FORM 10-QSB/A

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

   [X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                          EXCHANGE ACT OF 1934

               For the Quarterly Period Ended September 30, 2005

  [   ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                                  ACT

            For the Transition Period from ________ to ________

                         Commission File #0-11078

                     THE AMERICAN EDUCATION CORPORATION
       -----------------------------------------------------------------
       (Exact name of small business issuer as specified in its charter)

            Nevada                            73-1621446
-------------------------------   ----------------------------------
(State or other jurisdiction of    (IRS Employer Identification No.)
incorporation or organization)

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).                             YES__   NO X

Number of shares of the issuer's common stock outstanding as of November 11,
2005:  14,133,461

Transitional Small Business Disclosure Format                   YES__   NO X

                            Explanatory Note

This amendment to the Company's Form 10-QSB for the quarter ending
September 30, 2005 is being filed in response to comments from the staff
of the Securities and Exchange Commission, which requested that this
amendment be filed to make wording changes to Item 3. Controls and
Procedures.  No other changes have been made in this Amended Form 10-QSB.



THE AMERICAN EDUCATION CORPORATION


                                INDEX
                                -----
                                                                Page No.
                                                                --------
PART I - FINANCIAL INFORMATION

Item 1     Consolidated Balance Sheets
           September 30, 2005 and December 31, 2004                 3

           Consolidated Statements of Income
           For the Three Months Ended September 30, 2005
           and for the Three Months Ended September 30, 2004        4

           For the Nine Months Ended September 30, 2005
           and for the Nine Months Ended September 30, 2004         5

           Consolidated Statements of Cash Flows
           For the Nine Months Ended September 30, 2005
           and for the Nine Months Ended September 30, 2004         6

           Notes to Interim Consolidated Financial
           Statements                                               7


Item 2     Management's Discussion and Analysis
           Of Financial Condition and Results of
           Operations                                              11

Item 3     Controls and Procedures                                 15



PART II - OTHER INFORMATION                                        16

SIGNATURE PAGES                                                    18



PART I - FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED BALANCE SHEETS

THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS


                                            September 30     December 31
                                                 2005            2004
                                            ------------     -----------
                                             (unaudited)      (audited)
ASSETS
Current assets:
  Cash and cash equivalents                  $   866,460     $   549,343
   Accounts receivable, net of allowance
   for returns and uncollectible accounts
   of $265,000 and $200,000                    3,188,167       2,146,264
  Inventory                                       16,344          14,485
  Prepaid expenses and deposits                  420,482         305,897
  Deferred tax asset                             107,266          86,542
                                             -----------     -----------
     Total current assets                      4,598,719       3,102,531


Property and equipment, at cost                1,372,480       1,308,735
  Less accumulated depreciation and
   amortization                               (1,219,229)     (1,164,389)
                                             -----------     -----------
     Net property and equipment                 153,251         144,346


Other assets:
  Capitalized software costs, net of
   accumulated amortization of $8,825,140
   and $7,652,777                              3,766,930       3,815,680
  Goodwill, net of accumulated
   amortization of $-0- and $369,097                  --       1,215,015
  Deferred tax asset - long-term                  51,674              --
                                             -----------     -----------
     Total other assets                        3,818,604       5,030,695
                                             -----------     -----------
     Total assets                            $ 8,570,574      $8,277,572
                                             ===========     ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable trade                     $    67,134      $  285,261
  Accrued liabilities                          1,054,443         693,122
  Deferred revenue                             1,031,329         654,337
  Notes payable and current portion of
   long-term debt                                745,642         371,862
                                             -----------     -----------
     Total current liabilities                 2,898,548       2,004,582

Other long-term accrued liabilities              681,975         470,475
Deferred income tax liability - Long-term             --         103,921
Long-term debt                                        --         305,880
                                             -----------     -----------
     Total liabilities                         3,580,523       2,884,858
                                             -----------     -----------

Commitments and contingencies                         --              --
Stockholders' Equity:
  Preferred Stock, $.001 par value;
   Authorized - 50,000,000 shares-issued
   and outstanding-none                               --              --
  Common Stock, $.025 par value
   Authorized 30,000,000 shares
   Issued and outstanding - 14,133,461
   shares                                        359,186         359,186
  Additional paid in capital                   6,698,817       6,698,817
  Treasury stock, at cost, 234,000 shares       (319,125)       (319,125)
  Retained deficit                            (1,346,164)     (1,346,164)
  Year-to-date earnings                         (402,663)             --
                                             -----------     -----------
     Total stockholders' equity                4,990,051       5,392,714
                                             -----------     -----------
     Total liabilities and stockholders'
      equity                                 $ 8,570,574     $ 8,277,572
                                             ===========     ===========



The accompanying notes are an integral part of the financial statements.


THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED September 30, 2005 AND 2004
(unaudited)

                                                 2005          2004
                                             -----------   -----------

Sales                                        $ 2,489,284   $ 2,601,412
Cost of goods sold                               234,091       346,636
                                             -----------   -----------

Gross profit                                   2,255,193     2,254,776

Operating expenses:
 Selling and marketing                           960,623       809,070
 Operations                                      163,749       124,911
 General and administrative                      571,610       523,610
 Amortization of capitalized software
  costs                                          409,064       362,854
                                             -----------   -----------
Total operating expenses                       2,105,046     1,820,445
                                             -----------   -----------
Operating income from continuing
 operations                                      150,147       434,331

Other income (expense):
 Interest expense                                (13,543)      (19,615)
                                             -----------   -----------
Income from continuing operations
 before income taxes                             136,604       414,716

 Deferred income tax expense                      54,642       165,886
                                             -----------   -----------

Income from continuing operations                 81,962       248,830

Loss from discontinued operations (net of
 tax benefits 2005 - $42,448; 2004 - $0 )
 (Note 14)                                       (63,671)     (227,438)
                                             -----------   -----------
Net Income                                   $    18,291   $    21,392
                                             ===========   ===========

Earnings per share:
 Basic:
Continuing operations                        $      .006   $      .018
Discontinued operations                      $     (.005)  $     (.016)
Net income                                   $      .001   $      .002

  Diluted:
Continuing operations                        $      .005   $      .016
Discontinued operations                      $     (.004)  $     (.015)
Net income                                   $      .001   $      .001

Weighted average common shares outstanding:
  Basic                                       14,133,461    14,133,461
  Diluted                                     17,074,264    15,668,711



The accompanying notes are an integral part of the financial statements.



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED September 30, 2005 AND 2004
(unaudited)

                                                 2005          2004
                                             -----------   -----------

Sales                                        $ 7,987,414   $ 7,873,473
Cost of goods sold                               861,658     1,016,713
                                             -----------   -----------
Gross profit                                   7,125,756     6,856,760

Operating expenses:
 Selling and marketing                         2,733,628     2,752,851
 Operations                                      449,206       372,638
 General and administrative                    1,802,744     1,401,795
 Impairment of goodwill (Note15)               1,215,015            --
 Amortization of capitalized software costs    1,172,364     1,040,721
                                             -----------   -----------
Total operating expenses                       7,372,957     5,568,005
                                             -----------   -----------

Operating income (loss) from
 continuing operations                          (247,201)    1,288,755

Other income (expense):
 Interest expense                                (42,112)      (50,039)
                                             -----------   -----------

Income (loss) from continuing operations
 before income taxes                            (289,313)    1,238,716

Deferred income tax expense (benefit)            (71,464)      494,645
                                             -----------   -----------

Income (loss) from continuing operations        (217,849)      744,071

Loss from discontinued operations
 (net of tax benefits 2005 -
 $104,855; 2004 - $0 ) (Note 14)                (184,814)     (526,698)
                                             -----------   -----------

Net Income (loss)                            $  (402,663)  $   217,373
                                             ===========   ===========

Earnings per share:
  Basic:
Continuing operations                        $     (.015)  $      .052
Discontinued operations                      $     (.013)  $     (.037)
Net income (loss)                            $     (.028)  $      .015

  Diluted:
Continuing operations                        $     (.013)  $      .048
Discontinued operations                      $     (.011)  $     (.034)
Net income (loss)                            $     (.024)  $      .014

Weighted average common shares outstanding:
  Basic                                       14,133,461    14,133,461
  Diluted                                     17,074,264    15,668,711



The accompanying notes are an integral part of the financial statements.



THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(unaudited)


                                                   2005          2004
                                               -----------   -----------

Cash flows from operating activities:
Net income (loss)                              $  (402,663)  $   217,373
  Adjustments to reconcile net income
   (loss) to net cash provided by
   (used in) operating activities:
  Depreciation and amortization                  2,442,218
  1,255,875
  Reserve for bad debts                             65,000       132,014
  Deferred compensation                            211,500       163,500
  Other                                                 --        29,074

Changes in assets and liabilities:
  Accounts receivable                           (1,106,903)     (453,050)
  Inventories                                       (1,859)        4,091
  Prepaid expenses and other                      (114,585)     (260,433)
  Accounts payable and accrued liabilities         143,194      (406,832)
  Deferred revenue                                 376,992       266,835
  Deferred income taxes                           (176,319)      442,560
                                               -----------   -----------

Net cash provided by operating activities        1,436,575     1,391,007
                                               -----------   -----------

Cash flow from investing activities:
  Software development costs capitalized        (1,123,613)     (958,213)
  Purchase of property and equipment               (63,745)      (29,456)
                                               -----------   -----------
Net cash used in investing activities           (1,187,358)     (987,669)

Cash flows from financing activities:
  Proceeds received from issuance of debt          400,000            --
  Principal payments on notes payable             (332,100)     (263,023)
                                               -----------   -----------

Net cash provided by financing activities           67,900      (263,023)
                                               -----------   -----------

Net increase in cash                               317,117       140,315

Cash at beginning of the period                    549,343       216,676
                                               -----------   -----------

Cash at end of the period                      $   866,460   $   356,991
                                               ===========   ===========



The accompanying notes are an integral part of the financial statements.




