U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, DC 20549

                               FORM 10-KSB
(Mark One)
      [X]  Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934
               For the fiscal year ended October 31, 2002
      [ ]  Transition report under 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.
         ---------------------------------------------------------
               (Name of small business issuer in its charter)

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



 4 Hardscrabble Heights, P.O. Box 382, Brewster, NY          10509
----------------------------------------------------------------------------
(Address of principal executive offices)                   (Zip Code)

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

Securities registered under Section 12(b) of the Exchange Act:  None.
                                                                ----
Securities registered under Section 12(g) of the Exchange Act:

                           Title of Each Class
                       ---------------------------

                      Common Stock, $.0001 par value
                  --------------------------------------

     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
    --------    -----------

     Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year:  $10,425,395
for the fiscal year ended October 31, 2002.

     State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such
common equity, as of a specified date within the past 60 days:  $1,364,978
as of January 20, 2003.  The aggregate market value was based upon the
closing price for the Common Stock, par value $.0001 per share, as quoted
by the NASDAQ for such date.

     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE
YEARS)Check whether the issuer has 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 a court.
Yes           	No
   ---------    ----------

               (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
     State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:  As of January 22,
2002, 2,594,453 shares of Common Stock, par value $.0001 per share.

                  DOCUMENTS INCORPORATED BY REFERENCE
     If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part
II, etc.) into which the document is incorporated:  (1) any annual report
to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933 ("Securities Act").  None.

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

<PAGE>

                                PART I

ITEM 1.     DESCRIPTION OF BUSINESS

OVERVIEW

            Touchstone Applied Science Associates, Inc. (the "Company"
or "TASA") serves the education market with assessment and
instructional products, and as of November 1998, in the post-secondary
proprietary school market.  Prior to new executive management in 1994,
the Company's primary business was reading assessment through the
publishing and sale of its proprietary tests and related assessment
tools.  Since 1994, the Company's current management has implemented a
strategy to broaden the Company's services in the education market.
In the Company's fiscal years ended October 31, 1997 and 1998 and
through the beginning of the fiscal year ended October 31, 1999
("Fiscal 1999"), the Company completed three acquisitions in three
core segments of the education market: assessment, instruction and
educational delivery.  The net effect of the Company's acquisition
strategy is that TASA's revenues increased from $2.5 million in the
fiscal year ended October 31,1996, the last fiscal year prior to the
acquisitions, to over $10.4 million in the fiscal year ended October
31, 2002 ("Fiscal 2002").

            The need to develop fundamental literacy skills has long
been recognized as essential to a student's progress and success
throughout school and life.  The Company's proprietary instructional
and assessment products relate directly to the teaching and
measurement of progress of literacy skills. The Company's language
arts instructional products for grades K-4 provide students with
consumable workbook series designed to strengthen skills. The
Company's other products for the grades K-4 instructional market
include consumable workbooks for the development of other important
skills, such as penmanship, social studies, science and the teaching
of English, particularly English as a Second Language ("ESL").  The
Company's Degrees of Reading Powerr ("DRP") tests and related
products enable a school, district or other entity to assess an
individual's reading comprehension ability.  These tests allow an
individual's reading development to be tracked over time and are often
used to audit a school's success in the teaching of reading.  In 2001,
the Company launched two new tests: Signposts, a language arts early-
childhood test, and the MAC II, an English language proficiency test.

            The Company was incorporated in the State of New York in
1976 and, in 1991, changed its corporate domicile to Delaware.  It
became a public company in 1992.  TASA's corporate headquarters are
located at 4 Hardscrabble Heights, P.O. Box 382, Brewster, New York
10509.  The Company's telephone number is (845) 277-8100 and its
facsimile number is (845) 277-3548.  The Company maintains a website
at www.tasa.com.  Information contained on the Company's website is
not, and should not be deemed to be, incorporated into this Report.
As used in this Report, the terms "Company" and "TASA" refer to
Touchstone Applied Science Associates, Inc. and its subsidiaries,
unless the context otherwise indicates.

DISCONTINUED OPERATIONS

            In 1998, the Company, through its indirect wholly owned
subsidiary MESI Acquisition Corp. ("MESI"), acquired substantially all
of the assets of the Mildred Elley Schools, Inc. ("Mildred Elley"), a
New York State accredited, degree-granting school that provides post-
secondary students with a broad-based curriculum in business, health,
travel, information technology and paralegal training. Mildred Elley's
principal campus is located in Latham, New York, with an additional
branch in Pittsfield, Massachusetts.

            In the second fiscal quarter of Fiscal 2002, the Company
determined that its core businesses of assessment and instruction
provide better long-term growth and profit potential than the
proprietary school business.  Consequently, during the second fiscal
quarter, the Company reached a decision to sell its proprietary
school.  Consistent with this determination, the Company entered into
a letter of intent to sell substantially all the assets and
liabilities of Elley to Elley's current president and former owner.
The closing of such sale is subject to the receipt of regulatory
approvals.  See "Discontinued Operations" below.

            Except for historical information, the material contained in
this Description of Business 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" below, which
may cause actual results to differ materially from those described.

ASSESSMENT PRODUCTS AND RELATED SERVICES

            TASA designs, develops, calibrates, publishes, markets, and
sells educational reading assessment tests to elementary and secondary
schools, colleges, and universities throughout the United States and
Canada.  The Company's reading comprehension tests are based on its
proprietary Degrees of Reading Power (DRP) assessment methodology.
DRP tests are published in three versions: Primary, Standard, and
Advanced.  The Company's products measure an individual student's
reading ability in a non-culturally biased manner and allow tracking
of an individual's reading development over time.

            DRP TESTS.  Management believes that DRP tests are widely
recognized as being advanced state-of-the-art in educational
assessment.  Based on descriptions contained in Tests in Print
published by the Buros Institute of Mental Measurements (which
endeavors to cover all tests published in the United States), it is
management's belief that:

            . DRP tests were the first commercial standardized tests
whose results can be directly interpreted with respect to the written
materials that students can read; and

            . DRP tests are the only existing instruments that can
measure progress toward one or more standards or requirements that are
established by examining how well prose in books or other sources must
be comprehended for particular purposes.

            Consequently, the DRP tests are especially useful in
accountability assessments of a school's teaching performance and in
measuring an individual's reading level. As a result, management
believes that DRP tests are widely recognized as being state of the
art in educational assessment.

            DRP tests measure how well students understand the meaning
of whole text.  These tests determine, as much as is possible in a
testing situation, how well a student reads under real-life
conditions, both in and out of school. Primary and Standard DRP tests
are direct measures of fundamental reading comprehension, defined as
how well students can process text as it is being read.  Advanced DRP
tests extend this definition of reading comprehension.  Advanced DRP
test items require students to engage higher level cognitive processes
needed to think about, analyze or evaluate propositions in text.

            DRP tests consist of nonfiction paragraphs and/or passages
on a variety of topics, each written, edited, and calibrated by the
Company.  The individual test passages are stored in the Company's
"Test Passage Bank", and each test is created by selecting the
appropriate test passages from the Test Passage Bank to satisfy the
criteria set for a particular test.  Each passage undergoes a two-year
process of development and calibration and has an estimated useful
life of 11 years; a passage is introduced initially in a "secure"
form of test after which it is available in "shelf" form in the
Company's test catalogs and then in practice tests.  Management
believes that approximately four million DRP tests, for which the
Company is the sole source proprietor and publisher, were administered
in 2001 in states, school districts, and college and university
testing programs.

            TYPES OF DRP TESTS.  Specially prepared "secure" forms of
the Company's DRP tests are licensed for one-time or limited use by
states while other "shelf" forms listed in the Company's catalogs are
licensed for an indefinite period of time to schools and districts
throughout the United States and Canada.  Secure test forms are
composed of text and test items that have never before been
administered and are typically used in only one test administration as
a secure test.  The Company provides secure tests annually for
administration in certain grades by the states of Connecticut, New
York, and Virginia.

            Further, with the advent of the new education act, "No
Child Left Behind (NCLB)," the DRP shelf tests are being added to
testing programs in a number of states, most noticeably Alabama,
Massachusetts and Utah.  DRP tests have been administered in
approximately 4,000 school districts across the United States.

            THE MACULAITIS TEST.  In Fiscal 1997, TASA acquired the
Maculaitis Assessment of Competencies test (the "Maculaitis Test"),
which is a comprehensive English language assessment and evaluation
program.  It is intended for use in ESL, Bilingual Education and
Limited English Proficiency ("LEP") programs. From 1999 through 2001,
the Company made substantive revisions, including renorming, to
enhance the test's marketability. Management believes that these
revisions have given the Maculaitis Test wider appeal, at a time when
$750 million of funding is available under Title III of NCLB. The new
MAC II was launched at the end of the third quarter of Fiscal 2001.

            The MAC II is currently authorized for use in New Jersey,
Illinois, Florida and Wisconsin.  It is the mandated state ESL/LEP
test in Rhode Island.  This test is currently a finalist for adoption
in several other states.

