Litigation

During July 1997, the Company filed a trademark infringement action against 
Jostens Learning Corporation for unauthorized use of the Company's registered 
A+ trademark.  It is the belief of the Company that Jostens' unauthorized use 
of its registered trademark was damaging to the Company and has caused 
significant confusion for the Company's customers.  The Company has historically
and successfully defended its trademark position when it became aware of 
illegal and unauthorized use. In June, 1998 the Company and Jostens reached a 
mediated settlement, without proceeding to trial, that was favorable to the 
Company.

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

14.     Earnings per share

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

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

                                1998                 1997
                             ----------           ----------
Basic                        12,626,000           12,178,567
Diluted                      13,615,784           13,211,071


For the year ended December 31, 1997, net income for the computation of 
diluted earnings per share is increased by $5,000 of interest expense assumed 
not paid on $58,000 of debt assumed converted to 430,906 shares of common stock.
This debt, and the accrued interest, were converted to common stock during the 
year ended December 31, 1998.  Employee stock options are also included in the 
number of diluted common shares using the treasury stock method.

15.     Subsequent events

In  March  1999, the Company paid $82,880 that was due to an Affiliate to 
complete the terms of the Learning Pathways, Ltd. acquisition.


F-14


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:

                                   1998                 1997
                             ----------           ----------
Basic                        12,626,000           12,178,567
Diluted                      13,615,784           13,211,071


For the year ended December 31, 1997, net income for the computation of 
diluted earnings per share is increased by $5,000 of interest expense assumed 
not paid on $58,000 of debt assumed converted to 430,906 shares of common 
stock. This debt, and the accrued interest, were converted to common stock 
during the year ended December 31, 1998.  Employee stock options are also 
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., a Nevada corporation

Learning Pathways, Limited, a United Kingdom corporation