UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549


                              FORM 10-QSB

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
                  For the quarterly period ended April 30, 2006

[ ]  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.
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   (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
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               (Address of principal executive offices)

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


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


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

Yes___X___	No ________

      Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).

Yes________	No ____X___


        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 June 13, 2006: 2,913,738 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

ITEM 1.     FINANCIAL STATEMENTS

            The financial statements for the Company's fiscal
quarter ended April 30, 2006 are attached to this Quarterly
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, 2005 ("Fiscal 2005"),
which may cause actual results to differ materially from those
described.

COMPANY BACKGROUND

            Touchstone Applied Science Associates, Inc. (the
"Company" or "TASA") competes exclusively in the assessment
marketplace.  With the advent of No Child Left Behind
legislation ("NCLB"), the Company's Board of Directors and
management made the strategic decision to focus the
organization on the fast-growing assessment segment of the K-12
education market.  The Company's custom assessment unit ("BETA")
provides custom test design and consulting services for state
testing programs generally as well as those necessary to comply
with NCLB.  Revenues were $11.2 million for the fiscal year
ended October 31, 2004 ("Fiscal 2004"), and $11.7 million for
the fiscal year ended October 31, 2005 ("Fiscal 2005"). Over the
past ten years, assessment revenues have increased from $2.1
million to $11.7 million, representing a compounded annual
growth rate of approximately 15%.

            The Company has recently completed three acquisitions
which have greatly expanded the types of services that the
Company can offer to its clients and prospective clients in the
assessment marketplace.  In January 2005, the Company acquired
all of the outstanding stock of Assessment and Evaluation
Concepts Inc. ("AEC"), a firm with experience and relationships
in the educational assessment field which complement the
Company's experience and relationships.  On July 1, 2005, the
Company completed the acquisition of all of the outstanding
stock of Achievement Data, Inc. ("ADI").  ADI provides on-line
testing capabilities to state testing programs and also offers
an electronic testing engine.  Effective as of June 1, 2006,
the Company acquired all of the outstanding stock of Questar
Educational Systems, Inc. ("Questar").  Questar provides test
delivery, scoring and score analysis capabilities to state
testing programs.

RESULTS OF OPERATIONS

            The following table compares the revenues for the
product and custom assessment units for the six-month period and
second quarter ended April 30, 2006 versus the six-month period
and second quarter ended April 30, 2005.

<TABLE>
<CAPTION>

                          RESULTS OF OPERATIONS FOR THE
                    SIX-MONTH PERIOD AND SECOND FISCAL QUARTER
                   ENDED ON APRIL 30, 2006 AND ON APRIL 30, 2005

                               Six Months                         Three Months
                             Ended April 30,                     Ended April 30,
                             ---------------                     ---------------

                                                    %                                    %
                           2006         2005      Change        2006         2005      Change
                           ----         ----      ------        ----         ----      ------
                             (in thousands                      (in thousands
                              of dollars)                        of dollars)

<S>                   <C>          <C>         <C>         <C>          <C>         <C>
Proprietary
Products and
Services Revenues        $1,997.4     $1,752.9      13.9      $1,053.6     $1,012.7      4.0

Custom Testing
Services Revenues        $4,558.3     $3,280.2      39.0      $2,428.1     $1,367.6     77.5
                         --------     --------                --------     --------

Total Revenues
from Assessment
Products and Services    $6,555.7     $5,033.1      30.3      $3,481.7     $2,380.3     46.3
                         ========     ========                ========     ========


</TABLE>

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

                                        Six Months           Three Months
                                      Ended April 30,       Ended April 30,
                                      ---------------       ---------------

                                      2006       2005       2006       2005
                                      ----       ----       ----       ----
                                      (in percentages)      (in percentages)

Revenues                              100%       100%       100%       100%
                                      ----       ----       ----       ----

        Gross Profit                   35         53         35         57

Operating Expense:

        Selling Expense                14         15         16         17

        General & Administrative       31         32         31         33

(Loss) Income from Operations         (10)         6        (12)         7

        Other Income (Expense)         --          1          1          1

(Loss) Income Before
Tax (Benefit) Provision               (10)         7        (11)         8

Income Tax (Benefit)
Provision                              (4)         3         (4)         4

Net (Loss) Income                      (6)         4         (7)         4


            REVENUES.  Net Revenues for the six-month period ended
            --------
April 30, 2006 (the "current period") increased by 30.3% or
$1,522,605 to $6,555,717 as compared to net revenues of
$5,033,112 in the six months ended April 30, 2005 (the
"comparable period").  Net revenues for the three-month period
ended April 30, 2006 (the "current quarter") increased by 46.3%,
or $1,101,420, to $3,481,703 as compared to $2,380,283 in the
three-month period ended April 30, 2005 (the "comparable
quarter").

            Revenues from assessment products and services through
the Company's proprietary tests unit increased by 13.9%, or
$244,495, during the current period from $1,752,863 in the
comparable period to $1,997,358 in the current period.  Revenues
from assessment products and services through the Company's
proprietary tests unit for the current quarter increased by 4%,
or $40,911 from $1,012,671 in the comparable quarter to
$1,053,582 in the current quarter.

            Revenues from custom assessment and services increased
by 39.0%, or $1,278,110, to $4,558,359 in the current period
from $3,280,249 in the comparable period.  Revenues from custom
assessment and services for the current quarter increased
by 78%, or $1,060,508, from $1,367,613 in the comparable quarter
to $2,428,121 in the current quarter.

            The results for the first six months of Fiscal 2006
show that the Company is beginning to earn revenues from non-
traditional sources of business.  For example, the Company's
assessment products unit is now providing operational support
for the Idaho ESL and Indiana Core 40 programs being run by the
Company's proprietary assessment unit.  The increased revenues
in the custom assessment and services unit are due to the
increased activity resulting from the combined strength and
breadth of services provided by BETA and AEC together, as well
as revenues attributed to ADI which the Company acquired in July
2005.

            COST OF GOODS SOLD.  Cost of goods sold for the
            ------------------
current period increased by $1,856,271, or by 78%, from
$2,376,321 in the comparable period to $4,232,592 in the current
period.  Cost of goods is now 65% of revenues in the current
period versus 47% of revenues in the comparable period.

            Cost of goods sold for the current quarter increased
by 121%, or $1,240,464, from $1,028,649 in the comparable
quarter to $2,269,113 in the current quarter.  Cost of goods is
65% in the current quarter versus 43% in the comparable quarter.
The increase can be attributed to the higher start-up costs
associated with large operation contracts.  The Company, as a
whole, is bidding on larger administration contracts that
traditionally have lower margins, but higher revenues and gross
margin dollars.  As we undertake such large contracts, we have
encountered higher start-up costs than we have traditionally
seen.  While the start-up costs associated with the large
contracts may be unique for each such contract, management
expects that the Company will be able to utilize its experiences
to make the start-up processes for future contracts more
efficient.

            GROSS PROFIT.  For the current period, gross profit
            ------------
decreased by 13%, or $333,666, from $2,656,791 in the comparable
period to $2,323,125 in the current period.  The gross profit
margin is 35% in the current period versus 53% in the comparable
period.

            Gross profit for the current quarter decreased by 10%,
or $139,044, from $1,351,634 in the comparable quarter to
$1,212,590 in the current quarter.  The gross profit margin is
now 35% in the current quarter versus 57% in the comparable
quarter.

            SELLING EXPENSE.  Selling expense for the current
            ---------------
period increased by 20%, or $146,818, from $746,134 in the
comparable period to $892,952 in the current period.  Selling
expense is now 14% of revenues in the current period versus 15%
in the comparable period.

            Selling expense for the current quarter increased by
34%, or $138,525, from $404,710 in the comparable quarter to
$543,235 in the current quarter.  Selling expense is now 16% of
revenues in the current quarter versus 17% in the comparable
quarter.

            The increase in selling expense is due to the
Company's decision to invest in marketing and sales personnel in
anticipation of its acquisition of Questar, subsequently completed
as of June 1, 2006.  The marketing and sales organization will be
a corporate resource for TASA and all of its subsidiaries.
Because the sales process has a long lead-time, management
determined that it was necessary to expand the sales force now
with the anticipation that future revenues attributable to an
expanded sales force will exceed the future costs associated
with such sales force.

            GENERAL AND ADMINISTRATIVE EXPENSES.  General and
            -----------------------------------
administrative expenses for the current period increased by
$510,300, or 32%, and are now $2,104,823 in the current period
versus $1,594,523 in the comparable period.  General and
administrative expenses are now 31% of revenues versus 32% in
the comparable period.