            SIGNPOSTS(R) EARLY LITERACY ASSESSMENT SYSTEM.  In the spring
of 2001, the Company introduced the first phase of its new Signposts(R)
Early Literacy Assessment System ("SIGNPOSTS").  Signposts is a
comprehensive system designed to provide a unique set of assessments
and integrated instructional activities for students in grades K-3.
Signposts spans a range of literacy strands-reading, writing,
listening, and speaking-and includes a pre-DRP reading test and
measurement scale for emergent readers.  Management believes that the
pre-DRP test's downward extension of the existing Primary DRP test
will help both the Signposts and DRP programs in future adoptions.
Again, the Company is seeing significant interest due to NCLB.

            TEST SCORING AND RELATED REPORTING SERVICES.  The Company
provides scanning, scoring, and reporting services for all of its
tests to schools and districts.  Company-copyrighted test answer
sheets or licensed answer sheets are required for the administration
of all of the Company's tests.  Answer marks on these sheets are
machine-read by scanner-computer systems and interpreted by Company-
proprietary scoring and reporting software.  Company-copyrighted
conversion tables are used to convert the total number of right
answers into a DRP score that indicates how well a student can
comprehend text of a given difficulty (readability), or into MAC II
scores and English Competency Levels.  The test scores also can be
interpreted normatively (i.e., in terms of national percentile norms
that indicate a student's percentile rank in relation to students
nationally in his or her grade) using the Company's proprietary data.
All District, School and Class Level Reports of DRP test results are
copyrighted by the Company, as are various Parent and Individual
Reports that may be ordered by school systems for inclusion in
permanent records.  Third-party firms, as well as state agencies that
provide scanning and scoring services to schools, also may be licensed
to score the Company's tests.

            SOFTWARE PRODUCTS.  The Company designs and markets
computer software products that are sold as instructional aids or
analytical tools for reading assessment.  Among the products are
MicRA-->DRP II, which allows the user to estimate the DRP difficulty
rating of instructional materials, and DRP-->EZ Converter(R), which
permits those who score DRP tests by hand to easily convert raw
scores to criterion-referenced DRP scores and DRP norms. In Fall
2002, the Company released  MACII?EZ Converter software which
permits those who score MAC II tests by hand to easily obtain MAC II
scores and norms.  Further, the Company has sold its own proprietary
scanning and scoring software to school districts where its
installation is economically feasible due to high-volume usage.
Through the end of Fiscal 2002, we had 12 districts that had
purchased this software.

            The Company has also introduced DRP-->Booklink(R) which
enables teachers to find appropriate books for each student based upon
interest categories and reading ability.  The database of books (over
20,000) increases yearly and modifications to the software each year
make it more user friendly.

            The Company reports revenues from proprietary test products
as Assessment Income.

CUSTOM TEST PRODUCTS AND RELATED SERVICES

            BETA provides consulting services to states, schools and
textbook publishers. BETA's business is approximately equally divided
between work for states and work for publishers. Since its acquisition
by TASA in January 1997, BETA has concentrated on increasing its test
assessment and design services to states.  This effort has been
successful, and BETA now provides its test design and psychometric
services to state customers in Delaware, Indiana, Massachusetts,
Michigan, Minnesota, North Carolina, Ohio, Texas, and Virginia.  Most
recently, BETA was awarded a $7.5 million contract from the State of
Michigan to help develop an alternative assessment test for special
education students.  This represents the second major state (the other
state being Texas) where BETA has alternative assessment assignments.

            BETA's custom assessment services are provided to states
either directly or indirectly, typically through three of the largest
commercial contractors in the contract/customized assessment markets,
NCS Pearson, Harcourt and Measurement, Inc.  Generally, the business
strategy of BETA is to provide these specialized services for the
major state contracts as a subcontractor, primarily for assessment or
psychometric services and actual test design and development.  The
prime contractor provides for all the printing, logistics,
warehousing, scoring and reporting services necessary to complete
state contracts.

            The Company reports revenues from BETA's operations as
Assessment Income.

INSTRUCTIONAL PRODUCTS

            Through Modern Learning Press, Inc. ("MLP"), the Company,
creates, publishes, and distributes "consumable" student materials
for grades K-5, as well as books for elementary school teachers and
parents. The series of student publications currently offered by MLP
focus on the language arts and include spelling/vocabulary books,
journals, and reading comprehension books. The affordable pricing of
these consumable series positions MLP to take advantage of the growing
pressure for cost-effective purchasing by school districts. Thus,
MLP's growing line of student materials enables schools to purchase
effective, high-quality publications at a significantly decreased
acquisition cost per pupil.

            To complement its student materials, MLP also creates and
publishes books that provide education-related information to teachers
and parents. These professional and parent publications are written by
well-known experts and help schools and families achieve their
education objectives.

            MLP was organized by TASA in May 1997 to acquire
substantially all of the operating assets of Programs for Education,
Inc. The market served by MLP consists of an estimated 19 million
students in grades K-5, establishing an approximate market size of
$35-$40 million for each series. Moreover, teachers generally make the
purchase decisions in these grades as opposed to school boards or
agencies, which control the purchasing decisions in higher grades.

            During Fiscal 2002, MLP published its first reading response
journal, as well as a new writing journal for upper elementary grade
students.  The Company also expanded its fast-growing "writing across
the curriculum" series, with the addition of two science books and
one social studies book.  The sixth new publication was a book
designed to help educators and parents of students who are
experiencing academic difficulty.

            In Fiscal 2002, the Company launched its first test-prep
product under a new line:  Kingsbridge Press.  Management believes
that there is a significant opportunity in this area and will continue
to expand this line of products.

            Management believes that growth opportunities exist for MLP
in the elementary school market.  Many states, as well as the Federal
government, are currently discussing expansion and changes in
elementary education, either of which would have to include additional
funding for any new programs.  These changes will provide new and
expanded opportunities for the development of new workbook and
professional education book series.  Management believes that MLP is
well-positioned to benefit from the changes expected to occur in
elementary education.

            The Company reports MLP's revenues as Instructional
Products.

DISCONTINUED OPERATIONS

            The Company has determined that its core businesses of
assessment and instruction provide better long-term growth and profit
potential than the proprietary school business.  Consequently, during
the second fiscal quarter of the fiscal year ended October 31, 2002,
the Company reached a decision to sell its proprietary school.
Consistent with this determination, the Company entered into a letter
of intent to sell substantially all the assets and liabilities of
Elley to Elley's current president and former owner (the "Elley
Letter of Intent," "ELI").  The Company will receive $1,000,000,
payable in cash and a promissory note.  At closing, the amount due on
the promissory note will be equal to the note payable to the United
States Small Business Administration ("SBA"). The remainder is
payable in cash.  The promissory note will incur interest at prime
plus .75% commencing on the first anniversary of the closing with
monthly interest only payments for months 13 through 24.  Beginning
with month 25, the payments will consist of principal and interest
amortized over a four-year period. At the end of the 48 months, a
balloon payment is due. At October 31, 2002, the SBA loan totaled
approximately $251,000.

            The assets to be sold constitute substantially all the
assets and operations of the Company's educational delivery segment.
Under the provisions of SFAS 144, since the Company entered into a
plan to dispose of the operations of Elley during the current fiscal
year, the Company is reporting the proposed sale of the segment's
operations as discontinued operations.  In addition, the Company has
written down the assets of Elley to reflect the fair value of the net
assets to be sold, and has taken an additional loss on disposal of
approximately $4,137,000  less a tax benefit of approximately
$1,605,000 which included the impairment of goodwill of approximately
$3,021,000 less a tax benefit of approximately $1,162,000. The
revenues for the delivery segment were $5,882,026, $4,966,974 and
$5,150,496 for the years ended October 31, 2002, 2001 and 2000,
respectively.

            Completion of definitive documentation and closing has been
delayed as a result of two intervening actions of the United States
Department of Education ("USDOE"). USDOE had permitted a temporary
suspension of the required Title IV recertification process in lieu of
Elley's pending application to change ownership in connection with the
sale.  In early October 2002, USDOE advised Elley to complete the
recertification process prior to continuing pursuit of a change of
ownership.  Elley also received a Final Audit Determination letter
from USDOE for the audit period through October 31, 2001 which
indicated a referral to Administrative Actions and Appeals for action,
if any, deemed necessary from its "Repeat Finding-Failure to Take
Corrective Action" related to late refunds.  Although Elley permitted
the ELI to expire, the parties have agreed to continue negotiations
and to complete the definitive documentation upon receipt of the USDOE
recertification and determination related to the Repeat Finding.  The
transaction is expected to be completed by the end of April 2003.

MARKETING

            The Company markets its assessment products and services as
follows:

            (a) Sales of secure tests to large-scale users (such as
state education departments) are conducted directly by the Company's
staff.  This includes making presentations and negotiating contracts
and license agreements.

            (b) Sales of the Company's products and services as
described in the Company's catalogs are made primarily through direct
mail campaigns to elementary school, secondary school and college
markets.  The Company also exhibits its products at educational trade
shows and advertises in trade journals.

            (c) In addition, the Company's staff and its independent
consultants provide presentations and in-service workshops supporting
the Company's products.

