UNITED STATES
                  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, 2004

[ ]  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 6, 2004: 2,622,703 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, 2004 and 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 3 to the accompanying unaudited financial
statements.  Except as otherwise specifically noted, all information
contained herein is as of July 31, 2004 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, 2004.

ITEM 1. FINANCIAL STATEMENTS

        The financial statements for the Company's fiscal quarter ended
July 31, 2004 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/A for the
fiscal year ended October 31, 2003 ("Fiscal 2003"), which may cause actual
results to differ materially from those described.

BACKGROUND

        For over twenty-eight years, TASA has served the rapidly
expanding education market, primarily through the publishing and sale of
its highly regarded proprietary reading tests.  It believed that this
category provided better long-term growth and profit potential than either
the proprietary school business or the supplemental instruction segment.
Consequently, during the second fiscal quarter of Fiscal 2002, the Company
reached a decision to sell its proprietary school, and in the third
quarter of Fiscal 2003, the Company reached the decision to sell its
supplemental instruction materials business, Modern Learning Press.
Accordingly, both of these segments were reported as discontinued
operations.  See the Annual Report for Fiscal 2003.

RESULTS OF OPERATIONS

        The following table compares the revenues for the fiscal quarter
and nine months ended July 31, 2004 versus the fiscal quarter and nine
months ended July 31, 2003.


<TABLE>
<CAPTION>

              RESULTS OF OPERATIONS FOR THE THIRD FISCAL QUARTER
              AND FOR THE NINE-MONTH PERIOD ENDED JULY 31, 2004

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

                                                    %                                   %
                           2004        2003      Change        2004        2003      Change
                           ----        ----      ------        ----        ----      ------
                            (in thousands                       (in thousands
                             of dollars)                         of dollars)

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

Revenues

    Proprietary          $3,268.3    $3,191.3      2.4       $1,087.0    $1,292.4    (15.9)

    Custom Testing       $4,399.5    $3,164.9     39.0       $1,796.2    $1,186.0     51.5

Total Revenues from      $7,667.8    $6,356.2     20.6       $2,883.2    $2,478.4     16.3
Continuing Operations

</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,
                                      --------------        --------------

                                      2004      2003        2004      2003
                                      ----      ----        ----      ----
                                     (in percentages)      (in percentages)

Revenues                              100%      100%        100%      100%

        Gross Profit                   46        49          47        51

Operating Expense:

        Selling Expense                13        18          13        14

        General & Administrative       25        23          24        22

Income from Operations                  8         8          10        15

        Other Income (Expense)          1        (6)          0        (5)

Income from Continuing Operations       6         1           7         6

Income from Discontinued
Operations, Net of Taxes                0         2           0        39

Net Income                              6         4           7        45



        REVENUES.  Revenues from operations for the nine-month period
        --------
ended July 31, 2004 (the "current period") were $7,667,820 representing a
20.6% increase or $1,311,602 from $6,356,218 for the nine-month period
ended July 31, 2003 (the "comparable period").  Net revenues from
operations for the three-months ended July 31, 2004 (the "current
quarter") increased by 16.3% or $404,766 to $2,883,158 as compared to net
revenues of $2,478,392 in the three months ended July 31, 2003 (the
"comparable quarter").  Additionally, the Company had $167,324 in deferred
revenues which will be recognized in the fourth quarter upon performance
of services rendered.

        Revenues from our proprietary testing unit have increased by
2.4% year-to-date and have declined by 15.9% for the current quarter.
Revenues from our custom-testing unit increased 39.0% year to date and by
51.5% for the current quarter.  While custom testing revenues continue to
show substantial increases due to long-term assignments, proprietary
testing revenues have softened during the third quarter.  We believe this
decline has taken place for several reasons.  Last year, TASA received
contracts relating to the Reading First federal grants in Massachusetts
and Alabama.  This funding did not repeat during Fiscal 2004.
Additionally, revenues associated with scoring the  DRP in Utah will occur
in the fourth quarter of Fiscal 2004.  In the prior fiscal year, these
revenues were recognized in the third quarter.