            General and administrative expenses increased by
$287,432 in the current quarter, or 36%, and are now $1,076,004
in the current quarter versus $788,572 in the comparable
quarter.  An amount of $86,585 of the increase relates to the
expensing of employee stock option compensation attributable to
options that were granted between February 1, 2005 and April 30,
2006, as required by accounting policies recently adopted by the
Company.  More than half of the increase in general and administrative
expenses in the current quarter is attributable to a combination of
both the expensing of employee stock option compensation and the
general and administrative expenses due to ADI which was acquired
by the Company on July 1, 2005 (approximately $171,000).  Approximately
60% of the increase in general and administrative expenses for
the current period is attributable to both the expensing of
employee stock option compensation and the general and
administrative expenses due to ADI and AEC, which were acquired
in Fiscal 2005 (approximately $288,000).

            EBITDA.  EBITDA represents net (loss) income before
            ------
the non-cash charges for interest, taxes, depreciation and
amortization.  We present EBITDA because we consider such
information an important supplemental measure of our
performance.  We believe EBITDA facilitates comparisons of the
Company to its competitors and other similarly situated
companies and comparisons of the Company's results over time.
The calculation of EBITDA excludes differences unrelated to
operating performance, such as variations in capital structures
(affecting interest expense), taxation (tax attributes may vary
based on time and historical results rather than current
operations), and the age and mix of tangible and intangible assets
(affecting depreciation and amortization expense required by
GAAP).  In addition, we are presenting "Adjusted EBITDA" which
excludes the effects of the grant of employee stock options
during the period, which are now required to be expensed on the
Company's financial statements.

            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 (loss) income from
operations to EBITDA and Adjusted EBITDA.

                                                 EBITDA

                                Six Months Ended          Three Months Ended
                                    April 30,                   April 30,
                                 2006       2005            2006        2005
                                 ----       ----            ----        ----


(Loss) Income
from operations              $(674,650)  $ 316,134      $(406,649)    $ 158,352

Depreciation &
amortization                   378,053     321,169        194,237       161,716
                             ---------   ---------      ---------     ---------

EBITDA                        (296,597)    637,303       (212,412)      320,068

Stock options
compensation expense            86,585          --         86,585            --
                             ---------   ---------      ---------     ---------

Adjusted EBITDA              $(210,012)  $ 637,303      $(125,827)    $ 320,068



            OTHER INCOME (EXPENSE).  The Company had other income
            ----------------------
of $20,458 in the current period versus $66,634 for the
comparable period.  For the current quarter, the Company had
other income of $9,302 versus $32,695 in the comparable quarter.
Other income includes the quarterly recognition of the gain on
the sale/leaseback of the Company's headquarters building which
occurred in July 2003, as well as interest income during the
period and quarter, respectively.

            NET (LOSS) INCOME AND (LOSS) EARNINGS PER SHARE.  For
            -----------------------------------------------
the current period, the Company's net income decreased by 289%,
or $628,091, from net income of $217,238 in the comparable
period to a net loss of ($410,853) in the current period.

            For the current quarter, the Company's net income
decreased by 337%, or $(356,769).  Net (loss) was $(250,878) in
the current quarter versus net income of $105,891 in the comparable
quarter.

            For the current period, the Company had a net loss of
$(0.14) per share versus net income of $0.07 per diluted share
in the comparable period.  For the current quarter, the Company
had a net loss of ($0.09) per share versus net income of $0.04 per
diluted share in the comparable quarter.

LIQUIDITY AND CAPITAL RESOURCES

            WORKING CAPITAL.  Working capital decreased by
            ---------------
$1,101,008 during the current period from $3,106,382 at October
31, 2005 to $2,005,374 at April 30, 2006.  This decrease
resulted primarily from an increase in operating expenses during
the current period.  The ratio of current assets to current
liabilities decreased in the current period compared to the end
of Fiscal 2005: 2.23 to 1.0 at October 31, 2005 and 1.61 to 1.0
at April 30, 2006.  This decrease was primarily the result of
the acquisition of fixed assets and the incurrence of test
development costs, and increased borrowings under the Company's
line of credit.

            CASH FLOW FROM OPERATING ACTIVITIES.  During the
            -----------------------------------
current period, the Company had net cash used in operating
activities of $925,733, as compared to net cash of $438,933
provided by operating activities in the comparable period.  The
decrease in cash provided by operating activities resulted
primarily from decreased net operating income and an increase in
accounts receivable as partially offset by increases in accounts
payable and accrued expenses.

            CASH FLOW FROM INVESTING ACTIVITIES.  During the
            -----------------------------------
current period, the Company had net cash used in investing
activities of $673,575, as compared to $617,552 in the
comparable period.  The cash used in both periods results
primarily from the acquisition of fixed assets and test
development costs.  In addition, the Company incurred $83,000 in
fees during the comparable period related to the acquisition of AEC.

            CASH FLOW FROM FINANCING ACTIVITIES.  The Company had
            -----------------------------------
net cash provided by financing activities of $654,321 for the
current period as compared to $242,589 for the comparable
period.  The cash provided in the current period relates
primarily to borrowings on the Company's line of credit.  The
cash provided during the comparable period relates primarily
from the exercise of warrants and proceeds from long-term debt.

            During the current period, options to purchase 4,000
shares of the Company's Common Stock were exercised resulting in
aggregate proceeds to the Company of $2,600.  During the current
period, pursuant to the 2000 Stock Incentive Plan, options to
purchase an aggregate of 7,500 shares of the Company's Common
Stock were granted to employees of the Company at an exercise
price of $2.85 per share.  The options granted this year become
exercisable in three equal annual installments, commencing on
the first anniversary of the grant date.

            During the current period, pursuant to the Directors
Stock Option Plan, options to purchase an aggregate of 12,500 shares
of the Company's Common Stock were granted to the non-management
directors at an exercise price of $2.96 per share.  These
options become exercisable in three equal annual installments,
commencing on the first anniversary of the grant date.

            Long-term debt, operating leases and other long-term
obligations as of April 30, 2006 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                 $1,514,683    $  275,272     $  641,764      $ 551,330      $ 46,317

Operating leases                2,850,882       443,212        780,631        751,095       875,944

Other long-term
obligations (1)                 2,750,166     1,325,764      1,424,402             --            --
                               ----------    ----------     ----------      ---------      --------

TOTAL OBLIGATIONS              $7,115,731    $2,044,248     $2,846,797      $1,302,425     $ 922,261
                               ==========    ==========     ==========      ==========      ========

(1) Relate to employment contracts in effect at the end of the
current period.

</TABLE>


SUBSEQUENT EVENTS

            The Company filed a Current Report on Form 8-K on June
6, 2006 reporting the acquisition of Questar Educational
Systems, Inc.

            Effective as of June 1, 2006, the Company acquired
all of the outstanding stock of Questar. Questar provides test delivery,
scoring and score analysis capabilities to state testing programs and
also provides test material development.  The total consideration paid
by the Company at closing for the Questar stock was $20,000,000,
consisting of $15,000,000 in cash, the issuance of 222,222
shares of Series A-2 Convertible Preferred Stock of the Company
("Series A-2 Preferred Stock") (valued at $1,000,000, based on a
price of $4.50 per share) and $4,000,000 in a subordinated
promissory note issued for the benefit of the eight selling
shareholders of Questar.  The Company has also agreed to pay
additional consideration in 2010 if Questar achieves certain
revenue goals during the three fiscal years ending October 31,
2007, 2008 and 2009.  The maximum contingent earnout payment is
$12,500,000, of which up to $10,000,000 shall be paid half in
cash and half in shares of Series A-2 Convertible Preferred
Stock (valued on the closing date at $4.50 per share), and
$2,500,000 shall be paid, at the election of the Company, in
cash or in additional shares of Series A-2 Convertible Preferred
Stock, valued at fair market value at the time of issuance, or
any combination thereof.  The Company received a fairness
opinion from Signal Hill Capital Group, LLC ("Signal Hill"), with
respect to the fair market value of the shares issued.

            In connection with the acquisition of Questar, the
Company entered into an escrow agreement (the "Escrow
Agreement") with the former shareholders of Questar pursuant to
which the Company placed 1,111,111 shares of Series A-2
Convertible Preferred Stock in an escrow account pending release
according to certain earn-out provisions in the Stock Purchase
Agreement.  While in escrow, such shares do not have voting or
dividend rights.