            (d) Sales of custom-designed testing and consulting are
accomplished via bidding processes and attendance at professional
meetings.

            The Company sells its assessment products on a contract or
purchase order basis in accordance with a published price list.
Depending upon the contract or the purchase order, the Company sells
its products on a net 30-day or other contractual terms.  The Company
does not offer extended credit terms to its customers.  Historically,
bad debts with respect to its assessment products have not been
material.

            The Company markets its instructional products almost
exclusively through direct mail programs and independent sales
representatives.

COMPETITION

            Success in the educational industry will be based on
scientific and technological superiority, service, product support,
the availability of patent protection, access to adequate capital, the
ability to successfully develop and market products and processes and
the ability to obtain government approvals.  Although there is intense
competition in the industry and there are both domestic and foreign
companies which may be deemed dominant competitors, the Company
believes that the features of its products coupled with its ability to
provide quality services will permit the Company to compete
successfully in its designated marketplace.

            ASSESSMENT.  The Company is subject to competition from
various sources.  The Company's principal competition comes from
established for-profit and non-profit companies in the testing
business and testing departments within certain states and school
districts, all of which are considerably larger and have greater
financial and human resources and marketing capabilities.  Competition
may also come from education publishers who include reading
comprehension tests with their instructional materials and companies
that distribute reading motivation programs.

            Although there are a number of for-profit firms that
develop, publish, market, and distribute educational tests, the market
is dominated by three:  CTB/McGraw-Hill, Lake Forest, Illinois, and
Monterey, California; Harcourt Educational Measurement, San Antonio,
Texas; and The Riverside Publishing Company, Chicago, Illinois.  As
large, well-established publishers of educational tests and related
products and services, these firms are considered strong competitors
of the Company.

            There are a number of non-profit organizations that develop,
publish and distribute educational tests.  For example, the American
College Testing Program (ACT), Iowa City, Iowa; American Council on
Education (ACE), Washington, DC; and Educational Testing Service
(ETS), Princeton, New Jersey.  In addition, there are various
organizations that sponsor educational tests even though they do not
have the technical capability to produce tests.  For example, The
College Board, New York, New York, sponsors the Scholastic Assessment
Test (SAT) which is developed for The College Board by ETS.  All of
these non-profit organizations have, or have access to, the capability
to develop, publish and distribute tests to schools.  Currently, ACT,
The College Board, and ETS publish one or more educational tests for
the school market.

            There are a number of for-profit and non-profit
organizations that provide test design, production and consulting
services to states under contract.  For example, Measured Progress,
Inc., Dover, New Hampshire; National Evaluation Systems (NES),
Amherst, Massachusetts; and NCS Pearson, Iowa City, Iowa; are among
the for-profit firms that supply test development, printing,
distribution, and scoring services to individual states under
contract.  Among the non-profit organizations, ACT and ETS have
conducted such contract work for states and ETS is the current
contractor for the National Assessment of Educational Progress.  By
enabling states to have tests developed and administered to their own
specifications, these for-profit and non-profit organizations compete
indirectly with the Company's assessment division.  In terms of size
alone, these firms have greater marketing capability and resources
than does the Company.

            The MAC II Test exists in a competitive market; however,
several of the non-profit and for-profit testing companies do not have
a product that is in direct competition with the test.  The major
sources of direct competition are: the LAS (Language Assessment
Scales) tests published by CTB/McGraw-Hill, the LPTS (Language
Proficiency Test Series) published by Metri-Tech, and the IPT (Idea
Language Proficiency Test), published by Ballard and Tighe. Each of
these tests is designed to assess a student's level of English
language proficiency.  In indirect competition are tests that assess a
student's language proficiency in a primary language other than
English, such as the Spanish versions of the LAS and IPT. In addition,
some states have developed their own instruments for statewide testing
of English Language Learners, such as the MELAB (Michigan English
Language Assessment Battery) and the RPTE (Texas Reading Proficiency
Tests in English).

            INSTRUCTIONAL MATERIALS.  The elementary school market for
the consumable books published by MLP is both huge and highly
competitive, with every major publisher and numerous smaller
publishers providing material.  MLP's disadvantage is that its
marketing resources are significantly smaller than those of the major
publishers.  MLP' s advantage is that, with its smaller corporate
structure, decisions can be made rapidly so that new products can be
available in a fraction of the time required by the major publishers.
MLP's other competitive advantage is a lower selling price than that
generally applicable to other consumable books with which MLP's
products compete.  MLP has developed a unique position through direct
mail sales.

EMPLOYEES

            As of October 31, 2002, the Company employed a total of 51
employees in its continuing operations, 41 on a full-time basis, and
10 on a part-time basis.  Of the 51 employees,14 are engaged in
research and/or test development, 22 are in operations, 6 are in
executive capacities, and 9 are in marketing in its assessment and
instructional divisions.  The Company employed a total of 124
employees in its discontinued operations as of October 31, 2002.

GOVERNMENT REGULATIONS

            ASSESSMENT AND INSTRUCTIONAL MATERIALS.  The 2002 Education
Reauthorization Act, "No Child Left Behind (NCLB)," bodes well for
TASA.  This act provides funding of approximately $26 billion.  Almost
half is for Title I funding, which requires schools that take this
funding to evaluate student progress in reading.

            This act also provides almost one-half billion dollars in
annual testing in reading and math; Title III allows for thee-quarters
of a billion dollars in bilingual and immigrant education and almost
one billion dollars in early language literacy.  The following chart
illustrates that TASA is strategically positioned to take advantage of
a the funding opportunities under NCLB:

        Section of NCLB Act            TASA Products & Services
        -------------------            ------------------------

        Title I                        DRP/Signposts/MLP
        Early Childhood Literacy       DRP/Signposts
        Title III/ESL                  MacII/MLP
        Annual Testing                 DRP/BETA


            DISCONTINUED OPERATIONS.  The post-secondary proprietary
school industry is highly regulated with respect to accreditation and
government funding issues.  The disposition of Mildred Elley,
previously approved by the Board of Directors, is subject to the
approval of the various government and accreditation agencies with
respect to the change in control of Mildred Elley. The Company
currently anticipates that such closing will occur in the second
quarter of 2003.

PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND ROYALTIES

            The Company regularly asserts copyrights to all of its
assessment and instructional materials.

            The following are registered trademarks and/or service marks
of the Company:  TASA, the TASA logo, DRP Program The Readability
Standard, DRP, DRP--> BOOKLINK, DRP-->EZ Converter, DRP Linking Text
to Ability, BookMatch, DWM, Degrees of Reading Power, Degrees of Word
Meaning, MicRA-->DRP, TextSense, TASA Literacy, Signposts and design,
We've Done the Research for You, and The MAC II Test of English
Language Proficiency and design (both pending).  Additionally, Change-
A-Print Frame is a registered trademark of MLP.

            Trade secrets are maintained by licenses for software and
certain proprietary data.  In addition, all employees execute
nondisclosure agreements as a condition of employment.

            In connection with the purchase by MLP of substantially all
the operating assets of Programs for Education, Inc. and pursuant to a
Royalty Agreement between MLP and Bernard Shapiro, the founder of
Programs for Education, Inc., MLP agreed to pay to Mr. Shapiro a
royalty on sales of certain titles for a term of seven years following
the closing of the acquisition in Fiscal 1997 in an amount equal to a
minimum of $80,000 annually, with a maximum of $120,000 in the first
year, which increases each year to a maximum of $240,000 in the
seventh year.  The Company paid Mr. Shapiro a total of $151,279 in
Fiscal 2000, $160,667 in Fiscal 2001 and $161,558 in Fiscal 2002.

ITEM 2.     DESCRIPTION OF PROPERTY

            The Company owns a 30,000 square foot building in Brewster,
New York.  The building was constructed in 1987, with the second phase
completed in 1991.  In Fiscal 1997, the Company retired the first and
second mortgages on the property and remortgaged the facility with MSB
Bank, now Hudson United Bank.

            MLP rents approximately 5,000 square feet for its service
and order fulfillment centers in Rosemont, New Jersey on a month-to-
month basis.  In September 2000, it vacated its editorial facilities
in Honesdale, Pennsylvania, and consolidated those activities into
Brewster, New York.

            BETA rents a small office facility of 500 square feet in
Austin, Texas, which also affords good proximity to the Texas
Education Agency. The Company made the decision to open the office in
Texas because of the volume of business in that state.

            The Company expends its resources for capital improvements
as necessary.

ITEM 3.     LEGAL PROCEEDINGS

            The former owner of the Mildred Elley School, Inc. commenced
an action alleging defaults in the payment of certain amounts under
the asset purchase agreement between the Company and Mildred Elley
School, Inc. and the accompanying promissory notes of MESI (TASA's
wholly-owned subsidiary).  The complaint also alleges certain defaults
by MESI in the employment agreement between MESI and Faith Takes, the
former owner of the Mildred Elley School, Inc. who is currently MESI's
president and chief executive officer.  The Company has defended
primarily based on offsets related to breaches of warranties in the
asset purchase agreement.  Cross-motions for partial summary judgment
were made and the court issued a decision which granted summary
judgment to plaintiff on two demand notes in the total principal
amount of $67,000 plus attorneys fees of $9,326.  The enforcement of
the judgment is stayed pending appeal of the court decision.  The
court also recognized the right of offset and granted summary judgment
in favor of MESI on one issue, but found a triable issue of fact on
the parties' intentions on another issue.  Cross-appeals of the lower
court's decision are pending currently in the New York State Appellate
Division.  The foregoing alleged defaults trigger a potential cross
default under the Company's outstanding 8% Subordinated Debentures, in
the outstanding principal amount of $3,530,141 (as of October 31,
2001) held by Cahill Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P.  The Company has not received a notice of
default from the holders of such Debentures.