THE AMERICAN EDUCATION CORPORATION
Part I
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2005 AND 2004


NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------


1.  Description of Business:
    -----------------------

The American Education Corporation's ("the Company") business is the
development and marketing of educational software to elementary, middle and
secondary schools, adult literacy centers and vocational, junior and
community colleges.  In addition, the Company has two subsidiaries, Learning
Pathways, Ltd. ("LPL"), Derby, UK, and Dolphin, Inc. ("Dolphin"), Voorhees,
NJ. LPL modifies the Company's U.S. curriculum offering to conform to the
UK's educational system and markets these products directly to UK and other
international markets. Dolphin is a developer of educational software for
many of the nation's leading textbook and electronic publishers.  As
indicated below, both of these subsidiaries' status has changed in the past
twelve months in an effort to reorganize the Company and concentrate on the
core profitable business.

In December 2004, the Company determined that the assets of LPL were
impaired and its value was written down to zero. Subsequently, it has been
classified as an asset held for sale and, therefore, its operations are
shown as discontinued. On November 7, 2005, subsequent to the closing of
this reporting period, the Company transferred all of the stock of  LPL to
Learning.com who has assumed the responsibility for the LPL operations.  The
Company expects to incur approximately $60,000 in additional expenses
related to its disposition of LPL in the fourth quarter of 2005.  Under the
terms of the agreement with Learning.com, the Company will receive royalties
on sales of its product by LPL beginning in January 2006.

Effective June 2005, the Company determined that the goodwill of the Dolphin
subsidiary was impaired and it was written off.  The Company is exiting the
software development business for outside customers and will be transferring
certain Dolphin employees to the Company's payroll to enhance internal
development efforts.


2.  Basis of Presentation:
    ---------------------

The summary of significant accounting policies of 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.

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

The interim consolidated financial statements at September 30, 2005, and for
the three and nine-month periods ended September 30, 2005 and 2004 are
unaudited, but include all adjustments that the Company considers necessary
for a fair presentation. The December 31, 2004 balance sheet was derived
from the Company's audited financial statements.

The accompanying unaudited financial statements are for the interim periods
and do not include all disclosures normally provided in annual financial
statements.  They should be read in conjunction with the Company's audited
financial statements included in the Company's Form 10-KSB/A for the year
ended December 31, 2004.  The accompanying unaudited interim financial
statements for the three and nine month periods ending September 30, 2005
are not necessarily indicative of the results that can be expected for the
entire year.

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, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting
period.  Actual results could differ from those estimates.


3.  Revenue Recognition:
    -------------------

The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountant's Statement of Position 97-2, 98-9 and
modifications thereto on software revenue recognition. The Company has also
adopted revenue recognition policies regarding sales with multiple
deliverables which comply with Emerging Issues Task Force Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables," which became effective
July 1, 2003. Revenue for software design services at Dolphin is recognized
on the percentage-of-completion method.


4.  Capitalized Software Costs:
    --------------------------

Capitalized software costs consist of licenses for the rights to produce and
market computer software, salaries and other direct costs incurred in the
production of computer software.  Costs incurred in conjunction with product
development are charged to research and development expense until
technological feasibility is established.  Thereafter, all software
development costs are capitalized and amortized on a straight-line basis
over the product's estimated economic life of between three and five years.


5.  Goodwill:
    --------

Goodwill represents the excess of the cost of purchased companies over the
fair value of their net assets at the date of acquisition. Goodwill is
reviewed for possible impairment at least annually or more frequently upon
the occurrence of an event or when circumstances indicate that the carrying
amount is greater than its fair value. During 2005, the Company determined
that the carrying amount of the goodwill related to the acquisition of
Dolphin exceeded its fair value and an impairment loss of $1,215,015 has
been recognized. (See Note 15.)


6.  Inventories:
    -----------

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


7.  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.


8.  Debt:
    ----

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


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

Line of credit with bank, matures
November 30, 2005; payments of
$24,000 per month plus interest at
the bank's prime rate plus 2%
(8.75% at September 30, 2005)              $ 39,762    $    --  $ 39,762

Revolving line of credit with bank,
matures March 31, 2006; maximum line -
$450,000, interest at the bank's prime
rate plus 2% (8.75% at September 30,
2005)                                           --          --        --

Subordinated debt due to unrelated
individual, originated March 30, 2005,
matures March 30, 2006 and may be renewed
for one year at the option of the holder;
interest at 8% payable at maturity;
convertible into the Company's common
stock at $.463 per share                    400,000         --   400,000