            The Company financed the acquisition of Questar
through senior debt and a private equity investment.  The
Company entered into a loan agreement (the "Loan Agreement")
with TD Banknorth, N.A. ("Banknorth"), pursuant to which the
Company borrowed a term loan in an aggregate principal amount of
$9,600,000, obtained a revolving line of credit in the amount of
$4,000,000 and had issued on its behalf a standby letter of
credit in the original stated amount of $194,750 against
availability under the revolving line of credit.  The Loan
Agreement contains ongoing financial covenants on a quarterly
basis.  The term loan is interest-only for the first six months
of the loan, and then is payable in fifty-four equal monthly
installments of principal and interest on a five-year
amortization schedule.  The Company has entered into an interest
rate swap agreement with Banknorth pursuant to which Banknorth
is paying the Company 250 basis points over the one month USD
LIBOR BBA rate and the Company is paying Banknorth a fixed rate
of 7.95% on a value of $9,600,000 declining concurrently with
the term loan.  The term loan balloons on May 30, 2011.
Advances under the revolving line of credit are based on a
borrowing base of eligible accounts receivable and eligible
inventory of the Company and Questar.  The revolving line of
credit is available until April 30, 2008.  Both the term loan
and the revolving loan are secured by the assets of the Company
and by the assets of Questar.  The proceeds from the loans were
used to pay a portion of the purchase price for the stock of
Questar, to pay closing costs for the transaction, to refinance
$1,200,000 of indebtedness of the Company, and for working capital.

            The Company also entered into a securities purchase
agreement (the "Series A Convertible Preferred Stock Purchase
Agreement") with Camden Partners Strategic Fund III, L.P. and
Camden Partners Strategic Fund III-A, L.P. (collectively, the
"Investors"), pursuant to which the Company issued and sold to
the Investors 1,666,667 shares of its Series A-1 Convertible
Preferred Stock ("Series A-1 Preferred Stock") (valued at
$7,500,000, based on a price of $4.50 per share).  The proceeds
from the sale of stock were used to pay a portion of the
purchase price for the stock of Questar and closing costs for
the transaction, with the balance being retained by the Company
for working capital.  Two members of the Company's Board of
Directors, Donald W. Hughes and David L. Warnock, are also
principals of each of the Investors.

            In connection with the sale of shares of Series A-1
Preferred Stock to the Investors, the Company entered into a
voting agreement (the "Voting Agreement") with the Investors
pursuant to which the Company has agreed that so long as the
Investors own at least 833,333 shares of Series A-1 Convertible
Preferred Stock or the equivalent number of shares of Common
Stock of the Company if converted, the Investors shall have the
right to nominate up to three members of the Board of Directors
of the Company.  As of the date of this Report, the Investors
have nominated David L. Warnock, and Donald W. Hughes as two of
the members of the Board of Directors they are permitted to
nominate.  Messrs. Warnock and Hughes are incumbent directors on
the Board.  The Investors have not yet named the third director
nominee to which they are entitled.

            Pursuant to the Voting Agreement, certain executive
officers who are stockholders of the Company have agreed that, so
long as the Investors own at least 833,333 shares of Series A-1
Preferred Stock of the Company or the equivalent shares of
Common Stock of the Company if converted, at each meeting of
stockholders for the purpose of electing directors, to cast
their eligible votes in favor of the nominees of the Investors.
In addition, at each meeting of stockholders for the purpose of
electing directors, the Investors have agreed to cast all of
their eligible votes in favor of the directors nominated by the
Company.

            The Company entered into an investor rights agreement
(the "Investor Rights Agreement") with the Investors pursuant
to which the Company has granted the Investors rights to
register under the Securities Act of 1933, as amended (the
"Act"), the shares of Common Stock into which the Series A-1
Preferred Stock is convertible in accordance with provisions of
the Investor Rights Agreement and the Amended Certificate of
Designations of Series A Convertible Preferred Stock (the
"Certificate of Designations").

            In connection with the acquisition of Questar, the
Company entered into an investor rights agreement with certain former
shareholders of Questar pursuant to which the Company has granted to
such persons rights to register under the Act the shares of Common
Stock into which the Series A-2 Preferred Stock is convertible.

            The Company has entered into employment agreements for
an initial twenty-four month term with certain members of the
management of Questar.  Such employment agreements with the
Questar management team include non-competition covenants and
proprietary rights agreements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

            The preparation of financial statements and related
disclosures in conformity with generally accepted accounting
principles in the United States of America requires management
to make estimates and assumptions that affect the amounts
reported in the Consolidated Financial Statements and
accompanying notes.  Estimates are used for, but not limited to,
the accounting for the allowance for doubtful accounts,
inventories, capitalized labor for long-lived assets, 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
judgments, assumptions and estimates used in the preparation of
the 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
total revenue for the fiscal period based on the percentage
of costs incurred to total estimated costs.

            *  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 is being
recognized as other income over the ten-year term of the
lease at $125,439 per year.

            *  Deferred tax assets are recorded based on the
Company's projected future taxable income and the resulting
utilization of the deferred tax assets.  The Company
believes it is more likely than not that this net deferred
tax asset will be realized in future periods and,
accordingly, no valuation allowance has been recorded.  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
with a corresponding charge to income.

            *  Goodwill and other intangible assets are deemed
to have indefinite lives and are no longer amortized but
are subject to annual impairment tests. If an impairment exists,
it would be necessary to record an impairment expense, resulting
in a reduction in 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.

            *  Effective February 1, 2006, the Company's 2000
Stock Incentive Plan (the "Plan") is accounted for in
accordance with the recognition and measurement provisions
of Statement of Financial Accounting Standards ("FAS") No.
123 (revised 2004), Share-Based Payment ("FAS No. 123(R)"),
which replaces FAS No. 123, Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees, and related interpretations. FAS No. 123(R)
requires compensation costs related to share-based payment
transactions, including employee stock options, to be
recognized in the financial statements. In addition, the
Company adheres to the guidance set forth within Securities
and Exchange Commission ("SEC") Staff Accounting Bulletin
("SAB") No. 107, which provides the Staff's views regarding
the interaction between FAS No. 123(R) and certain SEC
rules and regulations and provides interpretations with
respect to the valuation of share-based payments for public
companies.

            Prior to February 1, 2006, the Company accounted
for similar transactions in accordance with APB No. 25
which employed the intrinsic value method of measuring
compensation cost. Accordingly, compensation expense was
not recognized for fixed stock options if the exercise
price of the option equaled or exceeded the fair value of
the underlying stock at the grant date.

            While FAS No. 123 encouraged recognition of the
fair value of all stock-based awards on the date of grant
as expense over the vesting period, companies were
permitted to continue to apply the intrinsic value-based
method of accounting prescribed by APB No. 25 and disclose
certain pro-forma amounts as if the fair value approach of
FAS No. 123 had been applied.  In December 2002, FAS No.
148, Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FAS No. 123, was issued, which,
in addition to providing alternative methods of transition
for a voluntary change to the fair value method of
accounting for stock-based employee compensation, required
more prominent pro-forma disclosures in both the annual and
interim financial statements. The Company complied with
these disclosure requirements for all applicable periods
prior to February 1, 2006.

            In adopting FAS No. 123(R), the Company applied
the modified prospective approach to transition. Under the
modified prospective approach, the provisions of FAS No.
123(R) are to be applied to new awards and to awards
modified, repurchased, or cancelled after the required
effective date. Additionally, compensation cost for the
portion of awards for which the requisite service has not
been rendered that are outstanding as of the required
effective date shall be recognized as the requisite service
is rendered on or after the required effective date. The
compensation cost for that portion of awards shall be based
on the grant-date fair value of those awards as calculated
for either recognition or pro-forma disclosures under FAS
No. 123.

            As a result of the adoption of FAS No. 123(R),
the Company's results for the three-month period ended
April 30, 2006 include stock option compensation expense
totaling $86,585. Such amount has been included in the
Consolidated Statements of Operations within general and
administrative expenses.  The Company recognized related
tax benefits associated with share-based compensation
arrangements totaling approximately $35,000 during the
three-month period ended April 30, 2006.  The impact of the
adoption is a reduction of net income before tax and after
tax for the three months ended April 30, 2006 of $86,585
and $51,585, respectively.  In addition, basic and diluted
(loss) per share is increased by approximately $(0.02).
There was no impact on cash flows from operations and cash
flows from financing activities.  Stock option compensation
expense calculated and disclosed under APB No. 25 in the
Notes to the Consolidated Statements of Operations for the
three months ended April 30, 2005 totaled $108,942.

            Stock option compensation expense in 2006 is the
estimated fair value of options granted amortized on a
straight-line basis over the requisite service period for
the entire portion of the award.  The Company has not
adjusted the expense by the amount the estimated fair value
of options forfeited as indicated in FAS No. 123(R) since
the forfeiture rate based upon historical data was
determined to be immaterial.

ITEM 3.     CONTROLS AND PROCEDURES

            (a) Evaluation of the Company's Disclosure Controls
and Procedures.  As of the end of the most recent fiscal quarter
covered by this Quarterly Report on Form 10-QSB, the Company
evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"),
and its "internal controls and procedures for financial
reporting" ("Internal Controls").  This evaluation (the
"Evaluation") was done under the supervision and with the
participation of management, including Mr. Andrew Simon, the
Company's Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO").  Rules adopted by the SEC require that in each
periodic report filed pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company present the
conclusion about the effectiveness of the Company's Disclosure
Controls and Internal Controls based on and as of the date of
the Evaluation.