        COST OF GOODS SOLD.  Cost of goods sold increased by $910,930,
        ------------------
or 28.3%, from $3,215,380 in the comparable period to $4,126,310 in the
current period.  Cost of goods sold is now 54% of revenues versus 51% in
the comparable period.  Cost of goods sold for the current quarter
increased by 25.7%, or $311,148, from $1,212,998 in the comparable quarter
to $1,524,146 in the current quarter. Cost of goods sold is now 53% of
revenues for the current quarter versus 49% for the comparable quarter.
The increase in cost of goods sold (both in terms of percent to revenues
and as an actual increase) is due to the volume growth of assessment
products as well as a change in revenue mix. While both assessment units
have increased revenue for the period, Beck Evaluation and Testing Inc.
("BETA") now accounts for 57% of revenues for the current period versus
50% in the comparable period. The cost of sales as a percentage of revenue
dollars is higher for custom services as compared to our proprietary
products.

        GROSS PROFIT.  Gross profit from operations increased by
        ------------
$400,672 from $3,140,838 in the comparable period to $3,541,510 in the
current period.  The gross profit margin is now 46% in the current period
versus 49% in the comparable period.   For the current quarter, the gross
profit increased to $1,359,012 versus $1,265,394 in the comparable
quarter.  The gross profit margin is now 47% in the current quarter versus
51% in the comparable quarter.

        SELLING EXPENSE.  Selling expense for the current period
        ---------------
decreased by 10.7% or $120,752 versus the comparable period, or from
$1,130,189 to $1,009,437. For the current quarter, selling expense
increased by 10.7% or $36,685, or from $341,446 in the comparable quarter
to $378,131 in the current quarter.  The Company held back on marketing
expenditures during the first half of the year as it continued to conduct
research to reposition its proprietary brands.  With research completed in
the first six months, the Company increased spending in the third quarter.
Selling expenses are 13% of revenue in the current period versus 18% in
the comparable period. For the current quarter, selling expenses are 13%
of revenue versus 14% in the comparable quarter.

        GENERAL AND ADMINISTRATIVE (G&A) EXPENSES.  General and
        -----------------------------------------
administrative expenses for the current period are now $1,908,621 versus
$1,484,033 for the comparable period. For the current period, G&A is 25%
of revenues versus 23% in the comparable period. For the current quarter,
G&A expenses are $704,670 versus $540,626 in the comparable quarter. G&A
is 24% of revenue in the current quarter versus 22% in the comparable
quarter. Almost 60% of the increase in G&A expense is due to the lease on
the Company's building.  In July 2003, the Company entered into a sale-
lease back of its corporate headquarters.  Hence, during the current
period and quarter, the Company has lease expense for nine and three
months, respectively, which it did not have in the comparable period and
quarter.

        OTHER INCOME (EXPENSE).  The Company had net other income of
        ----------------------
$90,880 for the current period versus net other expense of ($393,636) for
the comparable period.  For the current quarter, the Company had net other
income of $31,290 versus net other expense of ($125,685) for the
comparable quarter.  Net other income decreased due to the prepayment of
long-term debt, as well as reduced utilization of the Company's line of
credit.  Further, other income (expense) includes recognition of deferred
gain on the sale/leaseback of the Company's headquarters building in July
2003, of $31,360 in the current quarter as compared to $10,453 in the
comparable quarter.

        INCOME FROM CONTINUING OPERATIONS. Income from the Company's
        ---------------------------------
continuing operations for the current period was $424,522 versus $76,844
for the comparable period.  For the current quarter, the Company had
income from continuing operations of $193,756 versus $157,625 in the
comparable quarter.

        EBITDA FROM OPERATIONS.  Earnings before interest, taxes,
        ----------------------
depreciation and amortization on the Company's operations was $1,070,550
for the current period versus $1,014,830 for the comparable period.
EBITDA for the current quarter was $431,815 versus $570,196 for the
comparable quarter.

        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 operations to EBITDA from
operations.

<TABLE>
<CAPTION>
                            EBITDA From Operations


                                     Nine-Months Ended         Three Months Ended
                                           July 31,                   July 31,
                                     2004           2003         2004          2003
                                     ----           ----         ----          ----
<S>                           <C>           <C>             <C>         <C>


Income from operations           $  623,452    $  526,616      $276,211     $383,322
Depreciation & amortization         447,098       488,214       155,604      186,874
                                 ----------    ----------      --------     --------
EBITDA from operations           $1,070,550    $1,014,830      $431,815     $570,196
                                 ==========    ==========      ========     ========

</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").
During the first nine months of Fiscal 2003, the Company recorded a non-
cash gain of $152,203 with respect to discontinued operations ended July
31, 2003.  For the quarter ended July 31, 2003, the Company had a gain of
$963,059.