            Since it is the Company's intention to sell the school back
to the former owner, litigation is at a standstill.

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

            None.


                              PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            (a) The Company's common stock, par value $.0001 per share
(the "Common Stock"), was traded until July 2, 2001, in the NASDAQ
small-capitalization over-the-counter market ("Nasdaq") under the
symbol TASA.  Since July 2, 2001, the Company's Common Stock has been
traded in the Nasdaq Electronic Bulletin Board under the symbol
TASA.OB.  The approximate high and low closing prices for each fiscal
quarter in the two fiscal years ended October 31, 2001 and October 31,
2002 were as follows:


                       Common Stock Prices
                       -------------------

       Fiscal Quarter:       High           Low

       1st Qtr 01            $1.156         $0.406
       2nd Qtr 01             1.1875         0.62
       3rd Qtr 01             1.03           0.30
       4th Qtr 01             0.80           0.40
       1st Qtr 02             0.85           0.40
       2nd Qtr 02             1.45           0.60
       3rd Qtr 02             1.45           0.51
       4th Qtr 02             0.90           0.51

            During the first quarter of Fiscal 2003 (through January 20,
2003), the Company's Common Stock had a high closing price of $1.01
and a low closing price of $0.58.

            As of the close of business on March 4, 1999, the Company
effected a one-for-four reverse stock split (the "Stock Split") of the
Company's Common Stock.  All stock prices and all share amounts quoted
in this Report have been adjusted to give effect to the Stock Split.
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

            The Company is authorized to issue 5,000,000 shares, par
value $.0001 per share, of preferred stock. The stock may be issued by
the Board of Directors of the Company in one or more series and with
such preferences, conversion or other rights, voting powers and other
provisions as may be fixed by the Board of Directors in the resolution
authorizing its issuance without any further action of the
stockholders.  There are no shares of preferred Stock outstanding.

            On January 2, 2001, the Company received a notice from
Nasdaq stating that the Company had failed to meet the continued
listing requirement of the SmallCap Market because the price of the
Company's Common Stock had been less than $1.00 for 30 consecutive
trading days.  The Company had 90 days to rectify this deficiency,
which required that the Company's Common Stock close at a price of
$1.00 or more for ten consecutive trading days.  The Company was
unable to satisfy this criterion, and as a result, the Company's
Common Stock was delisted from the SmallCap Market on July 2, 2001.
Since July 2, 2001, the Company's Common Stock has traded on the
Nasdaq Electronic Bulletin Board.

            As of January 10, 2003, there were 75 holders of record of
the Company's Common Stock.  This number of holders of record does not
include beneficial owners of the Company's Common Stock, whose shares
are held in the names of various security holders, dealers and
clearing agencies.  The Company believes that the number of beneficial
owners of its Common Stock held by others or in nominee names exceeds
approximately 1,100 in number.  The Company has not paid any cash
dividends, and does not anticipate doing so in the immediate future as
it intends to invest any earnings in the development of the Company's
business.

            The following table describes the equity securities of the
Company issuable as of October 31, 2002 pursuant to the Company's
equity compensation plans.  The Company has four equity compensation
plans, each of which has been approved by the stockholders of the
Company:  (1) the Amended and Restated 1991 Stock Incentive Plan
(under which no further incentive awards may be made); (2) the 2000
Stock Incentive Plan; (3) the Amended and Restated Directors Stock
Option Plan, and (4) the Consultants Stock Incentive Plan.  For a
description of each of the Company's equity compensation plans, please
see Item 10 "Executive Compensation-Stock Incentive Plans."

<TABLE>
<CAPTION>


                       EQUITY COMPENSATION PLAN INFORMATION
                              AS OF OCTOBER 31, 2002
<S>               <C>                       <C>                     <C>
                     -----------------------------------------------------------------------------
                             Number of
                          securities to be                                 Number of securities
                            issued upon           Weighted-average       remaining available for
                            exercise of           exercise price of       future issuance under
                            outstanding              outstanding        equity compensation plans
                         options, warrants        options, warrants       (excluding securities
                             and rights              and rights           reflected in column (a))
                                 (a)                     (b)                       (c)
--------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders              609,087                  $2.522                    287,525
--------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders                 --                       --                        --
--------------------------------------------------------------------------------------------------

</TABLE>

            (b) Not applicable.

ITEM 6.     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" below, which may cause actual results
to differ materially from those described.

COMPANY BACKGROUND

            For over twenty-five years, TASA has served the rapidly
expanding education market, primarily through the publishing and sale
of its highly regarded proprietary reading tests.  Since 1994, new
management has implemented a strategy to broaden the Company's
services within the educational marketplace.  As a result, the Company
completed three acquisitions since the beginning of Fiscal, 1997 in
the K-12 assessment and instructional markets:  In the second fiscal
quarter of Fiscal 2002, the Company determined that its core
businesses of assessment and instruction provide better long-term
growth and profit potential than the proprietary school business.
Consequently, during the second fiscal quarter, the Company reached a
decision to sell its proprietary school.  See "Discontinued
Operations" below. TASA core revenues in Fiscal 1994 were $2.0
million and have increased by acquisition and internal growth to $10.4
million in Fiscal 2002.

            In 1998, the Company entered the post-secondary proprietary
market.  In 2002, management made the decision to exit this market and
has entered into a letter of intent to sell the school.  Consequently,
the educational delivery segment is listed in this Report as
discontinued operations.

            In an effort to report revenues in a more meaningful manner,
the Company has segregated revenues from continuing operations into
two discrete segments:  (1) assessment products and services revenues,
and (2) instructional revenues.  Revenues from discontinued operations
are reported separately.

            The following table sets forth the revenues in each of the
assessment and instructional divisions (continuing operations), and
the annual percentage change for each of these divisions, for Fiscal
2002, 2001 and 2000:


            TASA Revenues Breakdown (in thousands of dollars) and % of
                           Year-To-Year Change


<TABLE>
<CAPTION>
                                             Fiscal Year Ended October 31,
                          ---------------------------------------------------------------
                           2000-
                           2002           2002             2001               2000
                           ----           ----             ----               ----

                             %                 %                  %                    %
                           Change     $     Change      $       Change      $        Change
                           ------    ---    ------     ---      ------     ---       ------

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


Assessment Products
and Services Revenues..    54.4%   $7,562.5   15%     $6,594.2    35%    $4,897.9      7%

Instructional
Revenues.............       2.7    $2,862.9    1%     $2,839.0     2%    $2,785.5     15%

Total Revenues From
Continuing Operations..    35.7%  $10,425.4   11%     $9,433.2    23%    $7,683.4      9%

</TABLE>


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


                                            Fiscal Year Ended October 31,
                                            -----------------------------

                                               2002      2001     2000
                                             ----------------------------


                                             ============================
Revenues from Continuing Operations. . . . .   100%      100%     100%


   Gross Profit Margins. . . . . . . . . .      55%       64%      62%

Operating Expenses:
     Selling Expenses. . . . . . . . . . . .    20%       20%      26%
     General & Administrative. . . . . . . .    27%       30%      38%
     Impairment of Intangible Assets. . . . .   --        --       11%
   Income (Loss) from Operations. . . . . . .    8%       14%     (13%)
     Other Expense. . . . . . . . . . . . . .   (5%)      (6%)     (8%)
   Income (Loss) Before Income
     Taxes from Continuing Operations. . . . .   3%        8%     (20%)
   Income (Loss) From Continuing Operations. .   2%        5%     (13%)
                                               ============================

FISCAL 2002 AS COMPARED TO FISCAL 2001

            REVENUES. The Company's revenues from continuing operations
for the year ended October 31, 2002 (Fiscal 2002) were $10,425,395,
representing an 11% increase or $992,224 over $9,433,171 for the year
ended October 31, 2001 (Fiscal 2001).  The overall increase was
primarily attributable to internal growth of the Company's assessment
division.

            Revenues for assessment products and services, through the
Company's proprietary and custom test design units increased 15% or
$968,305 to $7,562,468 in Fiscal 2002 from $6,594,163 in Fiscal 2001.
The Company's proprietary test unit revenues increased 18%.  This
growth can be attributable to the continued acceptance of the
Company's key products, DRP and MacII, as well as significant growth
of our test scoring facilities.

            The instructional division's revenues increased $23,919 or
1% from $2,839,008 in Fiscal 2001 to $2,862,927 in Fiscal 2002.
Management is confident that the stability of revenues from the
instructional division, despite severe budget crises in almost every
state and school district, is an indicator of the strength of MLP's
product line.