            Disclosure Controls are procedures that are designed
with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as
this Quarterly Report, is recorded, processed, summarized and
reported within the time periods specified in the rules and
forms.  Disclosure Controls are also designed with the objective
of ensuring that such information is accumulated and
communicated to the Company's management, including Mr. Simon as
CEO and CFO, as appropriate to allow for timely decisions
regarding required disclosure.  Internal Controls are procedures
which are designed with the objective of providing reasonable
assurance that (1) the Company's transactions are properly
authorized; (2) the Company's assets are safeguarded against
unauthorized or improper use; and (3) the Company's transactions
are properly recorded and reported, all to permit the
preparation of our financial statements in conformity with
generally accepted accounting principles.

            The Company's management does not expect that the
Company's Disclosure Controls or Internal Controls will prevent
all errors and all fraud. Any control system, no matter how well
conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met.  Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs.  Because
of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
Company have been detected.  These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people, or by management override of the control.  The design of
any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions,
or the degree of compliance with the policies or procedure may
deteriorate.  Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud
may occur and not be detected.

            The Evaluation included a review of the controls'
objectives and design, the controls' implementation by the
Company and the effect of the controls on the information
generated for use in this Quarterly Report.  In the course of
the Evaluation, we sought to identify data errors, controls
problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being
undertaken.  This type of evaluation will continue to be done on
a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in each Quarterly Report on Form
10-QSB and the Annual Report on Form 10-KSB.  The Company's
Internal Controls are also evaluated on an ongoing basis by the
Company's finance personnel and by the Company's independent
auditors in connection with their audit and review activities.
The overall goals of these various evaluation activities are to
monitor the Company's Disclosure Controls and Internal Controls
and to make modifications as necessary; it is the Company's
intent in this regard that the Disclosure Controls and the
Internal Controls will be maintained as dynamic systems change
(including improvements and corrections) as conditions warrant.

            Among other matters, the Company sought in the
Evaluation to determine whether there were any "significant
deficiencies" or "material weaknesses" in the Company's Internal
Controls, or whether the Company had identified any acts of
fraud involving personnel who have a significant role in the
Company's Internal Controls.  This information was important
both for the Evaluation generally and because items 4, 5 and 6
in the Section 302 Certification require that the CEO and CFO
disclose that information to the Board's Audit Committee and to
the Company's independent auditors and to report on related
matters in this section of the Quarterly Report.  In the
professional auditing literature, "significant deficiencies" are
referred to as "reportable conditions"; these are control issues
that could have a significant adverse effect on the ability to
record, process, summarize and report financial data in the
financial statements.  A "material weakness" is defined in the
auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error
or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely
period by employees in the normal course of performing their
assigned functions.  The Company also sought to deal with other
controls matters in the Evaluation, and in case a problem was
identified, we considered what revision, improvement and/or
correction to make in accordance with on-going procedures.

            An Evaluation was carried out under the supervision
and with the participation of the Company's management,
including Mr. Simon as CEO and CFO, 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 fiscal quarter covered by this
Quarterly Report.  Based upon that Evaluation, the Company's
management, including Mr. Simon as CEO and CFO, had concluded at
that time that the design and operation of these Disclosure
Controls and Internal Controls were effective as of the end of
the fiscal quarter covered by this Quarterly Report.

            However, based on a prior evaluation in Fiscal 2005
the Company 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 in the third fiscal quarter of 2003,
during which the sale-leaseback occurred.  After consulting with
the Company's independent registered public accountants during
Fiscal 2005, management concluded that such gain should have
been recognized over the ten-year term of the lease.  On May 24,
2005, the Company concluded that the Company should restate its
audited consolidated financial statements for the fiscal years
ended October 31, 2003 and 2004, and its quarterly unaudited
consolidated 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.  As of the end of Fiscal
2004, the Company's management, including Mr. Simon as CEO and
CFO, concluded that, because the Company had not separated the
CEO and CFO functions, the Company's Disclosure Controls were
not effective at the end of such fiscal year 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 Company has recently identified a qualified CFO
candidate who has accepted the Company's offer of employment.
The Company anticipates that the new CFO will commence
employment during the third quarter of Fiscal 2006.  The Company
currently expects that the addition of the new CFO and the
commitment of additional resources to internal controls and
disclosure controls will ameliorate, if not eliminate, the
material weakness previously identified and discussed above.

            (b) Changes in Internal Controls.  There were no
changes in the Company's Internal Controls in the Company's
fiscal quarter covered by this Quarterly Report that materially
affected, or are reasonably likely to materially affect, the
Company's Internal Controls.

<PAGE>

                                   PART II

                              OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS.

            None.

ITEM 1A.    RISK FACTORS.

            None.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

            See the discussion in Item 2 of Part I of this
Quarterly Report, which is incorporated herein by reference.

            Upon the acquisition of Questar, the Company (a)
issued to the selling shareholders of Questar, 222,222 shares of
Series A-2 Preferred Stock (valued at $4.50 per share), as part
payment of the purchase price at closing and (b) delivered to
the escrow agent, 1,111,111 shares of the Series A-2 Preferred
Stock (valued at $4.50 per share), which will be deemed earned
by, and will be released to, the former shareholders of Questar
if revenue goals over the earnout period of the three fiscal
years ending October 31, 2007, 2008 and 2009, are met.  The
issuance and sale of the Series A-2 Preferred Stock did not
involve a public offering pursuant to the exemption from
registration provided by Section 4(2) of the Act.  With respect
to the 222,222 shares of Series A-2 Preferred Stock issued as
part payment of the purchase price at closing, the Company has
agreed to include such shares of Common Stock underlying the
Series A-2 Preferred Stock in a registration statement if, and
when, filed by the Company, upon demand of the Investors, at any
time following one year after the issuance date of the Series A-
1 Preferred Stock.  With respect to the escrowed shares, the
Company has agreed to file a registration statement under the
Act for the shares of Common Stock into which the Series A-2
Preferred Stock will be convertible, upon demand of the former
shareholders of Questar following the release, if any, of the
escrowed shares, or to include such shares of Common Stock in a
registration statement if, and when, filed by the Company with
respect to the shares of Common Stock beneficially owned by the
Investors.

            The Company issued 1,666,667 shares of the Series A-1
Preferred Stock to the Investors, in a transaction not involving
a public offering pursuant to the exemption from registration
provided by Section 4(2) of the Act.  The Company has agreed to
file a registration statement under the Act with respect to the
shares of Common Stock underlying the Series A-1 Preferred
Stock, upon demand of the Investors, at any time following one
year after the issuance date of the Series A-1 Preferred Stock,
in accordance with the Investor Rights Agreement.

            Initially, the shares of Series A-1 Preferred Stock
and the Series A-2 Preferred Sock are convertible into shares of
Common Stock on a one-for-one basis.  The conversion rate is
subject to anti-dilution adjustments set forth in the
Certificate of Designations. For the first three years after the
issuance, neither Series A-1 Preferred Stock nor Series A-2 Preferred
Stock will accrue dividends.  Thereafter, dividends will accrue at
the rate of 8% per annum, payable in cash or additional shares of
Series A Preferred Stock, at the election of the Company; provided,
however, that no shares of Series A-2 Preferred Stock which have
been placed in escrow will accrue any dividends until, and after the
time when, the escrowed shares of Series A-2 Preferred Stock are
released to the selling shareholders of Questar in accordance with
the Escrow Agreement.

            Each share of Series A-1 Preferred Stock is entitled
to cast one vote per each share of Common Stock into which such
share of Series A-1 Preferred Stock is convertible as of the
record date for a stockholder vote.  Each share of Series A-2
Preferred Stock that has been issued to the selling shareholders
of Questar on the closing date is entitled to cast one vote per
each share of Common Stock into which such share of Series A-2
Preferred Stock is convertible as of the record date for a
stockholder vote.  The shares of Series A-2 Preferred Stock that
are held in escrow pending release if the earnout hurdles are
satisfied, will not be entitled to vote so long as such shares
remain in escrow.  The shares of Series A-1 Preferred Stock and
Series A-2 Preferred Stock which are entitled to vote shall vote
together with the Common Stock as a single class.

            Upon the acquisition of Questar, the Company issued to
Signal Hill a five-year warrant to purchase up to 50,000 shares
of the Company's Common Stock, at an exercise price of $4.50 per
share.  The warrant was issued as part of the consideration paid
to Signal Hill for its role as the Company's investment banker
and financial advisor in the acquisition of Questar and the
financing thereof.  Neither the warrant nor the underlying
shares of Common Stock have been registered under the Act, in
reliance upon the exemption from registration pursuant to
Section 4(2) of the Act.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

            None.