Subordinated debt due to shareholder
affiliates, originated April 1, 2003,
matures September 30, 2006; interest
at 8% payable quarterly, principal due
at maturity, convertible into the
Company's common stock at $.40 per
share                                       305,880         --   305,880
                                           --------  ---------  --------
                                           $745,642  $      --  $745,642
                                           ========  =========  ========

9.  Stock Options:
    -------------

The Company has historically measured compensation from issuing employee
stock options under the accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" which is an intrinsic value
method.  Accounting pronouncement SFAS No. 123(R), "Share-based Payment,"
replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123 (R)
establishes financial accounting and reporting standards for transactions in
which an entity exchanges its equity instruments for goods or services.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions.  SFAS
123(R) requires a public entity to measure the cost of employee services
received in an exchange for an award of equity instruments based on the
grant-date fair value of the award.  That cost will be recognized over the
period during which an employee is required to provide service in exchange
for the award (the vesting period).  As a small business issuer the Company
is required to adopt SFAS No. 123(R) effective as of the beginning of the
first interim or annual reporting period that begins after December 15,
2005.  This Statement applies to all awards granted after the required
effective date and to awards modified, repurchased, or cancelled after
that date.  The cumulative effect of initially applying this Statement, if
any, will be recognized as of the required effective date.

The following pro forma disclosures show the effect on net income as if SFAS
123(R) had been applied prior to the required effective date.  The Company's
pro forma income and earnings per share are as follows for the nine months
ended September 30:

                                                    2005          2004
                                                 --------      --------
Net income (loss) - as reported                 ($402,663)     $217,373
Stock - based employee compensation expense -
pro forma                                          48,500        46,485
                                                 --------      --------
Net income (loss) - pro forma                    (451,163)      170,888

Basic earnings per common share - as reported       ($.03)         $.02
Diluted earnings per common share - as reported      (.02)          .01
Basic earnings per common share - pro forma         ($.03)         $.01
Diluted earnings per common share - pro forma        (.03)          .01


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


11.  Income Taxes:
     ------------

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").  SFAS 109
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns, determined by using the enacted tax rates in
effect for the year in which the differences are expected to reverse.


12.  Computation of Earnings Per Share:
     ---------------------------------

The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128").  SFAS 128 requires presentation of basic
and diluted earnings per share.  Basic earnings per share are calculated
based only upon the weighted average number of common shares outstanding
during the period.  Diluted earnings per share are calculated based upon the
weighted average number of common and, where dilutive, potential common
shares outstanding during the period, utilizing the treasury stock method.
Potential common shares include conversion of convertible debt and options
to purchase common stock.

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

                                 2005            2004
                              ----------      ----------
     Basic                    14,133,461      14,133,461
     Diluted                  17,074,264      15,668,711


13.  Commitments and Contingencies:
     -----------------------------

The Company amortizes capitalized software costs over the product's
estimated useful life.  Due to inherent technological changes in the
software development industry, the period over which such capitalized
software cost is being amortized may have to be accelerated.


14.  Discontinued Operations:
     -----------------------

Effective December 31, 2004 Learning Pathways, Ltd. was deemed to be an
asset held for sale and an impairment loss of $1,150,000 was recognized. On
November 7, 2005 LPL was subsequently sold and, therefore, in 2005 the
results of operations for this business unit are presented as discontinued
operations. The income statement for the prior year has been restated to
reflect the results as if LPL had been discontinued as of the beginning of
2004. Assets and liabilities at September 30, 2005 were not material, and,
therefore, no separate balance sheet disclosure is deemed necessary.


15.  Impairment of Goodwill:
     ----------------------

Effective June 30, 2005 the Company determined that the goodwill recorded on
the balance sheet that resulted from the acquisition of Dolphin was impaired
and wrote off the entire amount of $1,215,015. The Company is winding down
Dolphin's software development business for outside customers and will
transfer certain Dolphin employees to the Company's payroll to expand its
internal software development staff.



ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

Overview
--------

The American Education Corporation is a developer of instructional content,
computer adaptive assessment testing software, and software management
technology specifically designed to manage the delivery of and record the
results of student progress in schools and other institutions.  Java-based
technology, the A+nyWhere Learning System, registered, ("A+LS") Versions 3.0
and 4.0 of educational software products, provides a research-based,
integrated curriculum offering of software for grade levels 1-12 for
Reading, Mathematics, Language Arts, Science, Writing, History, Government,
Economics and Geography.  In addition, the Company provides formative
assessment testing and formative instructional content for various segments
of the primary, secondary and postsecondary educational markets.  All
Company products are designed to provide for LAN, WAN and Internet delivery
options. The Company has developed computer adaptive, formative assessment
testing tools to provide educators with the resources to more effectively
use the Company's curriculum content, which is aligned to important state
and national academic standards.  Spanish-language versions are available
for Mathematics and Language Arts for grade levels 1-8.

