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 June 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 required 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

Number of shares of the issuer's common stock outstanding as of
August 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 June 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
           June 30, 2005 and December 31, 2004                      3

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

           For the Six Months Ended June 30, 2005
           and for the Six Months Ended June 30, 2004               5

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

           Notes to Interim Consolidated Financial
           Statements                                               7


Item 2     Management's Discussion and Analysis
           Of Financial Condition and Results of
           Operations                                             10

Item 3     Controls and Procedures                                13



PART II - OTHER INFORMATION                                       15

SIGNATURE PAGES                                                   17




PART I - FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED BALANCE SHEETS

THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS


                                               June 30       December 31
                                                 2005            2004
                                            ------------     -----------
                                             (unaudited)      (audited)
ASSETS
Current assets:
  Cash and cash equivalents                  $   534,039     $   549,343
  Accounts receivable, net of allowance
   for returns and uncollectible accounts
   of $250,000 and $200,000                    3,175,660       2,146,264
  Inventory                                       20,754          14,485
  Prepaid expenses and deposits                  340,976         305,897
  Deferred tax asset                             107,266          86,542
                                            ------------     -----------

     Total current assets                      4,178,695       3,102,531

Property and equipment, at cost                1,345,019       1,308,735

Less accumulated depreciation and
  amortization                                (1,201,845)     (1,164,389)
                                            ------------     -----------
     Net property and equipment                  143,174         144,346

Other assets:
  Capitalized software costs, net of
   accumulated amortization of $8,416,077
   and $7,652,777                              3,786,264       3,815,680
  Goodwill, net of accumulated amortization
   of $-0- and $369,097                               --       1,215,015
  Deferred tax asset - long-term                  63,868              --
                                            ------------     -----------
     Total other assets                        3,850,132       5,030,695
                                            ------------     -----------
     Total assets                           $  8,172,001     $ 8,277,572
                                            ============     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable trade                    $    154,464     $   285,261
  Accrued liabilities                            874,897         693,122
  Deferred revenue                               646,851         654,337
  Notes payable and current portion of
   long-term debt                                606,674         371,862
                                            ------------     -----------
     Total current liabilities                 2,282,886       2,004,582

Other long-term accrued liabilities              611,475         470,475
Deferred income tax liability - Long-term             --         103,921
Long-term debt                                   305,880         305,880
                                            ------------     -----------
Total liabilities                              3,200,241       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                         (420,954)             --
                                            ------------     -----------
     Total stockholders' equity                4,971,760       5,392,714
                                            ------------     -----------
     Total liabilities and stockholders'
      equity                                $  8,172,001     $ 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 June 30, 2005 AND 2004
(unaudited)


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

Sales                                        $ 3,158,524   $ 2,741,795
Cost of goods sold                               285,719       329,212
                                             -----------   -----------
Gross profit                                   2,872,805     2,412,583

Operating expenses:
  Selling and marketing                        1,039,485       807,607
  Operations                                     126,987       138,769
  General and administrative                     705,652       449,901
  Impairment of goodwill (Note 15)             1,215,015            --
  Amortization of capitalized software
   costs                                         390,592       346,458
                                             -----------   -----------
Total operating expenses                       3,477,731     1,742,735
                                             -----------   -----------

Operating income (loss) from continuing
 operations                                     (604,926)      669,848

Other income (expense):
  Interest expense                               (18,039)      (15,143)
                                             -----------   -----------

Income (loss) from continuing operations
 before income taxes                            (622,965)      654,705

Deferred income tax expense                     (204,925)      261,882
                                             -----------   -----------

Income (loss) from continuing operations        (418,040)      392,823

Loss from discontinued operations (net of
 tax benefits 2005 - $27,245; 2004 - $0 )
 (Note 14)                                       (68,401)     (217,847)
                                             -----------   -----------
Net Income (loss)                            $  (486,441)  $   174,976
                                             ===========   ===========

