SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549


                              FORM 10-QSB/A

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
                  For the quarterly period ended July 31, 2003

[ ]  Transition report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
                  For the transition period from              to
                                                 ------------    -------------

                  Commission file number     0-20303
                                         -------------------------------------


              TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
------------------------------------------------------------------------------
   (Exact name of small business issuer as specified in its charter)


            Delaware                                 13-2846796
-----------------------------------     --------------------------------------
  (State or other jurisdiction of                 (I.R.S. Employer
  incorporation or organization)                 Identification No.)

      P.O. Box 382, 4 Hardscrabble Heights, Brewster, New York  10509
------------------------------------------------------------------------------
               (Address of principal executive offices)

                              (845) 277-8100
------------------------------------------------------------------------------
                      (Issuer's telephone number)


------------------------------------------------------------------------------
          (Former name, former address and former fiscal year,
                      if changed since last report)

        APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
           PROCEEDINGS DURING THE PRECEDING FIVE YEARS

  Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by court.

Yes________ No_________

               APPLICABLE ONLY TO CORPORATE ISSUERS

  State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:  As
                                                              --
of September 12, 2003: 2,601,453 shares of Common Stock, par value
------------------------------------------------------------------
$0.0001 per share.
------------------

  Transitional Small Business Disclosure Format (check one):
Yes         No    X
   --------   ----------

<PAGE>


                                PART I

                         FINANCIAL INFORMATION

                           EXPLANATORY NOTE
                           ----------------

        This Amendment No. 2 on Form 10-QSB/A includes restated
unaudited consolidated financial statements for the three months and nine
months ended July 31, 2003, which supersede the Company's previously
issued unaudited consolidated financial statements for those interim
periods.  This Amendment No. 2 also includes related changes to the
disclosures in "Management's Discussion and Analysis or Plan of
Operation."  See Note 5 to the accompanying unaudited financial
statements.  Except as otherwise specifically noted, all information
contained herein is as of July 31, 2003 and does not reflect any events or
changes that have occurred subsequent to that date.  For the convenience
of readers, this Amendment No. 2 restates in its entirety the Company's
Quarterly Report on Form 10-QSB for the quarter ended July 31, 2003.

ITEM 1. FINANCIAL STATEMENTS

        The financial statements for the Company's fiscal quarter ended
July 31, 2003 are attached to this Report, commencing at page F-1.

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

        Except for historical information, the material contained in
this Management's Discussion and Analysis or Plan of Operation is forward-
looking.  For the purposes of the safe harbor protection for
forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995, readers are urged to review the list of certain
important factors set forth in "Cautionary Statement for Purposes of the
"Safe Harbor" Provisions of the Private Securities Litigation Reform Act
of 1995" contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 2002 ("Fiscal 2002"), which may cause actual
results to differ materially from those described.

BACKGROUND

        For over twenty-seven years, TASA has served the rapidly
expanding education market, primarily through the publishing and sale of
its highly regarded proprietary reading tests.  In the second fiscal
quarter of Fiscal 2002, the Company determined that its core businesses of
assessment and instruction provide better long-term growth and profit
potential than the proprietary school business.  Consequently, during the
second fiscal quarter of Fiscal 2002, the Company reached a decision to
sell its proprietary school.  See "Discontinued Operations" below. TASA
core revenues in Fiscal 1994 were $2.0 million and have increased by
acquisition and internal growth to $10.4 million in Fiscal 2002.

RESULTS OF OPERATIONS

        The following table compares the revenues for the fiscal quarter
and nine months ended July 31, 2003 versus the fiscal quarter and nine
months ended July 31, 2002.


<TABLE>
<CAPTION>

            RESULTS OF OPERATIONS FOR THE THIRD FISCAL QUARTER
            AND FOR THE NINE-MONTH PERIOD ENDED ON JULY 31, 2003

                          Nine Months                         Three Months
                         Ended July 31,                      Ended July 31,
                         --------------                     ---------------

                         2003       2002      % Change      2003        2002      % Change
                         ----       ----      --------      ----        ----      --------
                          (in thousands                      (in thousands
                           of dollars)                        of dollars)

<S>                 <C>         <C>           <C>        <C>        <C>          <C>

Revenues

  Proprietary          $3,191.3    $2,801.2      13.9       $1,292.4   $1,222.0       5.8

  Custom Testing       $3,164.9    $2,413.2      31.1       $1,186.0   $  808.6      46.7
                       --------    --------                 --------   --------

Total Revenues
from Continuing
Operations             $6,356.2    $5,214.4      21.9       $2,478.4   $2,030.6      22.1
                       ========    ========                 ========   ========

</TABLE>

        The following are selected ratios as a percentage of revenues on
the Company's financial statements:

                                       Nine Months           Three Months
                                      Ended July 31,       Ended July 31,
                                      ---------------       ---------------

                                      2003       2002       2003       2002
                                      ----       ----       ----       ----
                                      (in percentages)      (in percentages)

Revenues                              100%       100%       100%       100%

   Gross Profit                        49         51         51         55

Operating Expense:

   Selling Expense                     18         15         14          9

   General & Administrative            23         29         22         28

Income from Operations                  8          7         15         18

   Other Income (Expense)              (6)        (8)        (5)        (7)

Income (Loss) from
Continuing Operations                   1          0          6          7

Income (Loss) from
Discontinued Operations,
net of taxes                            2        (44)        39         11

Net Income (Loss)                       4        (45)        45         18

        REVENUES.  Revenues from continuing operations for the nine-
        --------
month period ended July 31, 2003 (the "current period") were $6,356,218
representing a 21.9% increase or $1,141,773 from $5,214,445 for the nine-
month period ended July 31, 2002 (the "comparable period").  Net revenues
from continuing operations for the three-months ended July 31, 2003 (the
"current quarter") increased by 22.1% or $447,836 to $2,478,392 as
compared to net revenues of $2,030,556 in the three months ended July 31,
2002 (the "comparable quarter").