The A+LS comprehensive family of educational software is now in use in over
11,000 schools, centers of adult literacy, colleges and universities, and
correctional institutions in the U.S., UK and other international locations.
A+dvancer, trademark, College Readiness Online, the Company's postsecondary
offering, identifies and assists students in attaining college entry-level
academic skills in Arithmetic, Elementary Algebra, Reading Comprehension,
and Sentence Skills.  A+dvancer reduces demand on institutional admissions
and developmental departments, while providing students with both improved
skills assessment and the alignment to developmental and remedial coursework
in an online, self-paced learning environment.

The Company is a technology-based publishing enterprise.  To remain
competitive it must constantly invest in the development of programming
technology to keep its product offering up-to-date and ensure that its
products maintain compatibility with the frequently changing and revised
database and operating system platforms sold to schools by other developers.
The Company must also update its content and underwrite content revisions to
realign its content with new or updated state and national educational
standards to remain competitive.  To accomplish this essential, ongoing
corporate function requires the retention and recruitment of a highly
skilled professional workforce.  These investments are essential, recurring
costs of doing business that impact the Company's operating cost and margin
structures.

The Company's business is subject to risks or uncertainties.  Among these
uncertainties are a dependency on funding for school technology purchases,
lengthy sales cycles, seasonal demand cycles and a dependency on retention
of key personnel.   Certain matters discussed herein (including the
documents incorporated herein by reference) may contain forward-looking
statements intended to qualify for the safe harbors from liabilities
established by the Private Securities Litigation Reform Act of 1995.  These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"plans," "intends," "anticipates," "expects," or words of similar import.
Similarly, statements that describe the Company's future plans, objectives,
estimates, or goals are also forward-looking statements.  Such statements
address future events and conditions concerning capital expenditures,
earnings, litigation, liquidity, capital resources and accounting matters.
Actual results in each case could differ materially from those currently
anticipated in such statements as a result of factors such as future
economic conditions, changes in customer demands, future legislative,
regulatory and competitive developments in markets in which the Company
operates and other circumstances affecting anticipated revenues and costs.
Accordingly, investors should be alert to the possibility that factors
beyond the control of management may have impact on the short or long-term
operations of the business.  The Company undertakes no duty to update
forward-looking statements to reflect the impact of events or circumstances
that arise after the date the forward-looking statement was made.


RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2005
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2004
--------------------------------------------------------

Effective December 31, 2004, the Company's UK subsidiary, Learning Pathways,
was deemed to be an asset held for sale and its value was written down to
zero as an impairment loss.   Therefore, its operations are shown as
discontinued.  The 2004 amounts have been restated to reclassify the results
of Learning Pathways as discontinued. Therefore, the comparisons discussed
here for the quarter and for the nine months ended September 30, 2005 below
are only for the Company and its Dolphin, Inc. subsidiary. Net consolidated
sales for the three months ended September 30, 2005 totaled $2,489,284
compared to $2,601,412 for the same period in 2004. This represents a
decrease of 4% over the comparable 2004 quarter and is attributable to an
increase in revenues at AEC offset by decreases at Dolphin. The Company
achieved an increase at AEC of approximately $25,000, or 1% over the prior
year, despite what management believes to be the negative impacts of
hurricanes Katrina, Rita and Wilma on third quarter revenue results.  The
geographic areas affected by these hurricanes include several of the
Company's largest revenue producing states.  The Company believes that these
weather-related impacts to its revenues are temporary and that most orders
anticipated for this quarter were delayed or deferred to a future period.
Management believes that state and federal governmental programs for
educational funding remain positive for the foreseeable future.  However, it
should be noted that recent spikes in fuel and overall energy costs are of
concern and the impact of these significant, unplanned costs are being
monitored for their possible impact on the Company's future performance.
The sales decrease of approximately $138,000 at Dolphin is a result of the
previously announced exit from the contract software development business.
Dolphin employees began to provide additional development resources for AEC
during the third quarter of 2005.  The Company expects that Dolphin contract
development services sales to outside customers will be completed by the end
of the 2005 fiscal year.

Cost of goods sold as a percentage of sales revenue for the three months
ending September 30, 2005 decreased to 9% from 13% of net revenues for the
same period in 2004. This improvement is attributed to a larger portion of
consolidated sales contributed by the core AEC operating unit. The Company's
principal product family, A+nyWhere Learning System(r), provided gross profit
margins of 97% in the third quarter of 2005, consistent with prior quarters.
Cost of goods sold represents the actual cost to produce the software
products and includes certain allocated overhead costs.