        NET INCOME AND EARNINGS PER SHARE.  Net income for the current
        ---------------------------------
period was $424,522 in the current period versus net income of $229,047 in
the comparable period. For the current quarter, the Company had net income
of $193,756 versus net income of $1,120,684 in the comparable quarter.

        For the current period, the Company earned $0.15 per share
(diluted) versus $0.08 earnings per share from operations in the
comparable period. For the current quarter, the Company had $0.07 earnings
per share (diluted) from operations versus $0.06 earnings per share in the
comparable quarter.

LIQUIDITY AND CAPITAL RESOURCES

        WORKING CAPITAL. Working capital increased by $606,591 during
        ---------------
the current period from $1,670,790 at October 31, 2003, to $2,277,381, at
July 31, 2004. This increase resulted primarily from an increase in
accounts receivable and an increase in the current portion of deferred
taxes as partially offset by an increase in deferred revenue. The ratio of
current assets to current liabilities was approximately 2.64 to 1 at the
end of the current quarter.

        CASH FLOW FROM OPERATING ACTIVITIES. During the current period,
        -----------------------------------
the Company had net cash provided by operating activities of $306,143, as
compared to $47,228 in the comparable period.  The cash provided by
operating activities in the current period resulted primarily from the
Company's net profit, depreciation and deferred income taxes as partially
offset by an increase in accounts receivable.

        CASH FLOW FROM INVESTING ACTIVITIES. During the current period,
        -----------------------------------
the Company had net cash used by investing activities of $651,590, as
compared to net cash provided by investing activities of $5,556,457 in the
comparable period. The increase in the cash used in the current period is
primarily from increased expenditures in test development.  The cash
provided by investing activities in the comparable period were primarily
proceeds from the sale of the building and the sale of MLP.

        CASH FLOW FROM FINANCING ACTIVITIES. During the current period,
        -----------------------------------
the Company had net cash provided by financing activities of $9,195 as
compared to net cash used in financing activities of $5,114,921 during the
comparable period.  The cash provided by financing activities for the
current period resulted from the exercise of employee and director stock
options.  The repayments made during the comparable period resulted from
the repayment of the mortgage on the property sold and the repayment of
the subordinated debt.

        Long-term debt, operating leases and other long-term obligations
outstanding as of July 31, 2004 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                $   32,300      $  7,600      $   22,800       $  1,900      $       --
Operating leases               3,079,606       316,873       1,008,040        722,873       1,031,820
Other long-term
obligations                           --            --              --             --              --
Total obligations             $3,111,906      $324,473      $1,030,840       $724,773      $1,031,820
                              ==========      ========      ==========       ========

</TABLE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in the United
States 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.

        *  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.  Such
amortization costs are included in the costs of goods sold in that
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.  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.

            The Company currently accounts for its stock-based compensation
plans using the accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". As the Company is not
required to adopt the fair value based recognition provisions prescribed
under SFAS No. 123, it has elected only to comply with the disclosure
requirements set forth in the statement which includes disclosing pro forma
net income (loss) and earnings (loss) per share as if the fair value based
method of accounting had been applied.

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.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)     Exhibits

                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

            	None.


<PAGE>

                  TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                  FOR THE FISCAL QUARTER ENDED JULY 31, 2004




  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


                                                              July 31,     October 31,
                                                              2 0 0 4        2 0 0 3
                                                              -------        -------
                                                            (Unaudited)
                                                           (As Restated)  (As Restated)
<S>                                                     <C>             <C>
    ASSETS
    ------

Current assets:
  Cash and temporary investments                            $  648,639      $  984,891
  Accounts receivable, net of allowance for doubtful
   accounts of $4,421 and $7,000                             1,784,473         959,987
  Inventories                                                  449,917         511,410
  Prepaid expenses and other current assets                    284,988         285,844
  Deferred income taxes                                        497,200         256,017
                                                            ----------      ----------

        Total current assets                                 3,665,217       2,998,149

Property, plant and equipment - net of
  accumulated depreciation of $324,414 and
  $395,327, respectively                                       442,958         195,341

Other assets:
  Test passage bank and test development, net of
   accumulated amortization of $3,077,221 and
   $2,767,504, respectively                                  2,197,558       2,153,975
  Goodwill                                                     198,159         198,159
  Deferred income taxes                                      1,130,133       1,605,011
  Other assets                                                 312,966         396,241
                                                           -----------      ----------

        Total assets                                        $7,946,991      $7,546,876
                                                          ============      ==========


</TABLE>





See notes to consolidated financial statements.