        Revenues from our proprietary testing unit have increased by
13.9% year to date and by 5.8% for the current quarter. Due to increases
in contracted services, revenues from our custom-testing unit increased
31.1% year to date and by 46.7% for the current quarter.

        COST OF GOODS SOLD.  Cost of goods sold increased by $658,583,
        ------------------
or 25.8%, from $2,556,797 in the comparable period to $3,215,380 in the
current period.  Cost of goods sold is now 51% of revenues versus 49% in
the comparable period.  Cost of goods sold for the current quarter
increased by 31.5%, or $290,570, from $922,428 in the comparable quarter
to $1,212,998 in the current quarter. Cost of goods sold is now 49% of
revenues for the quarter versus 45% for the comparable quarter.  The
increase in cost of goods sold is due to the volume growth of assessment
products as well as a change in revenue mix. While both assessment units
have increased revenue, Beck Evaluation and Testing Inc. ("BETA") now
accounts for a greater percent of total sales (versus last year). For
BETA, our cost of goods is greater (as a percent of sales).

        GROSS PROFIT.  Gross profit from continuing operations increased
        ------------
to $3,140,838 in the current period from $2,657,648 in the comparable
period or by $483,190.  The gross profit margin is now 49% in the current
period versus 51% in the comparable period.   For the current quarter, the
gross profit increased to $1,265,394 versus $1,108,128 in the comparable
quarter.

        SELLING EXPENSE.  Selling expense for the current period
        ---------------
increased by 43.5% or $342,334 versus the comparable period, or from
$787,855 to $1,130,189. For the current quarter, selling expense increased
by 80.5% or $152,242, or from $189,204 in the comparable quarter to
$341,446 in the current quarter.  Selling expenses increased because of
the Company's decision to accelerate marketing spending to better
penetrate its target market and because the Company invested significantly
to develop new business for its custom-testing unit. Selling expenses are
18 % of revenue in the current period versus 15% in the comparable period.
For the current quarter, selling expenses are 14% of revenue versus 9% in
the comparable quarter.

        GENERAL AND ADMINISTRATIVE (G&A) EXPENSES.  General and
        -----------------------------------------
administrative expenses for the current period are now $1,484,033 versus
$1,491,571 for the comparable period. For the current period, G&A is 23%
of revenues versus 29% in the comparable period. For the current quarter,
G&A expenses are $540,626 versus $561,365 in the comparable quarter. G&A
is 22% of revenue in the current quarter versus 28% in the comparable
quarter. The Company continues to reduce percentage G&A expense because it
has been successfully allocating personnel directly to certain businesses.

        OTHER INCOME (EXPENSE).  The Company had net other (expense) of
        ----------------------
($393,636) for the current period versus net other (expense) of
($412,481) for the comparable period.  For the current quarter, the Company
had net other (expense) of ($125,685) versus net other (expense) of ($139,554)
for the comparable quarter.  Net other income (expense) has declined due
to the prepayment of long-term debt, as well as reduced utilization of
the Company's line of credit.  Further, other (expense) includes
recognition of deferred gain on the sale/leaseback of the Company's
headquarters building in July 2003, of $10,453 in the current quarter.

        INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from the Company's
        ----------------------------------------
continuing operations for the current period was $76,844 versus a loss of
($20,556) for the comparable period.  For the current quarter, the Company
had net income from continuing operations of $157,625 versus $135,848 in the
comparable quarter.

        EBITDA FROM CONTINUING OPERATIONS.  Earnings before interest,
        ---------------------------------
taxes, depreciation and amortization on the Company's continuing
operations was $1,014,830 for the current period versus $855,430 for the
comparable period.  EBITDA for the current quarter was $570,196 versus
$516,526 for the comparable quarter.  EBITDA has been adversely affected
by the sale-leaseback of the company's building.

        EBITDA is a non-GAAP financial measure and should not be used as
a substitute for the directly comparable GAAP financial measure.  In order
to facilitate an understanding of the components of EBITDA and their
effect on the results of operations, the following table is provided as a
reconciliation of reported income from continuing operations to EBITDA
from continuing operations.