            COST OF GOODS SOLD. Cost of goods sold increased by 36% or
$1,245,145 from $3,426,117 in Fiscal 2001 to $4,671,262 in Fiscal
2002. As a percent of revenue, cost of goods increased from 36% in
Fiscal 2001 to 45% in Fiscal 2002.  This increase is primarily due to
increased costs of delivery products and services in our assessment
segment. In Fiscal 2001, we had one assignment with very high margins.
In 2002, the change in product mix reduced our margins.

            GROSS PROFIT. The Company's gross profit for Fiscal 2002
decreased by $252,921, or 4%, from $6,007,054 in Fiscal 2001 to
$5,754,133 in Fiscal 2002.  The gross profit margin was 55% in Fiscal
2002 versus 64% in Fiscal 2001. This change is a result of changes in
product mix.

            SELLING EXPENSES. The Company's selling expenses increased
$249,853, or 13%, in Fiscal 2002, from $1,858,549 in Fiscal 2001 to
$2,108,402 in Fiscal 2002. Selling expenses were 20% of revenues in
both years. The increased dollar expenditure was a result of higher
sales commission and a building of the organization's marketing
infrastructure necessary to support higher sales volumes.

            GENERAL AND ADMINISTRATIVE. The Company's general and
administrative expenses for Fiscal 2002 increased $11,713, or 0.4%,
from $2,785,701 in Fiscal 2001 to $2,797,414 in Fiscal 2002.  Because
revenues increased while G&A remained relatively constant, as a
percentage of sales, G&A was 27% in Fiscal 2002 versus 30% in Fiscal
2001. The Company has worked to contain G&A manpower and has
redirected its manpower base to revenue-producing activities.

            INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations
decreased by $514,487 or from $1,362,804 in Fiscal 2001 to $848,317 in
Fiscal 2002.  The decrease in income is due to lower gross profits and
increased selling expenses.

            EBITDA. Earnings before interest, taxes, depreciation, and
amortization decreased $461,362, or from $2,091,161 in Fiscal 2001 to
$1,629,799 in Fiscal 2002.  The decrease was a result of increased
cost of goods and selling expenses.

            OTHER INCOME/EXPENSES.  Net other income (expense) decreased
7% or $40,355, or from $608,104 in Fiscal 2001 to $567,749 in Fiscal
2002.  The decrease in this expense was due to reduced borrowing on
the Company's lines of credit coupled with reductions in long-term
debt.

            INCOME AND INCOME PER SHARE.  Income from continuing
operations after taxes was $166,908 for Fiscal 2002 versus $501,236 in
Fiscal 2001.  For Fiscal 2002, earnings per share from continuing
operations, both basic and diluted, were $0.06 versus $0.20 in 2001.
The basic weighted average shares outstanding were 2,587,241 in Fiscal
2002 versus 2,559,453 in Fiscal 2001.

FISCAL 2001 AS COMPARED TO FISCAL 2000

            REVENUES.  For Fiscal 2001, the Company's revenues from
continuing operations were $9,433,171, representing a 23% increase, or
$1,749,751, over $7,683,420 for the fiscal year ended October 31, 2000
("Fiscal 2000").  The overall increase was attributable to internal
growth of the Company's assessment and instructional divisions.

            Revenues for assessment products and services, through the
Company's proprietary and custom test design units increased 35% or
$1,696,240 to $6,594,163 in Fiscal 2001 from $4,897,923 in Fiscal
2000.  The Company's proprietary test unit revenues increased 23%.
This growth can be attributable to the fourth quarter Fiscal 2000
launch of a new series of DRP tests (with new norms), the launch of
our new MacII (Limited English Proficiency/English as a Second
Language-LEP/ESL) test in July 2001 as well as increased sales of our
BookLink software.  BETA, our custom testing unit, increased 52% over
the same period.  This increase was attributable to growth in BETA's
state contract business.  In Fiscal 2001, BETA obtained several
substantial contracts that accounted for these gains.

            The instructional division's revenues increased $53,511 or
2% from $2,785,497 in Fiscal 2000 to $2,839,008 in Fiscal 2001. For
the first nine months of Fiscal 2001, we had a 14% increase in sales.
Following the events of September 11th, we witnessed a significant
decrease in orders as a result of the delays in receiving mail due to
the anthrax problems and because our distribution facility is serviced
by the Trenton, New Jersey postal facility.  The Company received the
bulk of the delayed mail in November and December 2001.

            COST OF GOODS SOLD.  Cost of goods sold in Fiscal 2001
increased by 17%, or $499,292, from $2,926,825 in Fiscal 2000 to
$3,426,117 in Fiscal 2001.  Cost of goods sold as a percentage of
revenues also decreased from 38% to 36% due to a change in product
mix.  This increase was primarily the result of increased costs
required to deliver assessment products and services, more
specifically, the Company's custom test design division's services
which are typically associated with higher direct costs.
GROSS PROFIT.  In Fiscal 2001, gross profit increased by
$1,250,459, from $4,756,595 in Fiscal 2000 to $6,007,054 in Fiscal
2001.  The gross profit margin percentage also increased in Fiscal
2001 to approximately 64% from 62% in Fiscal 2000.

            SELLING EXPENSES.  Selling expenses for Fiscal 2001
decreased by 5%, or $101,195, from $1,959,744 in Fiscal 2000 to
$1,858,549 in Fiscal 2001.  As a percentage of revenues, selling
expenses decreased to 20% in Fiscal 2001 versus 26% in Fiscal 2000.
The decline can be primarily attributed to reduced labor costs in
Fiscal 2001.

            GENERAL AND ADMINISTRATIVE.  The Company's general and
administrative expenses decreased 6%, or $169,919, from $2,955,620 in
Fiscal 2000 to $2,785,701 in Fiscal 2001.  General and administrative
expenses as a percentage of sales were 30% in Fiscal 2001 versus 38%
in Fiscal 2000.

            WRITE DOWN OF SOFTWARE DEVELOPMENT COSTS.  In Fiscal 2000,
the Company took a one-time $120,853 charge for the write down of
software development costs associated with certain of the Company's
saleable computer software products in order to adjust such products
to their net realizable value.  This one-time charge represented
approximately 2% of the Company's revenues for Fiscal 2000.  There was
no such charge in Fiscal 2001.

            IMPAIRMENT OF TEST PASSAGE BANK.  In Fiscal 2000, the
Company took a one-time $685,722 charge for impairment of its test
passage bank after deeming certain passages within the bank to have
little or no value as of October 31, 2000.  This one-time charge
represented approximately 9% of the Company's revenues for Fiscal
2000.  There was no such impairment in Fiscal 2001.

            INCOME (LOSS) FROM OPERATIONS.  (Loss) from operations for
Fiscal 2000 was ($965,344) versus income from operations of $1,362,804
in Fiscal 2001.  The loss in Fiscal 2000 was principally due to the
increase in selling and general and administrative expenses coupled
with the one-time charges associated with the write down of software
development costs and impairment of the Company's test passage bank.

            EBITDA.  Earnings (loss) before interest, taxes,
depreciation, and amortization increased by $2,058,113 to $2,091,161
in Fiscal 2001 from $33,048 in Fiscal 2000. As a percentage of
revenues, EBITDA increased to 24% in Fiscal 2001 versus 12% in Fiscal
2000.  These dollar and percentage increases were essentially
attributable to the increase in general and administrative expenses
which included costs associated with the establishment of adequate
reserves and the write off of due diligence expenses associated with
failed acquisitions, coupled with a lower gross profit margin
resulting from an increase in revenues from the Company's custom test
design division.

            OTHER INCOME (EXPENSE).  Net other income (expense)
decreased to ($608,104) in Fiscal 2001 versus ($604,839) in Fiscal
2000.  This decrease is primarily attributable to a reduction in
principle on certain loans.

            INCOME (LOSS) BEFORE INCOME TAXES.  The Company had a loss
before income taxes of ($1,570,183) in Fiscal 2000 versus income
before taxes of $754,700 in Fiscal 2001.
INCOME (LOSS) AND BASIC INCOME (LOSS) PER SHARE.  Loss after
taxes was ($964,485) for Fiscal 2000 versus net income after taxes of
$501,236 for Fiscal 2001.  For Fiscal 2001, basic loss per share was
($.20) based on weighted average shares outstanding of 2,559,453. For
Fiscal 2000, basic loss per share was ($.40) based on weighted average
shares outstanding of 2,438,167.

LIQUIDITY AND WORKING CAPITAL

            WORKING CAPITAL.  Working capital increased by $401,392
during Fiscal 2002 from $1,698,592, at October 31, 2001 to $2,099,984
at October 1, 2002.  This increase resulted primarily from the
increase in cash and prepaid expenses and a repayment of long-term
debt. The ratio of current assets to current liabilities was
approximately 1.5 to 1.0 at the end of the Fiscal 2001 versus 1.68 to
1.0 at the end of Fiscal 2002.