Total operating expenses for the three months ended September 30, 2005,
increased to $2,105,046, compared to $1,820,445 for the same 2004 quarter, an
increase of 16%.  As a percentage of sales revenue, operating expenses
increased from 70% in 2004 to 85% in 2005. The increase in total operating
expenses is a result of increases in marketing and selling expenditures,
operations expenses, general and administrative expenses and amortization of
product development costs.  Selling and marketing costs increased by 19%, from
$809,070 for the three months ended September 30, 2004, to $960,023 for the
current period.  The increase in the third quarter 2005 selling expenses is
largely attributable to changes in sales mix, which resulted in increased
sales commissions of approximately $135,000 as the Company billed a higher
percentage of orders directly to school customers. The Company recognizes
sales revenue based upon the type of customer.  If the sale is made to a
distributor who in turn resells a product to the end user, the amount of the
sale is recorded and no commission is due the distributor and the
transaction is recorded as a net sale.  If the sale is billed direct to the
school or other end user, a commission is paid to the distributor or a sales
representative, which increases amount of the sale, but increases marketing
expense as a result of an obligation to pay a commission.  These commissions
paid may vary depending upon the type of sale and the status of the
individual or organization making the sale.  The decision to sell and to
bill direct to the customer and pay a subsequent commission can result from
a number of factors, including credit policy issues with individual
distributors as a result of payment history or limitations on authorized
limits. Additionally, method of delivery of the product may necessitate
direct billing to the customer and the subsequent payment of a commission.
An example would be an online product sale that requires delivery from
Company servers and the related record keeping on the licensed number of
users accessing the product online as well as the number of units delivered.
This level of record keeping requires Company monitoring and billing
directly to the customer. These factors create a change in sales mix
affecting the amount of commission paid and the manner in which revenues may
be recorded by the Company.  Accordingly, these factors and the source and
nature of recorded revenue can impact period revenue recognition.
Additionally, the related costs of securing revenue may vary from period to
period.  Operating expenses increased by 31% from $124,911 for the three
months ended September 30, 2004 to $163,749 for the same period in 2005.
This increase results from increased compensation and benefits due to
additional technical support staff hired during the year. General and
administrative expenses increased by 9% from $523,610 in 2004 to $571,610.
General and administrative salaries and benefits increased approximately
$37,000 due to the addition of personnel in several areas and audit and
legal fees increased approximately $10,000 as a result of additional legal
work during the third quarter.

Interest expense was $13,543 for the three months ended September 30, 2005
as compared to $19,615 for the same 2004 quarter, reflecting the lower
amount of bank debt outstanding on an average daily basis somewhat offset by
the additional interest cost of the increase in convertible debt issued by
the Company.  There was net income of $18,291 for the three months ended
September 30, 2005 compared to net income of $21,392 for the same period in
2004.


RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2005
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------------------------------

Net sales for the nine months ended September 30, 2005, totaled $7,987,414
compared to $7,873,473 for the same period in 2004.  This represents an
increase of 1% over the comparable 2004 period and is attributable to an
increase in revenues at AEC offset by decreases at Dolphin. The Company
achieved an increase at AEC of approximately $250,000, or 3% over the prior
year, despite the negative impacts of hurricanes Katrina, Rita and Wilma on
third quarter's revenue.  Management believes that the environment for state
and federal governmental educational funding remains positive for the
foreseeable future.  The sales decrease of approximately $135,000 at Dolphin
is a result of the previously announced exit from the contract software
development business.  As noted above, the Dolphin employees began to
provide additional development resources for AEC during the third quarter of
2005.  The Company expects that Dolphin sales to customers that it is
obligated to complete under the existing contracts and their associated
performance obligations will be completed by the end of the 2005 fiscal
year.

Cost of goods sold as a percentage of sales revenue for the nine months
ending September 30, 2005 decreased to 11% compared to 13% for the same
period in 2004. As noted for the quarterly results, this improvement is
attributed to the increase in the sales contributed by the core AEC
operating unit, which has lower cost of sales as a percentage of sales than
Dolphin. The Company's principal product families, A+dvanced Learning System
and the A+nyWhere Learning System, provided gross profit margins of 97%
in the first nine months of 2005.

Total operating expenses for the nine months ended September 30, 2005
(excluding the $1,215,015 impairment of goodwill write-down), increased to
$6,157,942, compared to $5,568,005 for the same 2004 period, an increase of
11%.  As a percentage of sales revenue, operating expenses increased from
71% in 2004 to 77% in 2005. The increase in total operating expenses is a
result of a decrease in marketing and selling expenditures, an increase in
operations expenses, an increase in general and administrative expenses as
well as an increase in amortization of product development charges for the
period. Selling and marketing expenses decreased from $2,752,851 for the
nine months ended September 30, 2004 to $2,733,628 for the same period in
2005 and is primarily the result of a decrease in commission expense because
of changes in sales mix. Sales mix changes can occur, as noted above in the
discussion of third quarter results, when a higher or lower amount of the
Company's sales are billed directly as a result of credit policies and
contributions to total revenues by different sales channels which require
the payment of varying commission rates. Operations expense increased from
$372,638 in 2004 to $449,206 for the same period in 2005, or 21%. This
increase is due to the addition of staff in the operations department during
the period. General and administrative expenses increased from $1,401,795 to
$1,802,744, or by 29%, due to several different reasons. General and
administrative salaries and benefits increased approximately $115,000 due to
the addition of personnel in accounting and other departments. Deferred
compensation payable upon executive officers' and directors' retirement for
the period increased $48,000 as a result of additional employees who were
eligible for this program, compared to the prior year. Audit and legal fees
increased approximately $58,000 as a result of required additional legal
costs experienced during the first nine months of 2005 and the preparation
of the Company's tax returns earlier in fiscal 2005 as compared to 2004.
Outside services increased approximately $64,000 due to consulting fees paid
to integrate the Learning Letter Sounds product line content into the
Company's product line and advice regarding the future of Dolphin. Bad debt
expense increased $72,000 over the prior year as a result of an increase in
the allowance for uncollectible accounts based upon higher accounts
receivable balances due to the seasonal nature of the Company's business.