<TABLE>
<CAPTION>
                       EBITDA From Continuing Operations


                                     Nine-Months Ended         Three Months Ended
                                           July 31,                   July 31,
                                     2003           2002         2003          2002
                                     ----           ----         ----          ----
<S>                           <C>           <C>            <C>         <C>
Income form continuing
operations                       $  526,616     $ 378,222     $ 383,322     $357,559

Depreciation &
amortization                        488,214       477,208       186,874      158,967
                                 ----------     ---------     ---------     --------

EBITDA from continuing
operations                       $1,014,830     $ 855,430     $ 570,196     $516,526
                                 ==========     =========     =========     ========

</TABLE>

        DISCONTINUED OPERATIONS. In evaluating TASA's strategic
        -----------------------
alternatives, the Company made the decision to focus or concentrate on its
core business, namely assessment in the K-12 marketplace.   As such, in
June 2003 it completed the sale of Mildred Elley Schools, its post-
secondary school division, and in July 2003 it completed the sale of its
supplemental instructional unit, Modern Learning Press, Inc. ("MLP"). The
net result of these transactions contributed a gain from discontinued
operations of $152,203 versus a loss of ($2,308,504) in the comparable
period. For the current quarter, the company had a gain of $963,059 versus
a gain of $229,841 in the comparable quarter.

        NET (LOSS) INCOME AND EARNINGS (LOSS) PER SHARE.  Combining income
        -----------------------------------------------
from both continuing and discontinued operations, the Company had net income
of $229,047 in the current period versus a net (loss) of ($2,329,060) in the
comparable period. For the current quarter, the Company experienced net
income of $1,120,684 versus net income of $365,689 in the comparable quarter.

        For the current period, the Company had $0.03 diluted earnings
per share from continuing operations versus a diluted loss of ($0.01) per
share in the comparable period. For the current quarter, the Company had
$0.06 earnings per share from continuing operations versus $0.05 earnings
per share in the comparable quarter. Including the gain or loss from
discontinued operations, the Company had diluted earnings of $0.09 per
share in the current period versus a ($0.90) (loss) in the comparable
period, and for the current quarter, the Company had $0.42 diluted
earnings per share versus $0.14 diluted earnings per share in the
comparable quarter.

LIQUIDITY AND CAPITAL RESOURCES

        WORKING CAPITAL.  Working capital decreased by $975,037 during
        ---------------
the current period from $2,099,984 at October 31, 2002, to $1,124,947, at
July 31, 2003. This decrease resulted primarily from net assets from
discontinued operations sold during the current quarter. The ratio of
current assets to current liabilities was approximately 1.70 to 1 at the
end of the current quarter.

        CASH FLOW FROM OPERATING ACTIVITIES. During the current period,
        -----------------------------------
the Company had net cash provided in operating activities of $47,228, as
compared to $68,671 used by operating activities in the comparable period.
The increase in cash provided by operating activities resulted primarily
from increased net income .

        CASH FLOW FROM INVESTING ACTIVITIES. During the current period,
        -----------------------------------
the Company had net cash provided by investing activities of $5,556,457,
as compared to $371,796 used in investing activities for the comparable
period. The cash provided in the current period is primarily from the
proceeds from the sales of the Company headquarters/office and MLP.

        CASH FLOW FROM FINANCING ACTIVITIES. During the current period,
        -----------------------------------
the Company had net cash used in financing activities of $5,114,921 as
compared to $412,083 in cash provided by financing activities during the
comparable period.  The increase in cash used in financing activities
resulted from the repayment of the subordinated debt and the mortgage
payable of the Company's facilities.

        In July 2003, the Company sold substantially all the assets of
Modern Learning Press, Inc., its wholly-owned subsidiary and sole
component of the Company's instructional segment, to Delta Education, LLC
("Delta") for $4,020,000 and Delta assumed certain related liabilities.
In addition, the Company is responsible for the payment of up to $200,000
of certain royalties for a one-year period from June 1, 2003 through May
31, 2004.  The Company has estimated these royalties based on historical
amounts paid, to amount to approximately $175,000, which has reduced the
gain from the sale of the segment.  The Company retained the business and
assets related to its test preparation materials, Kingsbridge Press, which
it considers consistent with the activities of its sole remaining segment.
The Company recorded a gain on the disposal of Instructional Segment
totaling $1,815,092 less taxes of $726,036.  Revenues from the
Instructional Segment totaled $1,321,278 and $2,129,415 for the period
November 1, 2003 through the date of sale and for the nine months ended
July 31, 2002, respectively. Revenues from the Instructional Segment
totaled $723,491 and $1,497,492 for the period May 1, 2003 through the
date of sale and for the three months ended July 31, 2002, respectively.

        In addition, the Company entered into a transitional services
agreement with Delta, whereby the Company would continue to pay the rent
and employee costs of MLP through October 31, 2003 for consideration of
$130,000.  On October 31, 2003, the facilities utilized by MLP will be
closed and the employees terminated.  The Company estimates these
termination costs, to be approximately $130,000, which it has recorded as
a cost of the sale of the segment.

        In July 2003, options to purchase 2,000 shares of the Company's
common stock were exercised resulting in proceeds totaling $920.

        In August 2003, options to purchase 5,000 shares of the
Company's common stock were exercised resulting in proceeds totaling
$2,300.

        In July 2003, the Company sold its headquarters building to 26
Palmer LLC for $2,875,000.  The building and related improvements had a
net book value of $1,458,481.  The Company reported a gain on the sale
totaling $1,254,383 net of closing costs totaling $162,136.  The building
was then leased by the Company under a ten-year lease agreement.  As a
result of the sale-leaseback of the building, the gain has been deferred
and will be recognized over the term of the lease, as other income during
the relevant period.