            CASH FLOW FROM OPERATING ACTIVITIES.  During Fiscal 2002,
the Company had net cash provided by operating activities of $776,988,
as compared to $1,041,131 in Fiscal 2001. The decrease in cash
provided by operating activities resulted from the net loss reported
in Fiscal 2002 offset in part by an increase in noncash deductions for
depreciation, amortization, deferred interest and deferred income
taxes offset in part by an increase in accounts receivable.

            CASH FLOW FROM INVESTING ACTIVITIES.  During Fiscal 2002,
the Company had net cash used in investing activities of ($444,264),
as compared to ($440,356) for the Fiscal 2001. The cash used in
investing activities remained relatively constant as the Company
continues its development.

            CASH FLOW FROM FINANCING ACTIVITIES.  The Company had net
cash used in financing activities of ($197,579) for Fiscal 2002 as
compared to ($945,233) for Fiscal 2001 from financing activities. The
decrease in cash used for financing activities resulted from the
repayment of the Company's line of credit in Fiscal 2001 and the
payoff of the debt associated with the acquisition of MLP during
Fiscal 2002.

            On September  4, 2002, the Company and the Cahill Warnock
Entities agreed to an extension of the maturity of the outstanding
Debentures in the principal amount of $3,530,141 from October 28, 2003
until February 1, 2004.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

            Revenues from the Company's sales of its proprietary tests
and other assessment-related products, as well as from its
instructional materials, are recognized when product is shipped from
the Company's warehouse.  Assessment consulting revenues are
recognized when the consulting services are rendered.  Tuition
revenues from the Company's educational delivery division are
recognized at the point in time in which the Company has no exposure
to future tuition refunds associated with the respective academic
semester.

            The allowance for doubtful accounts is maintained to provide
for losses arising from customers' inability to make required
payments. If there is a deterioration of our customers' credit
worthiness and/or there is an increase in the length of time that the
receivables are past due greater than the historical assumptions used,
additional allowances may be required.

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

SELECTED FINANCIAL DATA

            The following tables summarize certain financial data for
the continuing operations of the Company for Fiscal 2002, 2001, and
2000, respectively.  See "Financial Statements" in Item 7 below.




                                           Fiscal Year Ended October 31,
                                    ------------------------------------------

                                        2002            2001           2000
                                    ------------------------------------------

INCOME STATEMENT DATA:

Operating revenues                  $10,425,395    $9,433,171      $7,683,420

Net sales                            10,425,395     9,433,171       7,683,420

Gross profit                          5,754,133     6,007,054       4,756,595

Income (loss) from operations           848,317     1,362,804        (965,344)

Income (loss) before income taxes       280,568       754,700      (1,570,183)

Income (loss) from continuing
operations                              166,908       501,236        (964,485)

Earnings (loss) per share from
continuing operations                       .06           .20            (.40)

Balance Sheets:

Current assets                      $ 5,166,030   $ 4,895,019     $ 4,764,468

Total assets                         12,806,762    15,369,054      16,204,649

Long-term obligations                 5,301,832     5,521,349       6,212,302

Total liabilities                     8,367,878     8,717,776       9,923,274

Working capital                       2,099,984     1,698,592       1,053,496

Stockholders' equity                  4,438,884     6,651,278       6,281,375

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

            Certain statements contained in this Report contain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  These are statements that
do not relate strictly to historical or current facts.  Such forward-
looking statements involve known and unknown risks and uncertainties.
The Company's actual actions or results may differ materially from
those discussed in the forward-looking statements.  These risk factors
include, without limitation:

            . Rapid changes in (i) the technology used to administer
              standardized tests generally or market educational materials
              or (ii) in the policy considerations which determine which
              test will be administered;

            . Non-renewal of the Company's annual contract with the State
              of Connecticut;

            . Deficits in state and school budgets;

            . The loss of any significant customer;

            . The ability of the Company to compete successfully with the
              other providers of standardized tests (see "Description of
              Business--Competition", above);

            . The ability of the Company to accommodate any changes in
              government regulation which may impact the marketability of
              its tests (see "Description of Business--Government
              Regulation", above);

            . The ability to complete the divestiture of the Mildred Elley
              Schools;

            . While the divestiture of the Mildred Elley Schools is
              pending, the loss of the eligibility of the Mildred Elley
              Schools under Federal or state grant programs for tuition
              assistance, or the discontinuance of Federal or state grant
              programs for tuition assistance, or the loss of
              accreditation of the Mildred Elley schools;

            . The ability of the Company to secure additional financing as
              and when necessary;

            . The ability of the Company to retain the services of its key
              management, and to attract new members of the management team;

            . The ability of the Company to effect and retain appropriate
              patent, copyright and trademark protection of its products;

            . Any decrease in the market for educational consulting
              services; and

            . Increased competition in the field of publishing.

            The Company undertakes no obligation to release publicly any
revisions to the forward-looking statements or to reflect events or
circumstances after the date of this Report.

ITEM 7. FINANCIAL STATEMENTS

            Financial information required by this item appears in the
pages marked F-1 through F-33 at the end of this Report and are
incorporated herein by reference as if fully set forth herein.




                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                        PAGE
                                                        ----

         INDEPENDENT AUDITORS' REPORT                   F - 2

         CONSOLIDATED BALANCE SHEETS                    F - 3

         CONSOLIDATED STATEMENTS OF OPERATIONS AND
           COMPREHENSIVE INCOME                         F - 5

         CONSOLIDATED STATEMENT OF CHANGES IN
           STOCKHOLDERS' EQUITY                         F - 6

         CONSOLIDATED STATEMENTS OF CASH FLOWS          F - 7

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     F - 9



ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE

            None.


                            PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

            As of January 20, 2003, the directors and executive officers
of the Company were as follows:

     Name                  Age         Position
     ----                  ---         --------

Michael D. Beck             56   Director; Vice President, TASA; and
                                 President, Chief Executive Officer, BETA

Steven R. Berger(1)(2)      47   Director

Peter A. Duhamel            57   Chief Operating Officer, TASA and
                                 MLP; Vice President, TASA

Joseph A. Fernandez(1)(2)   67   Director

Donald W. Hughes(1)         52   Director

Andrew L. Simon             60   Chairman of the Board of Directors;
                                 President and Chief Executive
                                 Officer, TASA

Linda G. Straley            46   Director; Vice President, and Secretary, TASA

Thomas G. Struzzieri(1)(2)  44   Director

David L. Warnock(2)         45   Director


________________________
(1)	Member of the Audit Committee

(2)     Member of the Compensation Committee.


            Each director shall hold office until the earlier of the
next annual meeting of the Company's stockholders or his or her
resignation and until a successor is selected and qualified.

            MICHAEL D. BECK was elected as a Director of the Company in
March 1997 and has been Vice President of the Company since January
1997.  Mr. Beck is also a Director and President and Chief Executive
Officer of BETA and is a Director of MLP.  Since 1983, Mr. Beck has
been President of BETA, which provides consulting and contractual
services to school districts, state education departments and test and
textbook publishers.  As of January 2, 1997, BETA became a wholly-
owned subsidiary of the Company and Mr. Beck continues to serve as the
President of BETA.  See "Certain Relationships and Related
Transactions" in Item 12, below.  Mr. Beck has also provided
consulting services on matters of educational research and assessment
for various military, governmental and commercial organizations.  Mr.
Beck received an A.B. from John Carroll University and an M.A. from
Fordham University.

            STEVEN R. BERGER was elected as a Director of the Company in
March 1996 and he also serves on each of the Company's Compensation
and Audit Committees.  Mr. Berger was a partner in the law firm of
Salans from January 1989 through September 2002.  Salans acted as
special securities counsel to the Company from January 1995 through
September 2002.  Mr. Berger is currently a partner in the law firm of
Vedder, Price, Kaufman & Kammholz in New York City.  The Company has
retained Vedder, Price, Kaufman & Kammholz as its special securities
counsel.  Mr. Berger received an A.B. from Harvard University and a
J.D. from Harvard Law School.

            PETER A. DUHAMEL joined the Company as the Chief Operating
Officer of TASA and MLP and a Vice President of the Company in January
2000.  Before joining the Company, Mr. Duhamel was the National Sales
Manager for Prentice Hall Regents/Cambridge in Upper Saddle River, New
Jersey, from July 1997 until December 1999, and as such was
responsible for the sales of all Cambridge and Prentice Hall Regents
products to the kindergarten through the adult/academic and GED
markets through all lines of distribution.  From January 1991 until
June 1997, Mr. Duhamel was the General Manager of Sales and Marketing
for the Troll School and Library in Mahwah, New Jersey, during which
time Mr. Duhamel was responsible for the sales and marketing of Troll
School and Library products to the educational market place.  Mr.
Duhamel received a B.S. from Western New England College.