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

            The Company held its annual meeting of stockholders on
April 27, 2006.  At the meeting the stockholders took the
following actions:

            (a) The proposal to elect Michael D. Beck as a director
of the Company was approved by a vote of 2,676,214 votes in
favor of his election, with 5,925 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.8%
of the votes present cast in favor of the election of Mr. Beck.

            (b) The proposal to elect Steven R. Berger as a director
of the Company was approved by a vote of 2,672,714 votes in
favor of his election, with 9,425 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.6%
of the votes present cast in favor of the election of Mr. Berger.

            (c) The proposal to elect Donald W. Hughes as a director
of the Company was approved by a vote of 2,675,214 votes in
favor of his election, with 6,925 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.7%
of the votes present cast in favor of the election of Mr. Hughes.

            (d) The proposal to elect Chris L. Nguyen as a director
of the Company was approved by a vote of 2,672,714 votes in
favor of his election, with 9,425 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.6%
of the votes present cast in favor of the election of Mr. Nguyen.

            (e) The proposal to elect Andrew L. Simon as a director
of the Company was approved by a vote of 2,675,214 votes in
favor of his election, with 6,925 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.7%
of the votes present cast in favor of the election of Mr. Simon.

            (f) The proposal to elect Linda G. Straley as a director
of the Company was approved by a vote of 2,675,714 votes in
favor of her election, with 6,425 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.8%
of the votes present cast in favor of the election of Ms. Straley.

            (g) The proposal to elect Thomas G. Struzzieri as a
director of the Company was approved by a vote of 2,675,214
votes in favor of his election, with 6,925 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.7%
of the votes present cast in favor of the election of Mr. Struzzieri.

            (h) The proposal to elect David L. Warnock as a director
of the Company was approved by a vote of 2,676,214 votes in
favor of his election, with 5,925 votes withheld and no
abstentions or broker non-votes, representing a vote of 99.8%
of the votes present cast in favor of the election of Mr. Warnock.

ITEM 5.     OTHER INFORMATION.

            None.

ITEM 6.     EXHIBITS.

            (a) The following Exhibits are filed as part of this
Quarterly Report:

          3.1     Amended Certificate of Designations of
                  Series A Convertible Preferred Stock filed
                  with the Secretary of State of Delaware on
                  May 25, 2006 (incorporated herein by
                  reference to the exhibit contained in the
                  Company's Current Report on Form 8-K filed
                  on June 6, 2006).

          4.1     Voting Agreement, dated as of May 31, 2006,
                  by and among Camden Partners Strategic Fund
                  III, L.P., Camden Partners Strategic Fund
                  III-A, L.P. and Touchstone Applied Science
                  Associates, Inc. (incorporated herein by
                  reference to the exhibit contained in the
                  Company's Current Report on Form 8-K filed
                  on June 6, 2006).

          4.2     Investor Rights Agreement, dated as of May
                  31, 2006, by and among Camden Partners
                  Strategic Fund III, L.P., Camden Partners
                  Strategic Fund III-A, L.P. and Touchstone
                  Applied Science Associates,
                  Inc.(incorporated herein by reference to
                  the exhibit contained in the Company's
                  Current Report on Form 8-K filed on June 6, 2006).

          4.3     Questar Investor Rights Agreement, dated as
                  of May 31, 2006, by and among John Adams,
                  David Ihle, Theodore Naegeli, Terry
                  Appleman, Mark Budde, MaJeana Hallstrom,
                  Greg Lindstrom and Susan Trent, and
                  Touchstone Applied Science Associates, Inc.
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 6, 2006).

          4.4     Warrant Certificate issued to Signal Hill
                  Capital Group, LLC, dated May 31, 2006
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 6, 2006).

         10.1     Stock Purchase Agreement, dated as of May
                  31, 2006, by and among John Adams, David
                  Ihle, Theodore Naegeli, Terry Appleman,
                  Mark Budde, MaJeana Hallstrom, Greg
                  Lindstrom and Susan Trent, and Touchstone
                  Applied Science Associates, Inc.
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 6, 2006).

         10.2     Subordinated Note, dated May 31, 2006,
                  issued by Touchstone Applied Science
                  Associates, Inc. to Questar Data Systems,
                  Inc., as paying agent for the selling
                  shareholders of Questar Educational
                  Systems, Inc. (incorporated herein by
                  reference to the exhibit contained in the
                  Company's Current Report on Form 8-K filed
                  on June 6, 2006).

         10.3     Escrow Agreement, dated as of May 31, 2006,
                  by and among John Adams, David Ihle,
                  Theodore Naegeli, Terry Appleman, Mark
                  Budde, MaJeana Hallstrom, Greg Lindstrom,
                  Susan Trent, and Rider, Weiner & Frankel,
                  P.C. and Touchstone Applied Science
                  Associates, Inc. (incorporated herein by
                  reference to the exhibit contained in the
                  Company's Current Report on Form 8-K filed
                  on June 6, 2006).

         10.4     Loan Agreement, dated as of May 31, 2006,
                  by and among Touchstone Applied Science
                  Associates, Inc., Questar Educational
                  Systems, Inc. and TD Banknorth, N.A.
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 6, 2006).

         10.5     Security Agreement, dated as of May 31,
                  2006, between Touchstone Applied Science
                  Associates, Inc. and TD Banknorth, N.A.
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 6, 2006).

         10.6     Security Agreement, dated as of May 31,
                  2006, between Questar Educational Systems,
                  Inc. and TD Banknorth, N.A. (incorporated
                  herein by reference to the exhibit
                  contained in the Company's Current Report
                  on Form 8-K filed on June 6, 2006).

         10.7     Series A Convertible Preferred Stock
                  Purchase Agreement, dated as of May 31,
                  2006, by and among Camden Partners
                  Strategic Fund III, L.P., Camden Partners
                  Strategic Fund III-A, L.P. and Touchstone
                  Applied Science Associates, Inc.
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 6, 2006).

         21       Subsidiaries of the Company (incorporated
                  herein by reference to the exhibit
                  contained in the Company's Current Report
                  on Form 8-K filed on June 6, 2006).

         31       Certification pursuant to 18 USC Section
                  1350, as adopted by Section 302 of the Sarbanes-
                  Oxley Act of 2002.

         32       Certification pursuant to 18 USC Section
                  1350, as adopted by Section 906 of the Sarbanes-
                  Oxley Act of 2002.

         99.1     Press Release dated June 1, 2006
                  (incorporated herein by reference to the
                  exhibit contained in the Company's Current
                  Report on Form 8-K filed on June 1, 2006).


<PAGE>
              TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

         Index to Consolidated Financial Statements (Unaudited)
              for the Fiscal Quarter Ended April 30, 2006

Index                                                          F-1

Consolidated Balance Sheets as of April 30, 2006               F-2
  (unaudited) and October 31, 2005

Consolidated Statements of Operations for the six              F-4
  months and three months ended April 30, 2006
  (Unaudited) and April 30, 2005 (Unaudited)

Consolidated Statements of Cash Flows for the six              F-5
  months ended April 30, 2006 (Unaudited) and April
  30, 2005 (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)         F-7

                                  F-1


<PAGE>


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES


                        CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION

                                                        April 30,           October 31,
                                                         2 0 0 6              2 0 0 5
                                                         -------              -------
                                                       (Unaudited)

ASSETS
------
<S>                                                  <C>                  <C>
Current assets:
  Cash and temporary investments                        $  344,643           $ 1,289,630
  Accounts receivable, net of allowance for
   doubtful accounts of $2,683                           3,411,974             2,886,915
  Inventories                                              495,680               467,762
  Prepaid expenses and other current assets                434,499               397,420
  Restricted cash                                           32,540                20,347
  Deferred income taxes                                    571,417               571,417
                                                        ----------           -----------

      Total current assets                               5,290,753             5,633,491

Property, plant and equipment - net of
  accumulated depreciation of $607,480 and
  $488,863, respectively                                   924,124               675,999

Other assets:
  Test passage bank and test development,
    net of accumulated amortization of
    $3,798,118 and $3,579,751, respectively              2,810,675             2,750,239
  Goodwill                                               1,969,542             1,969,542
  Deferred income taxes                                    759,554               492,677
  Other assets                                             240,788               252,931
                                                        ----------           -----------

      Total assets                                     $11,995,436           $11,774,879
                                                       ===========           ===========










See notes to consolidated financial statements.