        In July 2003, the Company repaid the remaining outstanding
principal balance on the subordinated debt totaling $3,530,141.  The
Company also charged to expense on the date of repayment, the remaining
deferred interest and loan originating fees with a remaining book value of
$39,312 and $15,422, respectively.

        Long-term debt, operating leases and other long-term obligations
as of July 31, 2003 mature as follows:

<TABLE>
<CAPTION>

                                                           Payments due
Obligations                       Total       Less than                                    more than
                                               1 year        1-3 years      4-5 years       5 years

<S>                         <C>           <C>            <C>            <C>           <C>
Long-term debt                 $       --    $       --     $        --    $       --    $       --
Operating leases                3,146,210       304,500         969,470       715,720     1,156,520
Other long-term obligations            --            --              --            --            --

Total obligations              $3,146,210      $304,500        $969,470    $  715,720    $1,156,520
</TABLE>

        The Company's scanning and scoring business is increasing
rapidly. As a result, a decision was made to expand the physical
facilities in connection with this activity. During the fourth quarter of
2003, the Company will spend approximately $225M to move and expand these
facilities by approximately 4,000 square feet.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the amounts reported in the unaudited Consolidated Financial
Statements and accompanying notes. Estimates are used for, but not limited
to, the accounting for the allowance for doubtful accounts, inventories,
income taxes and loss contingencies. Management bases its estimates on
historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Actual results could differ from
these estimates under different assumptions or conditions.

        The Company believes the following critical accounting policies,
among others, may be impacted significantly by judgment, assumptions and
estimates used in the preparation of the unaudited Consolidated Financial
Statements:

        *  Revenues from the Company's sales of its proprietary tests,
including sales of the related ancillary materials, are recognized when the
Company ships the physical product from its warehouse.  The Company's revenues
from performance of assessment consulting and psychometric services under
long-term contracts are recognized on the percentage-of-completion basis
pursuant to the provisions of Statement of Position No. 81-1, "Accounting
for Performance of Construction-Type and Certain Production-Type Contracts"
and Accounting Research Bulletin No. 45, "Long-Term Construction-Type
Contracts".  For each contract, the Company compares the costs incurred
in the course of performing such contract during a fiscal period to the
total estimated costs of full performance of the contract, and recognizes a
proportionate amount of revenue for such period.  Tuition revenues from the
Company's educational delivery division are recognized at the point
in time in which the Company has no exposure to future tuition
refunds associated with the respective academic semester.

        * In July 2003, the Company sold its headquarters building to
26 Palmer LLC for $2,875,000.  The building and related improvements had
a net book value of $1,458,481.  The Company reported a gain on the sale
totaling $1,254,383, net of closing costs totaling $162,136.  The building
was then leased by the Company under a ten-year lease agreement.  As a
result of the sale-leaseback of the building, the gain has been deferred
and will be recognized over the ten-year term of the lease as other income
for each period.

        * Deferred tax assets are recorded based on the Company's projected
future taxable income and the resulting utilization of the deferred tax
assets. To the extent that the Company would not be able to realize all
or part of its deferred tax assets in the future, an adjustment to the
deferred tax assets would be necessary and charged to income.

        * The process of writing and calibrating a test passage takes
approximately two years, and all costs associated with the process are
capitalized during this period.  Amortization of these costs begins once
the development period has elapsed, which in most cases, represents the
point in time at which the new test passage is placed into the test passage
bank and becomes available to be utilized within the Company's existing
tests, or the point in time at which a newly developed test becomes
available for sale.  Costs capitalized in connection with the development
of passages used in the Company's DRP Test have been estimated to have a
useful life of eleven years and, accordingly, are being amortized over an
eleven-year period.  Costs capitalized in connection with the development
of passages used in all other of the Company's tests have been estimated
to have a useful life of seven years and, accordingly, are being amortized
over a seven-year period.  Such amortization costs are included in the costs
of goods sold in each of the respective periods.  If these estimates
of the useful lives of test passages prove to be shorter periods, the
Company would be required to accelerate the amortization of these passages,
resulting in a reduction in income.


ITEM 3. CONTROLS AND PROCEDURES

        The Certifications required by Item 307 of Regulation S-B are
set forth after the signatures to this Report.

        (a)  Evaluation of disclosure controls and procedures.  Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that are filed or submitted
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms.  These disclosure controls and procedures
include controls and procedures designed to ensure that information
required to be disclosed under the Securities Exchange Act of 1934 is
accumulated and communicated to our management on a timely basis to allow
decisions regarding required disclosure.

        An evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the
period covered by this Quarterly Report.  Based upon that evaluation, the
Company's management, including the Chief Executive Officer and Chief
Financial Officer, had concluded that as of the end of the period covered
by this Quarterly Report that the design and operation of these disclosure
controls and procedures were effective as of the end of the period covered
by this Report.  However, based on a subsequent evaluation in Fiscal 2005,
the Company now believes that it did not have adequate personnel and
technical resources with respect to accounting for the sale-leaseback of
the Company's headquarters in July 2003.  As a result, the gain from the
sale-leaseback was originally recognized in its entirety for the quarter
during which the sale-leaseback occurred.  After consulting with the
Company's independent registered public accountants during Fiscal 2005,
management has concluded that such gain should have been deferred and
recognized over the ten-year term of the lease.  On May 24, 2005,
management concluded that the Company should restate its audited financial
statements for the fiscal years ended October 31, 2003 and 2004, and its
quarterly unaudited financial statements for the quarters ended July 31,
2003, January 31, 2004, April 30, 2004, July 31, 2004, and January 31,
2005.  Such restatements do not affect the Company's revenues from
operations for any of these periods.  These restatements reflect the
correction in the Company's accounting for the sale-leaseback transaction.
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have concluded that, as of the end of the period
covered by this Quarterly Report, the Company's disclosure controls and
procedures were not effective at the end of the period covered by this
Quarterly Report to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.  The Audit Committee has directed
management to devote additional resources to disclosure controls and
management is in the process of implementing such directive.