                                F - 1



<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

<TABLE>
<CAPTION>
                        CONSOLIDATED BALANCE SHEETS


                                                              July 31,     October 31,
                                                              2 0 0 4        2 0 0 3
                                                              -------        -------
                                                            (Unaudited)
                                                           (As Restated)  (As Restated)
<S>                                                     <C>             <C>
    LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------

Current liabilities:
  Lines of credit                                           $       --      $       --
  Current maturities of long-term debt                           7,600           7,600
  Accounts payable                                             208,987         131,667
  Accrued expenses                                             878,486       1,062,653
  Deferred gain on sale of building - current portion          125,439         125,439
  Deferred revenue                                             167,324              --
                                                            ----------      ----------

        Total current liabilities                            1,387,836       1,327,359

Long-term debt, net of current portion                          24,700          30,400
Deferred gain on sale of building,
  net of current portion                                       993,052       1,087,131
                                                            ----------      ----------

        Total liabilities                                    2,405,588       2,444,890
                                                            ----------      ----------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.0001 par value, 5,000,000
   authorized, 0  shares issued and outstanding                     --              --
  Common stock, $.0001 par value, 20,000,000 shares
   authorized,  2,622,703 and 2,603,453 shares issued
   and outstanding                                                 262             260
  Additional paid-in capital                                 5,563,561       5,548,668
  Retained (deficit)                                           (22,420)       (446,942)
                                                            ----------     -----------

        Total stockholders' equity                           5,541,403       5,101,986
                                                            ----------     -----------

        Total liabilities and stockholders' equity          $7,946,991      $7,546,876
                                                            ==========      ==========


</TABLE>


See notes to consolidated financial statements.


                                F - 2


<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      Nine Months Ended               Three Months Ended
                                                            July 31,                       July 31,
                                                     2 0 0 4        2 0 0 3         2 0 0 4       2 0 0 3
                                                     -------        -------         -------       -------
                                                   (Unaudited)    (Unaudited)     (Unaudited)   (Unaudited)
                                                  (As Restated)  (As Restated)   (As Restated) (As Restated)

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

Net revenue                                        $7,667,820     $6,356,218      $2,883,158    $2,478,392

Cost of goods sold                                  4,126,310      3,215,380       1,524,146     1,212,998
                                                  -----------     ----------      ----------    ----------

Gross profit                                        3,541,510      3,140,838       1,359,012     1,265,394
                                                  -----------     ----------      ----------    ----------

Operating expenses:
  Selling expenses                                  1,009,437      1,130,189         378,131       341,446
  General and administrative expenses               1,908,621      1,484,033         704,670       540,626
                                                  -----------     ----------      ----------    ----------

Total operating expenses                            2,918,058      2,614,222       1,082,801       882,072
                                                  -----------     ----------      ----------    ----------

Income from operations                                623,452        526,616         276,211       383,322

Other income (expense):
  Gain on sale/leaseback of building                   94,079         10,453          31,359        10,453
  Gain on sale of assets                                   --            244              --           244
  Interest expense, net                                (3,199)      (404,333)            (69)     (136,382)
                                                  -----------     ----------      ----------    ----------

Income before income taxes                            714,332        132,980          307,501      257,637


Income taxes                                          289,810         56,136          113,745      100,012
                                                  -----------     ----------      ----------    ----------

Income from continuing operations                     424,522         76,844          193,756      157,625
                                                  -----------     ----------      ----------    ----------

Income (loss) from discontinued operations:
  (Loss) gain from operations net of income
    tax (benefit) of $0, and $(265,150), $0,
    and $(108,771), respectively                           --       (397,724)              --     (178,125)
  Gain on disposal, net of income tax
    of $0, $372,494, $0, and $760,123,
    respectively                                           --        549,927               --    1,141,184
                                                  -----------     ----------      ----------    ----------

Income from discontinued operations                        --        152,203               --      963,059
                                                  -----------     ----------      ----------    ----------

Net income                                         $  424,522     $  229,047      $   193,756   $1,120,684
                                                  ===========     ==========      ===========   ==========

</TABLE>

See notes to consolidated financial statements.