</TABLE>

                                  F-2

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                   CONSOLIDATED BALANCE SHEETS (Continued)

<TABLE>
<CAPTION>

                                                        April 30,           October 31,
                                                         2 0 0 6              2 0 0 5
                                                         -------              -------
                                                       (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S>                                                 <C>                 <C>
Current liabilities:
  Line of credit                                       $   700,000         $        --
  Current maturities of long-term debt                     274,744             166,750
  Accounts payable                                         823,966             489,428
  Accrued expenses                                       1,194,501           1,427,963
  Other liabilities                                        166,729             317,529
  Deferred gain on sale of building -
    current portion                                        125,439             125,439
                                                        ----------          ----------

      Total current liabilities                          3,285,379           2,527,109


Long-term debt
  Long-term debt, net of current portion                 1,239,939           1,396,212
  Deferred gain on sale of building, net
    of current portion                                     773,536             836,255
                                                        ----------          ----------


      Total liabilities                                  5,298,854           4,759,576
                                                        ----------          ----------


Commitments and contingencies


Stockholders' equity:
  Preferred stock, $.0001 par value,
    5,000,000 shares authorized, -0- shares-
    issued and outstanding                                      --                  --
  Common stock, $.0001 par value,
    20,000,000 shares authorized,
    2,913,738 and 2,909,738
    shares issued and outstanding,
    respectively                                               291                 291
  Additional paid-in capital                             6,256,519           6,164,387
  Retained earnings                                        439,772             850,625
                                                        ----------          ----------


      Total stockholders' equity                         6,696,582           7,015,303
                                                        ----------          ----------


Total liabilities and stockholders' equity             $11,995,436         $11,774,879
                                                       ===========         ===========


See notes to consolidated financial statements.

</TABLE>

                                  F-3

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                       Six Months Ended               Three Months Ended
                                                           April 30,                       April 30,
                                                       ----------------               ------------------
                                                   2 0 0 6         2 0 0 5        2 0 0 6          2 0 0 5
                                                   -------         -------        -------          -------

                                                 (Unaudited)     (Unaudited)    (Unaudited)      (Unaudited)

<S>                                           <C>             <C>            <C>              <C>
Net revenue                                      $6,555,717      $5,033,112     $3,481,703       $2,380,283

Cost of goods sold                                4,232,592       2,376,321      2,269,113        1,028,649
                                                 ----------      ----------     ----------       ----------

Gross profit                                      2,323,125       2,656,791      1,212,590        1,351,634
                                                 ----------      ----------     ----------       ----------

Operating expenses:
  Selling expenses                                  892,952         746,134        543,235          404,710
  General and administrative expenses             2,104,823       1,594,523      1,076,004          788,572
                                                 ----------      ----------     ----------       ----------

Total operating expenses                          2,997,775       2,340,657      1,619,239        1,193,282
                                                 ----------      ----------     ----------       ----------

(Loss) income from operations                      (674,650)        316,134       (406,649)         158,352

Other income (expense):
  Gain on sale/leaseback of building                 62,720          62,720         31,360           31,360
  Interest (expense) income, net                    (42,262)          3,914        (22,058)           1,335
                                                 ----------      ----------     ----------       ----------

(Loss) income before (benefit from)
provision for income taxes                         (654,192)        382,768       (397,347)         191,047

(Benefit from) provision for income taxes          (243,339)        165,530       (146,469)          85,156
                                                 ----------      ----------     ----------       ----------

Net (loss) income                                $ (410,853)     $  217,238     $ (250,878)      $  105,891
                                                 ==========      ==========     ==========       ==========

Weighted average shares outstanding:
Basic                                             2,911,351       2,747,813      2,913,018        2,780,875
Diluted                                           2,911,351       2,943,456      2,913,018        2,976,518


Basic (loss) earnings per share              $         (.14)    $      0.08      $    (.09)      $     0.04
Diluted (loss) earnings per share            $         (.14)    $      0.07      $    (.09)      $     0.04



See notes to consolidated financial statements.

</TABLE>

                                  F-4

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                  Six Months Ended April 30,
                                                  --------------------------
                                                    2006              2005
                                                    ----              ----
                                                 (Unaudited)       (Unaudited)


OPERATING ACTIVITIES
Net (loss) income                                $(410,853)        $  217,238
Adjustments to reconcile net (loss)
 income to net cash (used in) provided
 by operating activities:
 Depreciation and amortization                     378,053            321,169
 Deferred income taxes                            (266,876)           181,634
 (Gain) on sale/leaseback of building              (62,720)           (62,720)
 Stock option compensation expense                  86,585                 --
Changes in operating assets and liabilities:
 Accounts receivable                              (525,059)            52,416
 Inventories                                       (27,918)           (35,989)
 Restricted cash                                   (12,193)           (11,014)
 Prepaid expenses and other current assets         (35,028)          (269,682)
 Other liabilities                                (150,800)           466,751
 Accounts payable and accrued expenses             101,076           (420,870)
                                                 ---------          ---------


NET CASH FLOWS (USED IN) PROVIDED BY
 OPERATING ACTIVITIES                             (925,733)           438,933
                                                 ---------          ---------


INVESTING ACTIVITIES
 Test passage bank and test development           (278,803)          (381,714)
 Other assets                                      (28,030)                --
 Cash and fees paid to acquire stock
  of Assessment & Evaluation Concepts Inc.              --            (83,000)
 Acquisition of fixed assets                      (366,742)          (152,838)
                                                 ---------          ---------


NET CASH FLOWS (USED IN) INVESTING ACTIVITIES     (673,575)          (617,552)
                                                 ---------          ---------








See notes to consolidated financial statements.

                                  F-5


<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)




                                                  Six Months Ended April 30,
                                                  --------------------------
                                                    2006              2005
                                                    ----              ----
                                                 (Unaudited)       (Unaudited)


FINANCING ACTIVITIES
 Proceeds from long-term debt                    $      --         $   88,132
 Repayment of long-term debt                       (48,279)           (15,336)
 Stock subscription received                            --                920
 Net borrowings on line of credit                  700,000                 --
 Proceeds from the exercise of warrants                 --            155,303
 Exercise of stock options                           2,600             13,570
                                                 ---------          ---------


NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES                                         654,321            242,589
                                                 ---------          ---------

NET CHANGE IN CASH AND TEMPORARY
INVESTMENTS                                       (944,987)            63,970


CASH AND TEMPORARY INVESTMENTS
AT BEGINNING OF PERIOD                           1,289,630          1,751,487
                                                 ---------          ---------


CASH AND TEMPORARY INVESTMENTS
AT END OF PERIOD                                  $344,643         $1,815,457
                                                 =========         ==========


SUPPLEMENTAL CASH FLOW INFORMATION:
 Cash paid during the year for:

 Interest                                        $  48,788         $    5,138
                                                 =========         ==========
 Income taxes                                    $  54,968         $    2,354
                                                 =========         ==========


Noncash investing and financing
activities:
 Stock issued in acquisition of AEC              $      --         $   39,000
                                                 =========         ==========









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 BUSINESS
----------------------------------

Touchstone Applied Science Associates, Inc. (the "Company")
develops, publishes and distributes a proprietary line of tests
specifically to meet clients' measurement specifications to
elementary and secondary schools, colleges and universities
throughout the United States.  The remainder of the Company's
continuing operations is comprised of Beck Evaluation & Testing
Associates, Inc. ("BETA"), Assessment & Evaluation Concepts, Inc.
("AEC") (acquired in January 2005) and Achievement Data, Inc.
("ADI") (acquired in July 2005), companies which design, develop
and evaluate assessment needs for schools, school districts and
test and textbook publishers throughout the United States.

The Company operates through different subsidiaries, but
management believes that all such subsidiaries constitute a
single operating segment since the subsidiaries have similar
economic characteristics.

The interim condensed consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries,
BETA, AEC, and ADI.  All material intercompany balances and
transactions have been eliminated in the consolidated financial
statements.

The accompanying interim condensed consolidated financial
statements have been prepared, without audit, in accordance with
the instructions to Form 10-QSB for interim financial reporting
pursuant to the rules and regulations of the Securities and
Exchange Commission.  While these statements reflect all normal
recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of the interim
period, they do not include all of the information and footnotes
required by U.S. generally accepted accounting principles for
complete financial statements.  Therefore, the interim condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes included in
the Company's annual report filed on Form 10-KSB for the fiscal
year ended October 31, 2005.

The results and trends on these interim condensed consolidated
financial statements for the six and three months ended April
30, 2006 and 2005 may not be representative of those for the
full fiscal year or any future periods.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------

Revenue Recognition
-------------------

Revenues from the Company's sales of its proprietary tests,
including sales of their related ancillary materials and
performance of scoring services are recognized when the Company
ships the physical product from its warehouse or when the
revenues have been realized or become realizable and have been
earned pursuant to Staff Accounting Bulletin No. 104, "Revenue
Recognition".  Shipping charges are included in revenue in the
accompanying interim condensed consolidated statements of
operations.  The Company's revenue from the 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
("ARB") 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 reporting period to
the total estimated costs of full performance of the contract

                                  F-7

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
----------------------------------------------------

Revenue Recognition (continued)
-------------------------------

and recognizes a proportionate amount of total revenue for such
period based on the percentage of costs incurred to total
estimated costs.  In addition, the Company records revenue from
software pursuant to the provisions of Statement of Position No.
97-2, "Software Revenue Recognition", and Statement of Position
No. 98-9, "Modification of SOP 97-2, Software Revenue
Recognition With Respect to Certain Transactions".