        (b)  Changes in internal controls.  Other than changes to our
accounting for the sale-leaseback transactions noted above, there was no
change in the Company's internal controls over financial reporting occurring
in the Company's fiscal quarter covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.

<PAGE>

                                  PART II

                             OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        None.

ITEM 2. CHANGES IN SECURITIES

        None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not Applicable.

ITEM 5. OTHER INFORMATION

        None.

        (a)     Exhibits

                Exhibit 11 -- Computation of Earnings per Common Share


                Exhibit 31 -- Certification Pursuant To 18 U.S.C. Section 1350,
                              As Adopted Pursuant To Section 302 of The
                              Sarbanes-Oxley Act of 2002.

                Exhibit 32 -- Certification Pursuant to 18 U.S.C. Section 1350,
                              As Adopted Pursuant to Section 906 of
                              The Sarbanes-Oxley Act of 2002.

        (b)     Reports on Form 8-K

                Current Report on Form 8-K, filed June 18, 2003.


<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

           Index to Consolidated Financial Statements (Unaudited)
                 for the Fiscal Quarter Ended July 31, 2003



         Consolidated Balance Sheets                    F-1

         Consolidated Statements of Operations          F-3

         Consolidated Statements of Cash Flows          F-5

         Notes to Consolidated Financial Statements     F-7



<PAGE>
                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>


                       CONSOLIDATED BALANCE SHEETS

                                                                   Page 1 of 2

                                                             July 31,       October 31,
                                                             2 0 0 3          2 0 0 2
                                                             -------          -------
                                                           (Unaudited)
                                                          (As Restated)
<S>                                                    <C>             <C>
	ASSETS
        ------

Current assets:
  Cash and temporary investments                           $  604,673      $   115,909
  Accounts receivable, net of allowance for doubtful
    accounts of $7,021 and $24,434, respectively            1,380,137        1,071,107
  Inventories                                                 503,429          428,742
  Prepaid expenses and other current assets                   226,722          394,828
  Current assets held for sale                                     --        3,155,444
                                                           ----------      -----------

        Total current assets                                2,714,961        5,166,030

Property, plant and equipment - net of
  accumulated depreciation of $296,076 and
   $1,285,412, respectively                                    94,421        1,574,161
Property, plant and equipment held for sale                        --          184,730

Other assets:
  Test passage bank and test development, net of
   accumulated amortization of $2,685,369 and
   $2,362,963, respectively                                 2,130,269        2,202,998
  Goodwill                                                    198,159          198,159
  Deferred income taxes                                     2,040,834        1,875,670
  Other assets                                                322,140          166,356
  Other assets held for sale                                       --        1,438,658
                                                           ----------      -----------

        Total assets                                       $7,500,784      $12,806,762
                                                           ==========      ===========



</TABLE>

See notes to consolidated financial statements.



                              F - 1

<PAGE>
                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES



<TABLE>
<CAPTION>



                        CONSOLIDATED BALANCE SHEETS

                                                                   Page 2 of 2

                                                             July 31,       October 31,
                                                             2 0 0 3          2 0 0 2
                                                             -------          -------
                                                           (Unaudited)
                                                          (As Restated)
<S>                                                     <C>            <C>

        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------

Current liabilities:
  Note payable to bank                                     $       --       $       --
  Current maturities of long-term debt                             --           55,556
  Accounts payable                                            333,394          513,825
  Accrued expenses                                            856,891          713,161
  Deferred revenue                                            274,290               --
  Deferred gain on sale of building - current portion         125,439               --
  Current liabilities held for sale                                --        1,783,504
                                                           ----------       ----------

        Total current liabilities                           1,590,014        3,066,046

Subordinated debt                                                  --        3,530,141
Long-term debt, net of current portion                             --        1,530,144
Deferred gain on sale of building, net
  of current portion                                        1,118,491               --
Other liabilities held for sale                                    --          241,547
                                                           ----------      -----------

        Total liabilities                                   2,708,505        8,367,878
                                                           ----------      -----------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.0001 par value, 5,000,000
   authorized, 0  shares
   issued and outstanding, respectively                            --               --
  Common stock, $.0001 par value, 20,000,000
   shares authorized, 2,596,453 and 2,594,453 shares
   issued and outstanding                                         260              259
  Additional paid-in capital                                5,545,447        5,538,393
  Deferred interest                                                --         (117,293)
  Retained (deficit)                                         (753,428)        (982,475)
                                                           ----------      -----------

        Total stockholders' equity                          4,792,279        4,438,884
                                                           ----------      -----------

        Total liabilities and stockholders' equity         $7,500,784      $12,806,762
                                                           ==========      ===========


</TABLE>

See notes to consolidated financial statements.