Interest expense for the nine months ended September 30, decreased from
$50,039 in 2004 to $42,112 in 2005 reflecting the reduction in average daily
bank debt levels in 2005 compared to the prior year offset by higher
interest rates and higher interest due to the increase in convertible debt
issued by the Company in 2005. There was a net loss of $402,663 for the nine
months ended September 30, 2005, as compared to a net income of $217,373
reported for the same period in 2004. The decrease results from charges
recognized by the impairment of goodwill at Dolphin of $1,215,015 for the
period.

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

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

As of September 30, 2005 the Company's principal sources of liquidity
included cash and cash equivalents of $866,460, net accounts receivable of
$3,188,167 and inventory of $16,344. The Company's net cash provided by
operating activities during the nine months was $1,436,575 in 2005 compared
to $1,391,007 in 2004. Net cash used in investing activities for the same
period increased by 20% from $987,669 in 2004 to $1,187,358 in 2005, and was
comprised primarily of investment in capitalized software development costs.
During the nine months ended September 30, 2005 debt due to financial
institutions was reduced by $332,100 or 89%, reflecting bank indebtedness of
$39,762 at September 30, 2005.

In April 2003, the Company borrowed $305,880 from major shareholder
affiliates, which is subordinated to the debt owed to the Company's senior
lender. This debt matures in September of 2006 and is convertible into the
Company's common stock at $.40 per share. On March 30, 2005, the Company
entered into a Convertible Note Purchase Agreement with an unaffiliated
individual.  Pursuant to the terms of the Convertible Note Purchase
Agreement, the Company issued the note purchaser an unsecured 8%
Subordinated Convertible Note in the original aggregate principal amount of
$400,000.  All principal and interest on the Note is due and payable on
March 30, 2006 (the "Initial Maturity Date"), subject to the Note
Purchaser's option to extend the Initial Maturity Date twelve months to
March 30, 2007 (the "Extended Maturity Date").  The Company may not prepay
principal or interest on the Note prior to the Initial Maturity Date.  The
Note is convertible at any time at the note purchaser's option into shares
of the Company's common stock at the initial conversion price of $0.463 per
share, subject to certain anti-dilution adjustments.  Any shares of common
stock issued upon conversion of the Note will have "piggy-back" registration
rights. The proceeds from the subordinated convertible debt were used to
reduce accounts payable, bank debt and to support the normal operations of
the business.

At September 30, 2005, the Company had working capital of $1,700,171
compared to $1,097,949 at December 31, 2004. The Company has a $450,000
revolving line of credit that bears interest at a rate of 2.00% over the
prime rate (8.75% as of September 30, 2005) and matures on March 31, 2006.
At September 30, 2005, the Company had no borrowings under this line of
credit.  Additionally, the Company has a term loan with an aggregate
principal balance of $39,762 as of September 30, 2005.  The term loan
bears interest at a rate of 2.00% over the prime rate (8.75% as of September
30, 2005) and matures on November 30, 2005.  The Company is continuing to
discuss future borrowing arrangements with its current lender and several
bank financing sources.

With the addition of new products, the Company's expanded market presence,
the elimination of unprofitable subsidiary operations and the current
favorable trends in government school spending, it is believed that the
Company will maintain a pattern of sustainable growth in revenues and
earnings in future years, barring unforeseen external circumstances and
events.  Management believes that the Company can support this expansion
from its operating cash flows and credit lines.  If successful, the Company
should be able to enhance the overall financial performance of the business
and continue to improve the Company's balance sheet and financial position.

Additional working capital beyond that available to the Company from its
internally generated cash flows may be required to expand operations as a
result of anticipated continued growth of the business.  Management has and
will consider options available to access such funding, including expanded
debt and additional equity financing as dictated by the needs of the
business.


Off-Balance Sheet Arrangements
------------------------------

The Company does not have any off-balance sheet arrangements.


Critical Accounting Policies
----------------------------

Management is responsible for the integrity of the financial information
presented herein.  The Company's financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America.  Where necessary, they reflect estimates based on
management's judgment.  Significant accounting policies that are important
to the portrayal of the Company's financial condition and results, which in
some cases require management's judgment, are summarized in the Notes to
Interim Consolidated Financial Statements, which are included herein.