Earnings per share:
  Basic:
Continuing operations                        $     (.030)  $      .028
Discontinued operations                      $     (.004)  $     (.016)
Net income (loss)                            $     (.034)  $      .012

  Diluted:
Continuing operations                        $     (.025)  $      .025
Discontinued operations                      $     (.004)  $     (.014)
Net income (loss)                            $     (.029)  $      .011

Weighted average common shares outstanding:
  Basic                                       14,133,461    14,133,461
  Diluted                                     16,596,726    15,427,021

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


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

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

Sales                                        $ 5,498,131   $ 5,272,061
Cost of goods sold                               627,568       670,078
                                             -----------   -----------

Gross profit                                   4,870,563     4,601,983

Operating expenses:
  Selling and marketing                        1,773,005     1,943,781
  Operations                                     285,458       247,727
  General and administrative                   1,231,133       878,185
  Impairment of goodwill (Note 15)             1,215,015            --
  Amortization of capitalized software
   costs                                         763,300       678,529
                                             -----------   -----------

Total operating expenses                       5,267,911     3,748,222
                                             -----------   -----------

Operating income (loss) from continuing
 operations                                     (397,348)      853,761

Other income (expense):
  Interest expense                               (28,569)      (30,424)
                                             -----------   -----------

Income (loss) from continuing operations
 before income taxes                            (425,917)      823,337

Deferred income tax expense                     (126,106)      328,759
                                             -----------   -----------
Income (loss) from continuing operations        (299,811)      494,578

Loss from discontinued operations (net of
 tax benefits 2005 - $62,407; 2004 - $0 )
 (Note 14)                                      (121,143)     (298,597)
                                             -----------   -----------
Net Income (loss)                            $  (420,954)  $   195,981
                                             ===========   ===========

Earnings per share:
  Basic:
Continuing operations                        $     (.022)  $      .035
Discontinued operations                      $     (.008)  $     (.021)
Net income (loss)                            $     (.030)  $      .014

  Diluted:
Continuing operations                        $     (.018)  $      .032
Discontinued operations                      $     (.007)  $     (.019)
Net income (loss)                            $     (.025)  $      .013

Weighted average common shares outstanding:
  Basic                                       14,133,461    14,133,461
  Diluted                                     16,596,726    15,427,021


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


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



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

Cash flows from operating activities:
Net income (loss)                              $  (420,954)  $   195,981
 Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities:
 Depreciation and amortization                   2,015,771       820,999
 Reserve for bad debts                              50,000        46,300
 Deferred compensation                             141,000        93,000
 Other                                                  --        10,208

Changes in assets and liabilities:
 Accounts receivable                            (1,079,396)     (461,254)
 Inventories                                        (6,269)        4,796
 Prepaid expenses and other                        (35,079)       51,120
 Accounts payable and accrued liabilities           50,978      (192,940)
 Deferred revenue                                   (7,486)     (236,164)
 Deferred income taxes                            (188,513)      300,478
                                               -----------   -----------
Net cash provided by operating activities          520,052       632,524
                                               -----------   -----------
Cash flow from investing activities:
 Software development costs capitalized           (733,884)     (612,454)
 Purchase of property and equipment                (36,284)       (6,401)
                                               -----------   -----------
Net cash used in investing activities             (770,168)     (618,855)
                                               -----------   -----------
Cash flows from financing activities:
 Proceeds received from issuance of debt           400,000       142,234
 Principal payments on notes payable              (165,188)     (136,490)
                                               -----------   -----------
Net cash provided by financing activities          234,812         5,744
                                               -----------   -----------

Net increase (decrease) in cash                    (15,304)       19,413

Cash at beginning of the period                    549,343       216,676
                                               -----------   -----------
Cash at end of the period                      $   534,039   $   236,089
                                               ===========   ===========

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 JUNE 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.