                              F - 2

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                   Page 1 of 2

                                                       Nine Months Ended              Three Months Ended
                                                           July 31,                        July 31,
                                                     2 0 0 3        2 0 0 2         2 0 0 3       2 0 0 2
                                                     -------        -------         -------       -------
                                                   (Unaudited)    (Unaudited)     (Unaudited)   (Unaudited)
                                                  (As Restated)                  (As Restated)
<S>                                            <C>            <C>              <C>           <C>

Net revenue                                        $6,356,218     $ 5,214,445      $2,478,392    $2,030,556

Cost of goods sold                                  3,215,380       2,556,797       1,212,998       922,428
                                                   ----------      ----------      ----------    ----------

Gross profit                                        3,140,838       2,657,648       1,265,394     1,108,128
                                                   ----------      ----------      ----------    ----------

Operating expenses:
  Selling expenses                                  1,130,189         787,855         341,446       189,204
  General and administrative expenses               1,484,033       1,491,571         540,626       561,365
                                                   ----------      ----------      ----------    ----------

Total operating expenses                            2,614,222       2,279,426         882,072       750,569
                                                   ----------      ----------      ----------    ----------

Income from operations                                526,616         378,222         383,322       357,559

Other income (expense):
  Gain on sale leaseback of building                   10,453              --          10,453            --
  Gain on sale of assets                                  244              --             244            --
  Interest expense, net                              (396,636)       (412,481)       (136,382)     (139,554)
                                                   ----------      ----------      ----------    ----------

Income (loss) before income taxes                     132,980         (34,259)        257,637       218,005

Income taxes (benefits)                                56,136         (13,703)        100,012        82,157
                                                   ----------      ----------      ----------    ----------

Income (loss) from continuing operations               76,844         (20,556)        157,625       135,848
                                                   ----------      ----------      ----------    ----------

Income (loss) from discontinued operations:
  (Loss) gain from operations net of income
     tax (benefit) of $(265,150), $(47,637),
     $(108,771) and $34,238, respectively            (397,724)        (70,260)       (178,125)       61,698
  Gain (loss) on disposal, net of income tax
     (benefit) of $372,494, $(1,426,517),
     $760,123 and $78,047, respectively               549,927      (2,238,244)      1,141,184       168,143
                                                   ----------      ----------      ----------    ----------

Income (loss) from discontinued operations            152,203      (2,308,504)        963,059       229,841
                                                   ----------      ----------      ----------    ----------

Net income (loss)                                  $  229,047     $(2,329,060)     $1,120,684    $  365,689
                                                   ==========     ===========      ==========    ==========


</TABLE>

See notes to consolidated financial statements.



                              F - 3

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES


<TABLE>
<CAPTION>
                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                   Page 2 of 2

                                                       Nine Months Ended              Three Months Ended
                                                            July 31,                       July 31,
                                                     2 0 0 3        2 0 0 2         2 0 0 3       2 0 0 2
                                                     -------        -------         -------       -------
                                                   (Unaudited)    (Unaudited)     (Unaudited)   (Unaudited)
                                                  (As Restated)                  (As Restated)
<S>                                            <C>            <C>              <C>           <C>

Weighted average shares outstanding
  Basic                                            2,594,475       2,584,802       2,594,518       2,594,453
  Diluted                                          2,644,277       2,584,802       2,644,321       2,594,453

Basic earnings (loss) per share
  Continuing operations                           $      .03      $     (.01)     $      .06      $      .05
  Discontinued operations                                .06            (.89)            .37             .09
                                                  ----------      ----------      ----------      ----------

                                                  $      .09      $     (.90)     $      .43      $      .14
                                                  ==========      ==========      ==========      ==========

Diluted earnings (loss) per share
  Continuing operations                           $      .03      $     (.01)     $      .06      $      .05
  Discontinued operations                                .06            (.89)            .36             .09
                                                  ----------      ----------      ----------      ----------

                                                  $      .09      $     (.90)     $      .42      $      .14
                                                  ==========      ==========      ==========      ==========





















</TABLE>

See notes to consolidated financial statements.



                              F - 4

<PAGE>



                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES


                                                                   Page 1 of 2
                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Nine Months Ended
                                                            July 31,
                                                     2 0 0 3        2 0 0 2
                                                     -------        -------
                                                   (Unaudited)    (Unaudited)
                                                  (As Restated)

OPERATING ACTIVITIES
  Net income (loss)                              $   229,047      $(2,329,060)
  Adjustments to reconcile net loss to net
    cash flows from operating activities:
  Depreciation and amortization                      488,214          477,208
  Deferred income taxes                             (165,164)      (1,603,083)
  Deferred interest                                  117,293           88,615
  Financial advisory services                             --            1,251
  (Gain) on sale of assets                              (244)              --
  (Gain) loss on sale of discontinued operations    (549,927)         643,568
  (Gain) on sale/leaseback of building               (10,453)              --
  Impairment of goodwill                                  --        3,021,193
Changes in operating assets and liabilities:
  Accounts receivable                               (309,030)        (385,758)
  Inventories                                        (74,687)        (152,147)
  Other assets                                        84,590           13,551
  Net assets from discontinued operations                 --          249,288
  Deferred revenue                                   274,290               --
  Accounts payable                                   (36,701)         (93,297)
                                                 -----------      -----------