                                F - 3


<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      Nine Months Ended               Three Months Ended
                                                            July 31,                       July 31,
                                                     2 0 0 4        2 0 0 3         2 0 0 4       2 0 0 3
                                                     -------        -------         -------       -------
                                                   (Unaudited)    (Unaudited)     (Unaudited)   (Unaudited)
                                                  (As Restated)  (As Restated)   (As Restated) (As Restated)
<S>                                            <C>            <C>              <C>           <C>


Weighted average shares outstanding
  Basic                                             2,611,584       2,594,475       2,621,488       2,594,518
  Diluted                                           2,857,832       2,644,277       2,867,736       2,644,321

Basic earnings per share
  Continuing operations                            $      .16      $      .03      $      .07      $      .06
  Discontinued operations                                  --             .06              --             .37
                                                   ----------      ----------      ----------      ----------

                                                   $      .16      $      .09      $      .07      $      .43
                                                   ==========      ==========      ==========      ==========

Diluted earnings per share
  Continuing operations                            $      .15      $      .03      $      .07      $      .06
  Discontinued operations                                  --             .06                             .36
                                                   ----------      ----------      ----------      ----------

                                                   $      .15      $      .09      $      .07      $      .42
                                                   ==========      ==========      ==========      ==========













</TABLE>








See notes to consolidated financial statements.

                                F - 4


<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Nine Months Ended
                                                              July 31,
                                                     2 0 0 4           2 0 0 3
                                                     -------           -------
                                                   (Unaudited)       (Unaudited)
                                                  (As Restated)     (As Restated)
<S>                                             <C>              <C>

OPERATING ACTIVITIES
Net income                                         $   424,522       $  229,047
Adjustments to reconcile net income to net
  cash flows from operating activities:
  Depreciation and amortization                        447,098          488,214
  Deferred income taxes                                233,695         (165,164)
  Deferred interest                                         --          117,293
  (Gain) on sale of assets                                  --             (244)
  (Gain) loss on sale of discontinued operations            --         (549,927)
  Gain on sale leaseback of building                   (94,079)         (10,453)
Changes in operating assets and liabilities:
  Accounts receivable                                 (824,486)        (309,030)
  Inventories                                           61,493          (74,687)
  Other assets                                          (2,578)          84,590
  Deferred revenue                                     167,324          274,290
  Accounts payable and accrued expenses               (106,846)         (36,701)
                                                   -----------       ----------

NET CASH FLOWS FROM OPERATING ACTIVITIES               306,143           47,228
                                                   -----------       ----------

INVESTING ACTIVITIES
  Acquisition of property, plant and equipment        (176,704)         (44,013)
  Test passage bank and test development              (353,300)        (249,677)
  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                                (107,615)        (151,119)
  Software development costs                           (13,971)         (15,550)
                                                   -----------       ----------

NET CASH FLOWS FROM INVESTING ACTIVITIES              (651,590)       5,556,457
                                                   -----------       ----------

FINANCING ACTIVITIES
  Repayment of long-term debt                           (5,700)      (1,585,700)
  Repayment of subordinated debt                            --       (3,530,141)
  Proceeds from the exercise of
    employee stock options                              14,895              920
                                                   -----------       ----------

NET CASH FLOWS FROM FINANCING ACTIVITIES                 9,195       (5,114,921)
                                                   -----------       ----------

</TABLE>

See notes to consolidated financial statements.

                                F - 5



<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

<TABLE>
<CAPTION>

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Nine Months Ended
                                                             July 31,
                                                     2 0 0 4         2 0 0 3
                                                     -------         -------
                                                   (Unaudited)     (Unaudited)
                                                  (As Restated)   (As Restated)
<S>                                              <C>             <C>

NET CHANGE IN CASH AND TEMPORARY
  INVESTMENTS                                        $(336,252)      $488,764

CASH AND TEMPORARY INVESTMENTS
  AT BEGINNING OF PERIOD                               984,891        115,909
                                                     ---------       --------

CASH AND TEMPORARY INVESTMENTS
  AT END OF PERIOD                                   $ 648,639       $604,673
                                                     =========       ========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                      $   4,881       $409,674
                                                     =========       ========

  Income taxes paid                                  $  57,158       $ 34,442
                                                     =========       ========
















</TABLE>














See notes to consolidated financial statements.