(Loss) earnings per share
-------------------------

(Loss) earnings per share for each of the six-month periods and
three-month periods ended April 30, 2006 and 2005, respectively,
was computed by dividing net (loss) income by the weighted average
number of common and common equivalent shares outstanding and also
was adjusted for the assumed conversion of shares issuable upon the
exercise of options and warrants in accordance with SFAS No. 128,
"Earnings Per Share". The total potential dilutive common shares
excluded from this computation, as a result of the stock price
exceeding the exercise price, totaled 817,713 and 616,070 in the
six months ended April 30, 2006 and 2005, respectively.  The
reconciliation between basic and diluted average shares outstanding
is as follows:


                                              Six Months Ended April 30,
                                              --------------------------
                                              2006                  2005
                                              ----                  ----
                                           (Unaudited)           (Unaudited)


Basic weighted average shares
  outstanding                               2,911,351             2,747,813
Dilutive effect of stock options                   --               194,077
Dilutive effect of warrants                        --                 1,566
                                            ---------             ---------
Diluted weighted average shares
  outstanding                               2,911,351             2,943,456
                                            =========             =========


The dilutive effect of stock options and warrants were not
considered for the six months ended April 30, 2006 due to the
loss incurred for the period, resulting in an anti-dilutive
effect.

NOTE 3 - ACQUISITIONS
---------------------

The following unaudited pro-forma income statement data presents
the revenue of the Company had the acquisitions of AEC and ADI
occurred at the beginning of the earliest period presented:

<TABLE>
<CAPTION>


                                          Six Months Ended    Three Months Ended
                                           April 30, 2005       April 30, 2005
                                           --------------       --------------
                                             (Unaudited)          (Unaudited)

<S>                                      <C>                  <C>
Reported net revenue                        $  5,033,112         $  2,380,283
AEC (for the period November 1, 2004
    to the date of purchase)                      24,512               24,512
ADI (for the six months ended
    April 30, 2005)                              946,563              605,569
                                            ------------         ------------

                                            $  6,004,187         $  3,010,364
                                            ============         ============

</TABLE>

                                  F-8

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 - ACQUISITIONS (continued)
---------------------------------

Information in regard to net income (loss) for this period for ADI
and AEC is not available but the Company believes it would not be
material to the interim condensed consolidated financial
statements.  The above pro-forma information does not purport to
be indicative of what would have occurred had the acquisitions
been made as of such date or the results which may occur in the
future.

NOTE 4 - ACCOUNTS RECEIVABLE
----------------------------

Accounts receivable consist of the following:

                                                 April 30,       October 31,
                                                   2006             2005
                                                   ----             ----
                                                (unaudited)


Billed, net of allowance                        $2,244,207       $2,559,630
Unbilled (costs in excess of billing)            1,167,767          327,285
                                                ----------       ----------
                                                $3,411,974       $2,886,915
                                                ==========       ==========


Management expects that the unbilled accounts receivable will be
collected; therefore, no allowance for doubtful accounts has been
recorded on this balance.  Allowances for doubtful accounts at
April 30, 2006 and October 31, 2005 are based on prior collection
experience and pertain to billed accounts receivable.

NOTE 5 - OTHER LIABILITIES
--------------------------

Other liabilities consist of the following:

                                                 April 30,       October 31,
                                                   2006             2005
                                                   ----             ----
                                                (unaudited)


Billings in excess of costs                     $   62,906       $   22,921
Customer advance                                   103,823          294,608
                                                ----------       ----------
                                                $  166,729       $  317,529
                                                ==========       ==========


NOTE  6 - ACCRUED EXPENSES
--------------------------

Accrued expenses consist of the following:

                                                 April 30,       October 31,
                                                   2006             2005
                                                   ----             ----
                                                (Unaudited)


Retirement plans                                $  167,623       $  262,723
Salary                                             210,394          174,590
Professional fees                                  179,740          208,828
Royalties                                           13,705           12,571
Outside Service                                    188,077          212,024
Rent                                               105,661           93,084
Purchases                                               --           93,405
Consulting                                         171,529          128,573
Other                                              157,772          242,165
                                                ----------       ----------
                                                $1,194,501       $1,427,963
                                                ==========       ==========


                                  F-9

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 7 -STOCK-BASED COMPENSATION
--------------------------------

The Company has a 2000 Stock Option Plan (the "Plan") which is described
more fully in Note 11 to the Company's Annual Report on Form 10-KSB for
the year ended October 31, 2005.

Effective February 1, 2006, the Company's Plan is accounted for in
accordance with the recognition and measurement provisions of
Statement of Financial Accounting Standards ("FAS") No. 123
(revised 2004), Share-Based Payment ("FAS No. 123(R)"), which
replaces FAS No. 123, Accounting for Stock-Based Compensation, and
supersedes Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. FAS No. 123(R) requires compensation costs related
to share-based payment transactions, including employee stock
options, to be recognized in the financial statements. In addition,
the Company adheres to the guidance set forth within Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No.
107, which provides the Staff's views regarding the interaction
between SFAS No. 123(R) and certain SEC rules and regulations and
provides interpretations with respect to the valuation of share-
based payments for public companies.

Prior to February 1, 2006, the Company accounted for similar
transactions in accordance with APB No. 25 which employed the
intrinsic value method of measuring compensation cost. Accordingly,
compensation expense was not recognized for fixed stock options if
the exercise price of the option equaled or exceeded the fair value
of the underlying stock at the grant date.

While FAS No. 123 encouraged recognition of the fair value of all
stock-based awards on the date of grant as expense over the vesting
period, companies were permitted to continue to apply the intrinsic
value-based method of accounting prescribed by APB No. 25 and
disclose certain pro-forma amounts as if the fair value approach of
FAS No. 123 had been applied.  In December 2002, FAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure,
an amendment of FAS No. 123, was issued, which, in addition to
providing alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee
compensation, required more prominent pro-forma disclosures in both
the annual and interim financial statements. The Company complied
with these disclosure requirements for all applicable periods prior
to February 1, 2006.

In adopting FAS No. 123(R), the Company applied the modified
prospective approach to transition. Under the modified prospective
approach, the provisions of FAS No. 123(R) are to be applied to new
awards and to awards modified, repurchased, or cancelled after the
required effective date. Additionally, compensation cost for the
portion of awards for which the requisite service has not been
rendered that are outstanding as of the required effective date
shall be recognized as the requisite service is rendered on or
after the required effective date. The compensation cost for that
portion of awards shall be based on the grant-date fair value of
those awards as calculated for either recognition or pro-forma
disclosures under FAS 123.

                                  F-10


<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 7 -STOCK-BASED COMPENSATION (continued)
--------------------------------------------

As a result of the adoption of FAS No. 123(R), the Company's
results for the three-month period ended April 30, 2006 include
stock option compensation expense totaling $86,585. Such amount
has been included in the Consolidated Statements of Operations
within general and administrative expenses.  The Company recognized
related tax benefits associated with share-based compensation
arrangements totaling approximately $35,000 during the three-month
period ended April 30, 2006.  The impact of the adoption is a
reduction of net income before tax and after tax for the three
months ended April 30, 2006 of $86,585 and $51,585, respectively.
In addition, basic and diluted (loss) per share is increased by
approximately $(0.02).  There was no impact on cash flows from
operations and cash flows from financing activities.  Stock option
compensation expense calculated and disclosed under APB No. 25 in
the Notes to the Consolidated Statements of Operations for the
three months ended April 30, 2005 totaled $108,942.

Stock option compensation expense in 2006 is the estimated fair
value of options granted amortized on a straight-line basis over
the requisite service period for the entire portion of the award.
The Company has not adjusted the expense by the amount the
estimated fair value of options forfeited as indicated in FAS No.
123(R) since the forfeiture rate based upon historical data was
determined to be immaterial.

The weighted average estimated fair value of stock options granted
in the three months ended April 30, 2006 and 2005 was $2.81 and
$3.05, respectively.  The fair value of options at the date of
grant was estimated using the Black-Scholes option pricing model.
During 2006, the Company took into consideration guidance under FAS
No. 123(R) and SEC Staff Accounting Bulletin No. 107 (SAB 107) when
reviewing and updating assumptions. The expected volatility is
based upon historical volatility of our stock and other
contributing factors. The expected term is based upon observation
of actual time elapsed between date of grant and exercise of
options for all employees.  Previously such assumptions were
determined based on historical data.