NET CASH FLOWS FROM OPERATING ACTIVITIES              47,228          (68,671)
                                                 -----------      -----------

INVESTING ACTIVITIES
  Acquisition of property, plant and equipment       (44,013)         (56,120)
  Test passage bank and test development            (249,677)        (189,564)
  Proceeds from the sale of building               2,875,000               --
  Proceeds from the sale of
   discontinued operations                         4,070,000               --
  Closing costs on the sale of building             (161,891)              --
  Closing costs on sale of
   discontinued operations                          (766,293)              --
  Prepublication costs                              (151,119)        (113,551)
  Software development costs                         (15,550)         (12,561)
                                                 -----------      -----------

NET CASH FLOWS FROM INVESTING ACTIVITIES           5,556,457         (371,796)
                                                 -----------      -----------

FINANCING ACTIVITIES
  Repayment of long-term debt                     (1,585,700)        (185,099)
  Repayment of subordinated debt                  (3,530,141)              --
  Proceeds from the exercise of
   employee stock options                                920               --
  Net borrowings on note payable to bank                  --          597,182
                                                 -----------      -----------

NET CASH FLOWS FROM FINANCING ACTIVITIES          (5,114,921)         412,083
                                                 -----------      -----------



See notes to consolidated financial statements.



                              F - 5

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, I
                              AND SUBSIDIARIES

                                                                   Page 2 of 2
                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Nine Months Ended
                                                            July 31,
                                                     2 0 0 3        2 0 0 2
                                                     -------        -------
                                                   (Unaudited)    (Unaudited)
                                                  (As Restated)


NET CHANGE IN CASH AND TEMPORARY
  INVESTMENTS                                        $488,764      $ (28,384)

CASH AND TEMPORARY INVESTMENTS
  AT BEGINNING OF PERIOD                              115,909         47,643
                                                     --------      ---------

CASH AND TEMPORARY INVESTMENTS
  AT END OF PERIOD                                   $604,673      $  19,259
                                                     ========      =========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                      $409,674      $ 415,545
                                                     ========      =========

  Income taxes paid                                  $ 34,442      $  24,249
                                                     ========      =========


















See notes to consolidated financial statements.



                              F - 6

<PAGE>




                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES; RESTATEMENT
----------------------------------------------------------------------

In the opinion of management, the accompanying consolidated financial
statements of Touchstone Applied Science Associates, Inc. ("TASA") and its
subsidiaries contain all adjustments necessary to present fairly the
Company's consolidated financial position as of July 31, 2003 and October
31, 2002, the consolidated results of operations for the nine and three
months ended July 31, 2003 and 2002 and consolidated cash flows for the
nine months ended July 31, 2003 and 2002.

The consolidated results of operations for the nine and three months ended
July 31, 2003 and 2002 are not necessarily indicative of the results to be
expected for the full year.

The accounting policies followed by the Company are set forth in Note 1 to
the Company's consolidated financial statements included in its Annual
Report on Form 10-KSB/A for the fiscal year ended October 31, 2002.

Goodwill Amortization
---------------------

Pursuant to SFAS 141 and 142, the Company stopped amortizing goodwill
effective November 1, 2002. Had the new standard been effective at
November 1, 2002, the net (loss) income for the nine and three months
ended July 31, 2002 would have been $(2,286,064) and $380,021.

Restatement
-----------

Subsequent to the issuance of the Company's unaudited consolidated
financial statements in its Form 10-QSB for the fiscal quarter ended July
31, 2003, the Company concluded that the treatment of the gain from the
sale-leaseback transaction was not consistent with generally accepted
accounting principles (Note 3.)  As a result, on May 24, 2005, the Company
filed a Current Report on form 8-K with the SEC announcing its decision to
restate the previously-issued consolidated audited financial status for
the fiscal years ended October 31, 2004 and October 31, 2003, and its
unaudited consolidated financial statements for the interim fiscal
quarters ended July 31, 2003, January 31, 2004, April 30, 2004, July 31,
2004 and January 31, 2005.  The foregoing unaudited financial statements
for the fiscal quarter and nine months ended July 31, 2003 supersede the
Company's previously issued unaudited consolidated financial statements
for such periods.

NOTE 2 -  SALE OF INSTRUCTIONAL SEGMENT
---------------------------------------

In July 2003, the Company sold substantially all the assets of Modern
Learning Press, Inc., its wholly-owned subsidiary and sole component of
the Company's instructional segment to Delta Education, LLC ("Delta") for,
$4,020,000 and Delta assumed certain related liabilities.  In addition,
the Company is responsible, for the payment of up to $200,000 of certain
royalties for a one year period from June 1, 2003 through May 31, 2004.
The Company has estimated these royalties based on historical amounts
paid, to amount to approximately $175,000, which has reduced the gain from
the sale of the segment.  The Company retained the business and assets
related to its test preparation materials, Kingsbridge Press, which it
considers consistent with the activities of its sole remaining segment.
The Company recorded a gain on the disposal of the Instructional segment
totaling $1,815,092 less taxes of $726,036.  Revenues from the
Instructional Segment totaled $1,321,278 and $2,129,415 for the period
November 1, 2002 through the date of sale and for the nine months ended
July 31, 2002, respectively. Revenues from the Instructional Segment
totaled $723,491 and $1,497,492 for the period May 1, 2003 through the
date of sale and for the three months ended July 31, 2002, respectively.