            JOSEPH A. FERNANDEZ was elected as a Director of the Company
in December 1998 and, since that date, he has also served on each of
the Company's Audit and Compensation Committees.  Dr. Fernandez is
also a director of BETA and TESC.  Dr. Fernandez is President of
Joseph A. Fernandez & Associates, Inc., an education consulting firm.
From June 1993 until June 1996, Dr. Fernandez served as President and
Chief Executive Officer of School Improvement Services, Inc., an
organization in Winter Park, Florida which provides consulting
services related to school improvement at the state, district or
school level.  From June 1993 until July 1994, Dr. Fernandez also
served as the President of the Council of Great City Schools, a
Washington, D.C. based organization representing fifty of the largest
urban school districts in the United States.  Prior to assuming such
positions in 1993, Dr. Fernandez served as Chancellor of the New York
City Public Schools from 1990 to 1993 and as Superintendent of the
Dade County Public Schools in Miami, Florida from 1987 to 1990.  Dr.
Fernandez served on the Board of Directors of Children's Comprehensive
Services, Inc. from 1994 through 2001, and currently serves on the
Board of Directors of Commerce Thru Digital Technology, Inc.  Dr.
Fernandez holds a B.A. from the University of Miami, a M.A. in
Education from Florida Atlantic University and an Ed.D. from Nova
University.

            DONALD W. HUGHES was elected as Director in June 2001.
Since July 2001, Mr. Hughes has served on the Company's Audit
Committee.  Mr. Hughes has served as an officer of Cahill Warnock
since February 1997 and is a General Partner and Chief Financial
Officer of Cahill Warnock.  Prior to joining Cahill Warnock in
February 1997, Mr. Hughes had served as Vice President, Chief
Financial Officer and Secretary of Capstone Pharmacy Services, Inc.
from December 1995 and as Executive Vice President and Chief Financial
Officer of Broventure Company, Inc., a closely-held investment
management company, from July 1984 to November 1995.  Mr. Hughes also
serves on the boards of Occupational Health + Rehabilitation Inc, and
AgilQuest, Inc.  Mr. Hughes received a B.A. from Lycoming College and
an M.S.F. from Loyola College in Maryland, and is a Certified Public
Accountant.

            ANDREW L. SIMON was elected as Director and as President and
Chief Financial Officer of the Company in March 1995.  Mr. Simon is
also a Director of MLP, a Director and President and Treasurer of
TESC, a Director and Treasurer of MESI and a Director and Secretary of
BETA.  He served as Interim President of TASA from June 1994 through
March 1995.  He was a founder of the Company and previously served as
a Director from 1976 to 1991 and has acted as a financial consultant
to the Company since its inception in 1976.  From 1983 to 1986, he was
a Vice President/Marketing Division Head in the Private Clients Group
at Bankers Trust Company.  He was a Vice President at Citibank, NA,
where he held a number of senior marketing and sales positions, from
1980 to 1983.  Prior to 1980, Mr. Simon served as Marketing Director
for several consumer package goods companies including Norcliff-Thayer
and Lederle Laboratories.  He holds an M.B.A. from Columbia University
and a B.A. from Washington University.  Mr. Simon is on The George
Washington University National Council for Education and Human
Development.

            LINDA G. STRALEY was elected as a Director of the Company
and has been Vice President since June 1994.  From June 1994 through
March 1995, she was Chairman of the Board of Directors.  She has been
Secretary since August 1992 and, from 1984 to 1994, she served as
director of DRP Services for the Company.  Ms. Straley is also a
Director of MESI and a Director and Secretary of TESC.  Ms. Straley
received a B.A. in Education from Bethany College and an M.S. in
Educational Psychology and Statistics from the State University of New
York.

            THOMAS STRUZZIERI was elected a Director of the Company in
June 2000.  He serves on each of the Company's Audit and Compensation
Committees.  Mr. Struzzieri is the owner of HITS, a special events
production company.  HITS currently produces major equestrian circuits
in California, Florida, Virginia, New York, Arizona, and Nevada.  He
is a director of the American Horse Shows Association and President of
the National Hunter Jumper Council.  He is on the Board of Directors
of the United Way of Dutchess County, the Rhinebeck Center for
Performing Arts, the Bardavon Opera House, the Boy Scouts of American
of Dutchess County and the Astor Home for Children.  Mr. Struzzieri is
also a trustee of Vassar Hospital and a member of the Business and
Community Leaders' Advisory Committee of the Institute of Ecosystems
Studies.  He attended Vassar College.

            DAVID L. WARNOCK was elected as a Director of the Company in
October 1998 and, since that time, he has also served on the Company's
Compensation Committee.  Mr. Warnock is also a Director of TESC.  Mr.
Warnock is a founding partner of Cahill, Warnock & Company, LLC, an
asset management firm established in 1995 to invest in small public
companies.  From 1983 to 1995, Mr. Warnock was with T. Rowe Price
Associates in senior management positions, including President of the
corporate general partner of T. Rowe Price Strategic Partners and T.
Rowe Price Strategic Partners II, and as the Executive Vice President
of T. Rowe Price New Horizons fund.  Mr. Warnock also serves on the
Boards of Directors of Blue Rhino Corp., Bridges Learning Systems,
Concorde Career Colleges, Inc., Environmental Safeguards, Inc., the
National Alliance to End Homelessness, the Center for Fathers,
Families and Workforce Development, and QC Holdings.  Mr. Warnock
received a B.A. in History from the University of Delaware and a
Masters in Finance from the University of Wisconsin.

ITEM 10.    EXECUTIVE COMPENSATION

            The following table shows compensation for services rendered
to the Company during Fiscal 2002, 2001 and 2000, respectively, by the
Chief Executive Officer, the President of BETA, the Chief Operating
Officer of TASA and MLP, the Chief Financial Officer, and the
Executive Vice President of TESC.  Each executive officer serves under
the authority of the Board of Directors. No other executive officer of
the Company received cash compensation that exceeded $100,000 during
Fiscal 2002.  Therefore, pursuant to Item 402 of Regulation S-B, only
compensation for each of the Chief Executive Officer, the President of
BETA, the Chief Operating Officer of TASA and MLP, the Chief Financial
Officer, and the Executive Vice President of TESC is shown in the


<TABLE>
<CAPTION>

                      SUMMARY COMPENSATION TABLE



                                     Annual Compensation                       Long-Term Compensation
                                     ------------------------------------------------------------------
                                                                             Awards             Payouts
                                                                             --------------------------

                                                                                       Securities            All Other
                                                          Other Annual  Restricted      Underlying     LTIP    Compen-
 Name and Principal                                       Compensation    Stock       Options/SARs(1) Payouts  sation
     Position                Year    Salary($)   Bonus($)      ($)      Award(s)($)        (#)          ($)      ($)
--------------------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>         <C>       <C>            <C>         <C>              <C>       <C>
Andrew L. Simon,             2002    $219,166    $25,000    $22,125(2)       0           10,000/0(2)     0        0
President, Chief             2001    $215,000    $40,000    $21,854(2)    10,000(2)      20,000/0(2)     0        0
Executive Officer            2000    $212,500        0      $35,350(2)       0           20,000/0        0        0
--------------------------------------------------------------------------------------------------------------------
Michael D. Beck,             2002    $150,000    $25,414    $19,928(3)       0            6,000/0(3)     0        0
Vice President,              2001    $150,000    $47,854    $19,654(3)    10,000(3)      12,000/0(3)     0        0
TASA; President              2000    $150,000    $20,608    $30,702(3)       0           12,000/0        0        0
and Chief
Executive
Officer, BETA
--------------------------------------------------------------------------------------------------------------------
Peter A.                     2002    $150,000    $43,902    $18,831(4)       0            6,000/0(4)     0        0
Duhamel, Chief               2001    $122,260     40,511    $17,848(4)    10,000(4)      12,000/0(4)     0        0
Operating                    2000    $122,260        0      $20,201(4)         0         40,000/0       --       --
Officer,
TASA/MLP
--------------------------------------------------------------------------------------------------------------------
Denise M.                    2002        0           0           0             0            0            0
Stefano, Chief               2001     $91,616        0       $9,945(5)         0            0            0        0
Financial                    2000    $110,000        0      $14,842(5)         0          5,000/0        0        0
Officer
(resigned
effective July
31, 2001)
--------------------------------------------------------------------------------------------------------------------
Faith Takes,                 2002   $150,000         0      $12,093(6)         0            0            0        0
Executive Vice               2001   $150,000         0       $9,945(6)         0            0            0        0
President, TESC;             2000   $150,000         0      $10,979(6)         0         10,000/0        0        0
President and
Chief Executive
Officer, MESI
--------------------------------------------------------------------------------------------------------------------