ITEM 3 - CONTROLS AND PROCEDURES
--------------------------------

As of September 30, 2005, management, including the Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of disclosure controls
and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to
Exchange Act Rules 13a-14 and 13a-15 as of the end of the period covered by
this report.  Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that such disclosure controls and
procedures are effective.  During the three months ended September 30, 2005,
there have been no changes in internal controls, or in factors that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.




THE AMERICAN EDUCATION CORPORATION

PART II - OTHER INFORMATION
---------------------------


Item 1.    Legal Proceedings
           -----------------

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.


Item 2.    Changes in Securities
           ---------------------

None.


Item 3.    Default Upon Senior Securities
           ------------------------------

Omitted from this report as inapplicable.


Item 4.    Submission of Matters to Vote of Securities Holders
           ---------------------------------------------------

None.


Item 5.    Other Information
           -----------------

Omitted from this report as inapplicable.


Item 6.    Exhibits
           --------

The following exhibits have been filed as a part of this report:


Exhibit
  No.                   Description of Exhibits
-------     ---------------------------------------------------------------
  3.1       Articles of Incorporation of The American Education Corporation
            (incorporated by reference Annex B to the Definitive Proxy
            Statement filed with the Securities and Exchange Commission on
            October 12, 2001)

  3.2       Bylaws of The American Education Corporation (incorporated by
            reference to Annex C to the Definitive Proxy Statement filed
            with the Securities and Exchange Commission on October 12, 2001)

  4.1       Form of Stock Certificate (incorporated by reference to Form 8-
            A12G/A filed with the Securities and Exchange Commission on
            January 20, 2004)

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

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

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

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

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

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

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

 10.3       Convertible Note Purchase Agreement dated March 30, 2005 by and
            between The American Education Corporation and David J. Smith
            (incorporated by reference to the exhibit in the Current Report
            on Form 8-K filed with the Securities and Exchange Commission on
            April 11, 2005)

 10.4       The American Education Corporation 8% Subordinated Convertible
            Promissory Note dated March 30, 2005 in favor of David J. Smith
            (incorporated by reference to the exhibit in the Current Report
            on Form 8-K filed with the Securities and Exchange Commission on
            April 11, 2005)

 10.5       Promissory Note dated March 31, 2004 from The American Education
            Corporation in favor of UMB Bank, N.A. (incorporated by
            reference to the exhibit in the Quarterly Report on Form 10-Q
            filed with the Securities and Exchange Commission on August 15,
            2005)

 10.6       Promissory Note dated March 31, 2004 from The American Education
            Corporation in favor of UMB Bank, N.A. (incorporated by
            reference to the exhibit in the Quarterly Report on Form 10-Q
            filed with the Securities and Exchange Commission on August 15,
            2005)

 10.7       Employment Agreement with Jeffrey E. Butler dated December 5,
            1998 (incorporated by reference to the exhibit in the Quarterly
            Report on Form 10-Q filed with the Securities and Exchange
            Commission on August 15, 2005)

 10.8       Employment Agreement with Thomas A. Shively dated December 5,
            1998 (incorporated by reference to the exhibit in the Quarterly
            Report on Form 10-Q filed with the Securities and Exchange
            Commission on August 15, 2005)

 10.9       Employment Agreement with Neil R. Johnson dated December 5, 1998
            (incorporated by reference to the exhibit in the Quarterly
            Report on Form 10-Q filed with the Securities and Exchange
            Commission on August 15, 2005)

 10.10      Promissory Note dated October 16, 2000 from Jeffrey E. Butler in
            favor of the Company (incorporated by reference to the exhibit
            in the Annual Report on Form 10-KSB/A filed with the Securities
            and Exchange Commission on September 9, 2005)

 10.11      Promissory Note dated September 30, 2004 from the Company in
            favor of John Garber (incorporated by reference to the exhibit
            in the Annual Report on Form 10-KSB/A filed with the Securities
            and Exchange Commission on September 9, 2005)

 10.12      Promissory Note dated September 30, 2004 from the Company in
            favor of Janis L. Butler (incorporated by reference to the
            exhibit in the Annual Report on Form 10-KSB/A filed with the
            Securities and Exchange Commission on September 9, 2005)

 31.1       Certification of Chief Executive Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002.

 31.2       Certification of Chief Financial Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002.

 32.1       Certification of the Chief Executive Officer pursuant to 18
            U.S.C. Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

 32.2       Certification of the Chief Financial Officer pursuant to 18
            U.S.C. Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.




SIGNATURES


Pursuant to the requirements 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.

                                          American Education Corporation


                                         /s/ Jeffrey E. Butler
                                         ---------------------
                                         Jeffrey E. Butler,
                                         Chief Executive Officer
                                         Chairman of the Board
                                         Treasurer


                                         /s/ Neil R. Johnson
                                         ---------------------
                                         Neil R. Johnson
                                         Chief Financial Officer
                                         Chief Accounting Officer


Date: July 27, 2006