                              F - 7

<PAGE>




                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 -  SALE OF INSTRUCTIONAL SEGMENT (continued)
---------------------------------------------------

In addition, the Company entered into a transitional services agreement
with Delta, whereby the Company would continue to pay the rent and
employee costs of MLP through October 31, 2003 for consideration of
$130,000.  On October 31, 2003, the facilities utilized by MLP will be
closed and the employees terminated.  The Company estimates these
termination costs, to be approximately $130,000, which it has recorded as
a cost of the sale of the segment.

NOTE 3 - SALE OF DELIVERY SEGMENT
---------------------------------

On June 3, 2003, the Company sold substantially all the assets of Elley.
Pursuant to the agreement, the Company received $50,000.  In addition, the
Company will receive 25 percent of the proceeds from any sale or
refinancing of the school by the purchaser to a third party, which must
take place within seven years. The assets sold constitute substantially
all the assets and operations of the Company's educational delivery
segment.  The Company recorded a gain on the disposal of Elley totaling
$883,856, and a tax benefit of $353,542, to reflect the change in the fair
value of the net assets sold during the period November 1, 2002 through
June 3, 2003.  The revenues for the delivery segment were $3,225,417 and
$3,916,111 for the period from November 1, 2002 through June 3, 2003, the
date of sale, and the nine months ended July 31, 2002. The revenues for
the delivery segment were $373,675 and $1,089,535 for the period from May
1, 2003 through June 3, 2003, the date of sale, and for the three months
ended July 31, 2002, respectively.

NOTE 4 - STOCK OPTIONS
----------------------

In July 2003, options to purchase 2,000 shares of the Company's common
stock were exercised resulting in proceeds totaling $920.

Subsequent to the balance sheet date, options to purchase 5,000 shares of
the Company's common stock were exercised resulting in proceeds totaling
$2,300.



                              F - 8

<PAGE>




                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - SALE/LEASEBACK OF BUILDING
-----------------------------------

In July 2003, the Company sold its headquarters building to 26 Palmer LLC
for $2,875,000.  The building and related improvements had a net book value
of $1,458,481.  The Company reported a gain on the sale totaling $1,254,353
net of closing costs totaling $162,136.  The building was then leased back
to the Company under a  ten-year lease agreement.  As a result of the sale
leaseback of the building, the gain has been deferred and will be recognized
over the ten-year term of the lease as other income.  Among other
provisions, the lease provides for additional rent to be paid by the Company
for real estate taxes and insurance.  Future minimum rentals under the
agreement are as follows:


                Year Ended July 31,



                2004                   $  304,500
                2005                      313,780
                2006                      323,060
                2007                      332,630
                2008                      352,640
                2009 and thereafter    $1,519,600


Subsequent to the issuance of Company's unaudited financial statements in
its Form 10-QSB for the fiscal quarter ended July 31, 2003, the Company
concluded that its treatment of the gain from the sale-leaseback
transaction was not consistent with generally accepted accounting
principles.  The Company concluded that it was necessary to restate such
financial statements.  The restatement does not affect previously-reported
revenues for the restated period or future periods.

                              F - 9


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 5 - SALE/LEASEBACK OF BUILDING (continued)
-----------------------------------------------


A summary of the significant effects of the restatement is as follows:


                                               As Previously
                                                  Reported         As Restated

As of July 31, 2003
-------------------

Deferred income taxes                            $1,530,823         $2,040,834
Deferred gain on sale of building (current)              --            125,439
Deferred gain on sale of building
  (net of current)                                       --          1,118,491
Retained (deficit)                                  (19,509)          (753,428)



For the three months ended July 31, 2003
----------------------------------------

Gain on sale of building                         $1,254,627             10,453
Income before income taxes                        1,501,567            257,637
Income taxes                                        610,023            100,012
Income from continuing operations                   891,544            157,625
Net income                                        1,854,603          1,120,684
Earnings per common share
  Basic and diluted (from
   continuing operations)                        $     0.34         $     0.06
                                                 ==========         ==========
  Basic and diluted                              $     0.71         $     0.42
                                                 ==========         ==========


For the nine months ended July 31, 2003
---------------------------------------

Gain on sale of building                         $1,254,627         $   10,453
Income before income taxes                        1,376,910            132,980
Income taxes                                        566,147             56,136
Income from continuing operations                   810,763             76,844
Net income                                          962,966            229,047
Earnings per common share
  Basic and diluted (from
   continuing operations)                        $     0.31         $     0.03
                                                 ==========         ==========
Basic and diluted                                $     0.36         $     0.09
                                                 ==========         ==========


NOTE 6 - SUBORDINATED DEBT
--------------------------

In July 2003, the Company prepaid the remaining outstanding
principle balance on the subordinated debt totaling $3,530,141.
The Company also charged to expense on the date of prepayment,
the remaining deferred interest and loan originating fees with
a remaining book value of $39,312 and $15,422, respectively.

                              F - 10


<PAGE>

                            SIGNATURE

        In accordance with 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.


                          TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.



                          By: /s/ ANDREW L. SIMON
                             ----------------------------------
                             Andrew L. Simon
                             President, Chief Executive Officer
                             and Chief Financial Officer

Date:  August 8, 2005