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. 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 June 30, 2005, and for
the three and six month periods ended June 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 for the year ended December 31, 2004.  The accompanying
unaudited interim financial statements for the three and six month
periods ending June 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%
(7.50% at June 30, 2005)                   $111,761    $    --  $111,761

Revolving line of credit with bank,
matures March 31, 2006; maximum line -
$450,000, interest at the bank's prime
rate plus 2% (7.50% at June 30, 2005)      94,913         --    94,913

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
                                          ---------  ---------  --------
                                           $606,674   $305,880  $912,554
                                          =========  =========  ========

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 six months ended June 30:



                                                    2005          2004
                                                 --------      --------
Net income (loss) - as reported                 ($420,954)     $195,981
Stock -based employee compensation expense -
pro forma                                          23,650        13,580
                                                 --------      --------

Net income (loss) - pro forma                    (444,604)      182,401

Basic earnings per common share-as reported         ($.03)         $.01
Diluted earnings per common share as reported         .02           .01
Basic earnings per common share - pro forma         ($.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                  16,596,726      15,427,021


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. In 2005, its 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
June 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 the 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 post secondary 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 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 JUNE 30, 2005
AS COMPARED TO THE THREE MONTHS ENDED JUNE 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 and for the six months ended June 30,
2005 below are only for the Company and its Dolphin, Inc. subsidiary.
Net consolidated sales for the three months ended June 30, 2005 totaled
$3,158,524 compared to $2,741,795 for the same period in 2004.  This
represents an increase of 15% over the comparable 2004 quarter and is
attributable to increases in revenues at both AEC and Dolphin. The
Company believes that the increase at AEC is a result of increases in
state and federal governmental educational funding and as a result of
billing more schools directly as a condition of its credit policies
with its resellers. The increase at Dolphin is customer driven and
depends on the number of projects its customers decide to outsource and
their desired delivery dates. The Company has announced that Dolphin
will be exiting the contract software development business and will
begin to provide additional development resources for AEC in the latter
half of 2005. The Dolphin subsidiary's sales will decrease through the
third quarter and cease by the end of the 2005 fiscal year.

Cost of goods sold as a percentage of sales revenue for the three
months ending June 30, 2005 decreased to 9% from 12% 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, registered, provided gross profit margins of 97% in the second
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 June 30, 2005
(excluding the impairment of goodwill write-down), increased to
$2,262,716, compared to $1,742,735 for the same 2004 quarter, an
increase of 30%.  As a percentage of sales revenue, operating expenses
increased from 64% in 2004 to 72% in 2005. The increase in total
operating expenses is a result of increases in marketing and selling
expenditures, general and administrative expenses and amortization of
product development costs.  Selling and marketing costs increased by
29%, from $807,607 for the three months ended June 30, 2004, to
$1,039,485 for the current period.  The increase in the second quarter
2005 selling expenses is largely attributable to changes in sales mix,
which resulted in increased sales commission expense because the
Company billed direct to school customers a higher percentage of
orders. General and administrative expenses increased by 57% from
$449,901 in 2004 to $705,652. This increase is due primarily to several
individual items. General and administrative salaries and benefits
increased approximately $45,000 due to the addition of personnel in
several areas. Deferred compensation payable upon executive officers' and
directors' retirement increased $24,000 because additional employees were
eligible for this benefit as compared to the prior year. Audit and legal
fees increased approximately $36,000 as a result of additional legal work
during the second quarter and the timing of the preparation of the Company's
tax returns earlier in fiscal 2005 as compared to 2004. Outside consulting
services increased approximately $31,000 due to fees paid for assistance in
incorporating Learning Letter Sounds into the product line and advice
regarding the future of Dolphin. Bad debt expense increased $85,000 over
the prior year because of an increase in the allowance for uncollectible
accounts based upon higher accounts receivable balances that generally
occur in the second and third quarters resulting from the buying patterns
of many schools.