The assumptions made in calculating the fair values of options
are as follows:


                                                Three Months Ended
                                    April 30, 2006              April 30, 2005
                                    --------------              --------------
Expected term (in years)                  10                          10
Expected volatility                      125%                        138%
Expected dividend yield                    0%                          0%
Risk-free interest rate                 4.88%                       4.23%



                                  F-11

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



NOTE 7 -STOCK-BASED COMPENSATION (continued)
--------------------------------------------

The following table addresses the additional disclosure
requirements of FAS No. 123(R) in the period of adoption. The
table illustrates the effect on net income and income per
share as if the fair value recognition provisions of FAS No.
123(R) had been applied to all outstanding and unvested
employee awards in all prior periods:

<TABLE>
<CAPTION>
                                             For the Three Months     For the Six Months      For the Three Months
                                                     Ended                   Ended                    Ended
                                               January 31, 2006         April 30, 2005          April 30, 2005
                                               ----------------         --------------          --------------
                                                  (Unaudited)             (Unaudited)             (Unaudited)
<S>                                          <C>                       <C>                     <C>
Net income (loss) attributable to
 common stockholders, as reported              ($159,975)                 $217,238                $105,891
Add: Stock-based compensation
 included in reported net income (loss)               --                        --                     --
Deduct: Total stock based compensation
 expense determined under the fair value
 based method for all awards, net of tax          95,798                   100,263                  64,276
                                               ---------                  --------                --------
Pro forma net income (loss) attributable
to common stockholders                         ($255,773)                 $116,975                $ 41,615
                                               ---------                  --------                --------
Net income (loss) per share:
Basic net income (loss) per share -
 as reported                                   ($   0.05)                 $   0.08                $   0.04
Diluted net income (loss) per share --
 as reported                                   ($   0.05)                 $   0.07                $   0.04
Basic and diluted net income (loss) per
 share - pro forma                             ($   0.09)                 $   0.04                $   0.01

</TABLE>

The Company granted 7,500 and 12,500 options to purchase
shares of the Company's Common Stock under the 2000 Plan and
the Directors Plan, respectively, during the three months
ended April 30, 2006 at exercise prices of $2.85 per share
and $2.96 per share, respectively.

                                  F-12

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 7 -STOCK-BASED COMPENSATION (continued)
--------------------------------------------

The following table represents stock options granted, exercised,
and forfeited for all Company stock option plans during the quarter
ended April 30, 2006.

<TABLE>
<CAPTION>

                                            Weighted              Weighted
                                            Average               Average
                                            Exercise              Remaining
                            Number          Price                 Contractual      Intrinsic
                            of Shares       per Share             Term             Value
                            ---------       ---------             -----------      ---------

<S>                       <C>             <C>                   <C>             <C>
Stock Options
Outstanding at
February 1, 2006             782,963         $2.75

Granted                       20,000          2.92

Exercised                     (4,000)         0.65

Forfeited/expired             (1,250)         8.75
--------------------------------------------------------------------------------------------

Outstanding at                                                    4 years,
April 30, 2006               797,713         $2.76                11 months        $160,930
--------------------------------------------------------------------------------------------

Exercisable at                                                    4 years,
April 30, 2006               707,713         $2.65                5 months         $215,805
============================================================================================
</TABLE>

The intrinsic value of all stock options exercised during the three months
ended April 30, 2006 was $9,240.  Cash received from the exercise of all
stock options during the three months ended April 30, 2006, was $2,600.
There were no related tax benefits realized during the three months ended
April 30, 2006. There were no stock options exercised during the three
months ended April 30, 2005.

As of April 30, 2006, there was $92,748 of total unrecognized compensation
cost, net of estimated forfeitures, related to all unvested stock options
and shares, which is expected to be recognized over a weighted average period
of approximately 3 years.


NOTE 8 - AMENDMENT TO LINE OF CREDIT AGREEMENT
----------------------------------------------

In May 2006, the Company's line of credit agreement was amended to
increase the credit line from $1,000,000 to $1,200,000 and
extended the due date of the loan to March 30, 2007.  The Company
borrowed $700,000 under the line of credit during the three months
ended April 30, 2006.  Such amount was refinanced after April 30,
2006 in connection with the Company's acquisition of Questar (Note 9).


                                  F-13

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 9 - SUBSEQUENT EVENT: ACQUISITION OF QUESTAR
-------------------------------------------------

Effective as of June 1, 2006, the Company acquired all of the
outstanding stock of Questar Educational Systems, Inc.  Questar
provides test delivery, scoring and score analysis capabilities to
state testing programs and also provides test material development.
The total consideration paid by the Company at closing for the Questar
stock was $20,000,000, consisting of $15,000,000 in cash, the issuance
of 222,222 shares of Series A-2 Convertible Preferred Stock of the
Company ("Series A-2 Preferred Stock") (valued at $1,000,000, based
on a price of $4.50 per share) and $4,000,000 in a subordinated
promissory note issued for the benefit of the eight selling shareholders
of Questar.  The Company has also agreed to pay additional consideration
in 2010 if Questar achieves certain revenue goals during the three
fiscal years ending October 31, 2007, 2008 and 2009.  The maximum
contingent earn out payment is $12,500,000, of which up to $10,000,000
shall be paid half in cash and half in shares of Series A-2 Convertible
Preferred Stock (valued on the closing date at $4.50 per share), and
$2,500,000 shall be paid, at the election of the Company, in cash or in
additional shares of Series A-2 Convertible Preferred Stock,
valued at fair market value at the time of issuance, or any
combination thereof.  The Company received a fairness opinion from
Signal Hill Capital Group, LLC ("Signal Hill") with respect to the
fair market value of the shares issued.

In connection with the acquisition of Questar, the Company entered
into an escrow agreement (the "Escrow Agreement") with the former
shareholders of Questar pursuant to which the Company placed
1,111,111 shares of Series A-2 Convertible Preferred Stock in an
escrow account pending release according to certain earn-out
provisions in the Stock Purchase Agreement.  While in escrow, such
shares do not have voting or dividend rights.

The Company financed the acquisition of Questar through senior
debt and a private equity investment.  The Company entered into a
loan agreement (the "Loan Agreement") with TD Banknorth, N.A.
("Banknorth"), pursuant to which the Company borrowed a term loan
in an aggregate principal amount of $9,600,000, obtained a
revolving line of credit in the amount of $4,000,000 and had
issued on its behalf a standby letter of credit in the original
stated amount of $194,750 against availability under the revolving
line of credit.  The Loan Agreement contains ongoing financial
covenants on a quarterly basis.  The term loan is interest-only
for the first six months of the loan, and then is payable in
fifty-four equal monthly installments of principal and interest on
a five-year amortization schedule.

The Company has entered into an interest rate swap agreement with
Banknorth pursuant to which Banknorth is paying the Company 250
basis points over the one month USD LIBOR BBA rate and the Company
is paying Banknorth a fixed rate of 7.95% on a value of $9,600,000
declining concurrently with the term loan.  The term loan balloons
on May 30, 2011.  Advances under the revolving line of credit are
based on a borrowing base of eligible accounts receivable and
eligible inventory of the Company and Questar.  The revolving line
of credit is available until April 30, 2008.  Both the term loan
and the revolving loan are secured by the assets of the Company
and by the assets of Questar.

                                  F-14

<PAGE>

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE - 9 ACQUISITION OF QUESTAR (continued)
-------------------------------------------

The proceeds from the loans were used to pay a portion of the
purchase price for the stock of Questar, to pay closing costs for the
transaction, to refinance $1,200,000 of indebtedness of the Company, and
for working capital.

The Company also entered into a securities purchase agreement (the
"Series A Convertible Preferred Stock Purchase Agreement") with
Camden Partners Strategic Fund III, L.P. and Camden Partners
Strategic Fund III-A, L.P. (collectively, the "Investors"),
pursuant to which the Company issued and sold to the Investors
1,666,667 shares of its Series A-1 Convertible Preferred Stock
("Series A-1 Preferred Stock") (valued at $7,500,000, based on a
price of $4.50 per share).  The proceeds from the sale of stock
were used to pay a portion of the purchase price for the shares of
Questar and closing costs for the transaction, with the balance
being retained by the Company for working capital.  Two members of
the Company's Board of Directors are also principals of each of
the Investors.

Upon the acquisition of Questar, the Company issued to Signal Hill
a five-year warrant to purchase up to 50,000 shares of the
Company's Common Stock, at an exercise price of $4.50 per share.
The warrant was issued as part of the consideration paid to Signal
Hill for its role as the Company's investment banker and financial
advisor in the acquisition of Questar and the financing thereof.
Neither the warrant nor the underlying shares of Common Stock have
been registered under the Act, in reliance upon the exemption from
registration pursuant to Section 4(2) of the Act.

The Company has entered into employment agreements for an initial
twenty-four month term with certain members of the management of
Questar.  Such employment agreements with the Questar management
team include non-competition covenants and proprietary rights
agreements.

                                  F-15

<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 and Chief
                                             Executive Officer and
                                             Principal Financial Officer

Date:	June 14, 2006