                                F - 6



<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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, 2004 and October 31, 2003, the
consolidated statements of operations for the nine and three
months ended July 31, 2004 and 2003 and cash flows for the nine
months ended July 31, 2004 and 2003.

The consolidated results of operations for the nine and three
months ended July 31, 2004 and 2003 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, 2003.

Subsequent to the issuance of the Company's unaudited consolidated
financial statements in its Form 10-QSB for the fiscal quarter
ended July 31, 2004, 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 ended July 31, 2004
supersede the Company's previously issued unaudited consolidated
financial statements for such period


NOTE 2 -  STOCK OPTIONS
-----------------------

In January 2004, the Company granted options to purchase 73,000
shares of the Company's common stock at an exercise price of $2.10
per share.  In April 2004, the Company granted options to purchase
15,000 shares of the Company's common stock pursuant to the
directors stock option plan at an exercise price of $3.50 per
share.

                                F - 7



<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                               AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 -  STOCK OPTIONS (Continued)
-----------------------------------

The Company measures compensation cost in connection with employee
stock option plans using the intrinsic value based method and
accordingly, does not recognize compensation expense for the
issuance of options with an exercise price equal to or greater than
the market price on the date of the grant.  Had the fair value based
method been adopted by the Company, the effect on the net income and
earnings per share for the nine and three months ended July 31, 2004
and 2003 would have been as follows:

<TABLE>
<CAPTION>
                                                       Nine Months Ended               Three Months Ended
                                                            July 31,                       July 31,
                                                     2 0 0 4        2 0 0 3         2 0 0 4       2 0 0 3
                                                     -------        -------         -------       -------
<S>                                              <C>            <C>             <C>           <C>

Net income - as reported                            $424,522       $229,047        $193,756      $1,120,684
Less: Total share-based employee
      Compensation awards determined
      under the fair-value based
      method net of tax(1)                            90,913         18,443          51,797              --
                                                    --------       --------        --------      ----------

Net income - proforma                               $333,609       $210,604        $141,959      $1,120,684
                                                    ========       ========        ========      ==========

  Net income per share:
    Basic - as reported                             $    .16       $    .09        $    .07      $      .43
    Basic - proforma                                     .13            .08             .05             .43
    Diluted - as reported                                .15            .09             .07             .42
    Diluted - proforma                                   .12            .08             .05             .42

<FN>
(1) The fair value of each option grant was estimated on the date of
the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: Expected volatility of 109%,
risk free interest rate of 3.00%, and expected lives of 10 years for
the nine and three months ended July 31, 2004;  expected volatility
of 114%, risk free interest rate of 3.63%, and expected lives of 10
years for the nine and three months ended July 31, 2003.
</FN)
</TABLE>


NOTE 3 - RESTATEMENT
--------------------

Subsequent to the issuance of Company's unaudited financial
statements in its Form 10-QSB for the fiscal quarter ended July
31, 2004, 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.

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.

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


                                               As Previously
                                                  Reported         As Restated


As of July 31, 2004:
--------------------

Deferred income taxes (non-current)            $    671,551        $ 1,130,133
Deferred gain on sale of building (current)              --            125,439
Deferred gain on sale of building
 (net of current)                                        --            993,052
Retained earnings (deficit)                         637,489            (22,420)


For the three months ended July 31, 2004:
-----------------------------------------

Gain on sale/leaseback of building             $         --        $    31,359
Income before income taxes                          276,142            307,501
Income taxes                                        100,888            113,745
Income from operations                              175,254            193,756
Net income                                          175,254            193,756
Earnings per common share
   Basic                                              $0.07              $0.07
   Diluted                                            $0.06              $0.07


For the nine months ended July 31, 2004:
----------------------------------------

Gain on sale/leaseback of building             $         --        $    94,079
Income before income taxes                          620,253            714,332
Income taxes                                        251,238            289,810
Income from operations                              369,015            424,522
Net income                                          369,015            424,522
Earnings per common share
   Basic                                              $0.14              $0.16
   Diluted                                            $0.13              $0.15




                                F - 8

<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