Interest expense was $18,039 for the three months ended June 30, 2005
as compared to $15,143 for the same 2004 quarter, reflecting the lower
amount of bank debt outstanding on an average daily basis offset by the
additional interest cost of the increase in convertible debt issued by
the Company.   There was a net loss of $486,441 for the three months
ended June 30, 2005 as a result of the impairment write-off for the
Dolphin subsidiary of $1,215,015, compared to net income of $174,976
for the same period in 2004.


RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2005
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004
------------------------------------------------------

Net sales for the six months ended June 30, 2005, totaled $5,498,131
compared to $5,272,061 for the same period in 2004.  This represents an
increase of 4% over the comparable 2004 period. This increase is
attributable to increases in sales at AEC resulting from what the
Company believes are continued favorable market conditions as a result
of governmental educational funding at the federal and state level.
Dolphin's sales for the six-month period were virtually identical to
the same 2004 period.

Cost of goods sold as a percentage of sales revenue for the six months
ending June 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 six months of 2005.

Total operating expenses for the six months ended June 30, 2005
(excluding the impairment of goodwill write-down), increased to
$4,052,896, compared to $3,748,222 for the same 2004 period, an
increase of 8%.  As a percentage of sales revenue, operating expenses
increased from 71% in 2004 to 74% in 2005. The increase in total
operating expenses is a result of a decrease in marketing and selling
expenditures, 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 $1,943,781 for the six
months ended June 30, 2004 to $1,773,005 for the same period in 2005
and is primarily the result of a decrease of in commission expense
because of changes in sales mix. Sales mix changes can occur when a
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 $247,727 in 2004 to $285,458 for the
same period in 2005, or 15%. This increase is due to the addition of
staff in the department during the period. General and administrative
expenses increased from $878,185 to $1,231,133, or by 40%, and the
increases are due to reasons cited in management's discussion of the
second quarter results of operations. General and administrative
salaries and benefits increased approximately $77,000 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 $48,000 as a result of required additional legal costs
experienced during the first six months of 2005 and the preparation of the
Company's tax returns earlier in fiscal 2005 as compared to 2004. Outside
services increased approximately $57,000 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. Royalty expense
increased approximately $33,000 over the prior year due to higher sales of
royalty products during the period. 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 six months ended June 30, decreased from
$30,424 in 2004 to $28,569 in 2005 reflecting the reduction in average
daily bank debt levels in 2005 compared to the prior year offset by
higher interest due to the increase in convertible debt issued by the
Company in 2005. There was a net loss of $420,954 for the six months
ended June 30, 2005, as compared to a net income of $195,981 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 June 30, 2005 the Company's principal sources of liquidity
included cash and cash equivalents of $534,039, net accounts receivable
of $3,175,660 and inventory of $20,754. The Company's net cash provided
by operating activities during the six months was $520,052 in 2005
compared to $632,524 in 2004. Net cash used in investing activities for
the same period increased by 24% from $618,855 in 2004 to $770,168 in
2005, and was comprised primarily of investment in capitalized software
development costs. During the six months ended June 30, 2005 debt due
to financial institutions was reduced by $165,188 or 44%, reflecting
bank indebtedness of $206,674 at June 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 June 30, 2005, the Company had working capital of $1,895,809
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 (7.5% as of June 30, 2005) and matures on March 31,
2006.  At June 30, 2005, the Company had borrowed $94,913 under this
line of credit.  Additionally, the Company has a term loan with
an aggregate principal balance of $111,761 as of June 30, 2005.  The
term loan bears interest at a rate of 2.00% over the prime rate (7.5%
as of June 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 expansion of the Company's product lines, the addition of new
products and expanding market presences, as well as the favorable
trends in government school spending the Company expects to see in
2005 and subsequent years, combined with the elimination of losses from
the subsidiary business units, management believes that the Company
will return to a pattern of growth similar to the increases demonstrated
in prior years, which exceeded approximately 20%. 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 summarrized in the Notes to Interim
Consolidated Financial Statements, which are included herein.


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

As of June 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 June 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, 2005 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)

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.

                                    The American Education Corporation



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



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


Date: July 27, 2006