<FN>
*(1)      To date, the Company has issued no SARs.
 (2)      Includes: contributions to the Company's qualified 401(k) Profit
          Sharing Plan (the "401(k)") and the Company's Money Purchase
          Pension Plan (the "Pension Plan") of $8,500 in Fiscal 2002, $8,500
          in Fiscal 2001, and $17,000 in Fiscal 2000; and $9,000, $9,000, and
          $9,882, for a company car in Fiscal 2002, 2001, and 2000,
          respectively.  Also includes: restricted shares and options issued
          after the end of Fiscal 2001 pursuant to the Company's 2000 Stock
          Incentive Plan, as part of a bonus paid in respect of Fiscal 2001;
          and stock options issued after the end of Fiscal 2002 pursuant to
          the Company's 2000 Stock Incentive Plan as part of the bonus paid
          in respect to Fiscal 2002.
 (3)      Includes: contributions to the Company's 401(k) and Pension Plan
          of $8,500 in Fiscal 2002, $8,500 in Fiscal 2001; and $17,000 in
          Fiscal 2000; and $7,091, $7,091, and $6,234, for a company car in
          Fiscal 2002, 2001, and  2000, respectively.  Also includes:
          restricted shares and options issued after the end of Fiscal 2001
          pursuant to the Company's 2000 Stock Incentive Plan, as part of a
          bonus paid in respect of Fiscal 2001; and stock options issued
          after the end of Fiscal 2002 pursuant to the Company's 2000 Stock
          Incentive Plan, as part of the bonus paid in respect to Fiscal 2002.
 (4)      Includes: contributions to the Company's 401(k) and Pension Plan
          of $8,500 in Fiscal 2002, $7,500 in Fiscal 2001, and $12,226 in
          Fiscal 2000; and $5,994, $5,994 and $4,995 for a company car in
          Fiscal 2002, 2001 and 2000, respectively.  Also includes:
          restricted shares and options issued after the end of Fiscal 2001
          pursuant to the Company's 2000 Stock Incentive Plan, as part of a
          bonus paid in respect of Fiscal 2001; and stock options issued
          after the end of Fiscal 2002 pursuant to the Company's 2000 Stock
 (5)      Includes: contributions to the Company's 401(k) and Pension Plan
          of $0 in Fiscal 2002, $4,581 in Fiscal 2001 and $11,000  in Fiscal
          2000, and $0, $2,541 and $840 for a company car in Fiscal 2002,
          2001 and 2000, respectively.
 (6)      Includes: $8,556, $8,556, and $8,412 for a company car in Fiscal
          2002, Fiscal 2001, and Fiscal 2000, respectively.

</FN>
</TABLE>



EMPLOYMENT CONTRACTS

            On March 1, 1996, the Company entered into an employment
agreement with each of Andrew L. Simon and Linda G. Straley, pursuant
to which the Company agreed to employ Mr. Simon and Ms. Straley, and
each of Mr. Simon and Ms. Straley agreed to remain, as the Company's
President and Chief Executive Officer, and Vice President,
respectively, for a term of three years, subject to automatic yearly
extensions and certain rights of termination as provided in each such
agreement.

            As of January 2, 1997, the Company entered into an
employment agreement with Michael D. Beck, pursuant to which the
Company agreed to employ Mr. Beck, and Mr. Beck agreed to remain, as
Vice President of TASA and President and Chief Executive Officer of
BETA, for a term of three years, subject to automatic yearly
extensions and certain rights of termination as provided in such
agreement.

            In the employment agreements with each of Messrs. Simon and
Beck and Ms. Straley, the Company has agreed to provide for certain
benefits and protections for such executive officers in connection
with a change of control of the Company.  Such agreements provide that
upon the occurrence of a change of control (as defined in each
agreement), such executive's employment agreement would continue until
the earlier of three years from the date of such change of control or
the date all of the Company's obligations under the employment
agreement are satisfied.  In addition, in the event of a change of
control, each executive officer would be awarded for each fiscal year
during the employment term, an annual bonus in cash at least equal to
the average annual bonus payable to such executive in respect of two
of the last three fiscal years immediately preceding the date of the
change of control in which bonuses paid were higher.  In addition, Mr.
Beck's employment agreement provides that, in the event of a change of
control, he would be entitled to receive a bonus equal to the average
annual bonus payable to Mr. Beck from the Company in respect of two of
the last three fiscal years immediately preceding the date of any
change of control in which the bonuses paid were higher.

            In November 1998, the Company, through MESI, acquired
substantially all of the assets of Mildred Elley.  MESI entered into
an employment agreement with Faith Takes, pursuant to which Ms. Takes
agreed to remain as the President and Chief Executive Officer of MESI
and to become the Executive Vice President of TESC, a wholly-owned
subsidiary of the Company and the parent company of MESI.  Ms. Takes'
employment agreement terminates October 31, 2003.

            On December 1, 1999, the Company entered into an employment
agreement with Peter Duhamel, pursuant to which, effective as of
January 10, 2000, the Company agreed to employ Mr. Duhamel, and Mr.
Duhamel agreed to remain, as the Chief Operating Officer of TASA and
MLP and as a Vice President of TASA, for an initial term of one year,
subject to automatic yearly extensions and certain rights of
termination as provided in such agreement.  The agreement contains a
non-competition clause for one year following termination of the
executive's employment.

            Generally, each employee of the Company has agreed to the
assignment to the Company of the employee's rights to any inventions
relating to the Company's business or interest which were conceived
both prior to and during the period of employment and, except under
certain specified conditions, the Company's employees are prohibited
from competing for one year with the Company in areas in which he or
she was employed.

STOCK INCENTIVE PLANS

            The Board of Directors of the Company adopted the 1991 Stock
Option Incentive Plan (the "Option Plan") on August 25, 1991 in order
to attract and retain qualified personnel, which Option Plan was
approved by the stockholders on August 25, 1991.  The Board of
Directors adopted the Amended and Restated 1991 Stock Option Incentive
Plan (the "Amended Option Plan") in February 1996, which Amended
Option Plan amended and restated the Option Plan and was approved by
the stockholders of the Company on March 29, 1996.  Under the Amended
Option Plan, options to purchase up to 625,000 shares of Common Stock
were available to be granted to employees, officers, directors and
consultants of the Company.  The Amended Option Plan terminated in
2001, after which no further options or stock awards may be issued
under the Amended Option Plan; all options and other stock awards
outstanding under the Amended Option Plan at the termination date
shall continue to be outstanding and may be exercised in accordance
with their respective terms, until such options or other stock awards
expire by their terms.

            The Board of Directors of the Company adopted the 2000 Stock
Incentive Plan (the "2000 Plan") in February, 2000. The stockholders
of the Company approved the 2000 Plan at the Company's Annual Meeting
of Stockholders held on March 31, 2000.  Under the 2000 Plan, options
or other stock awards with respect to up to 300,000 shares of the
Company's Common Stock  may be granted to employees, officers,
directors and consultants of the Company.  The terms of the 2000 Plan
are substantially identical to the terms of the Amended Option Plan,
except for provisions with respect to the number of shares which may
be issued under the 2000 Plan and the expiration date of the 2000
Plan. As of October 31, 2001, no options or other stock awards had
been issued under the 2000 Plan.  As of October 31, 2002, options to
purchase up to an aggregate of 79,800 shares were outstanding under
the 2000 Plan and restricted stock awards aggregating 35,000 shares
had been issued under the 2000 Plan.

            Each of the Amended Option Plan and the 2000 Plan
(collectively, the "Option Plans") is administered by the Compensation
Committee of the Board of Directors (the "Committee"). Subject to the
terms of the Option Plans, the Committee is authorized to select
optionees and determine the number of shares covered by each option
and certain of its other terms.  The exercise price of stock options
granted under the Option Plans may not be less than the fair market
value of the Company's Common Stock on the date of the grant.  In
general, options become exercisable after the first anniversary of the
date of grant.  The period within which any stock option may be
exercised cannot exceed ten years from the date of grant.  Options
held by a terminated employee expire three months after termination
except in the event of death, disability or termination for cause.  No
one participant may receive, in any one fiscal year, awards under the
Option Plans which would entitle the participant to receive more than
50,000 shares.

            In Fiscal 2000, the Company granted a total of 113,275
options under the Amended Plan, and 76,350 options under the Amended
Option Plan were canceled.  In Fiscal 2001, 22,750 options were
cancelled under the Amended Option Plan.  No options were granted in
Fiscal 2001 under either the Amended Option Plan or the 2000 Plan.  In
Fiscal 2002, 375 options were cancelled under the Amended Option Plan.
In January 2002, restricted stock awards aggregating 35,000 shares and
79,800 options were granted under the 2000 Plan. As of October 31,
2002, there were 474,912.50 options in the aggregate outstanding under
the Amended Option Plan and 79,800 options in the aggregate were
outstanding under the 2000 Plan.

<TABLE>
<CAPTION>


                    OPTION/SAR GRANTS IN LAST FISCAL YEAR
                             (INDIVIDUAL GRANTS)

                         Number of     Percent of Total
                         Securities      Options/SARs
                         Underlying       Granted to
                       Options/SARs(1)   Employees in      Exercise Or Base
Name                     Granted (#)      Fiscal Year      Price ($/Share)    Expiration Date
---------------------------------------------------------------------------------------------
<S>                   <C>               <C>             <C>                 <C>
Andrew L. Simon,           20,000            25.1%              $0.46            1/10/2012
President, Chief
Executive Officer
---------------------------------------------------------------------------------------------
Michael D. Beck, Vice      12,000            15.1%              $0.46            1/10/2012
President, TASA;
President and Chief
Executive Officer,
BETA
---------------------------------------------------------------------------------------------
Peter Duhamel, Chief       12,000            15.1%              $0.46            1/10/2012
Operating Officer,
TASA/MLP
---------------------------------------------------------------------------------------------
Faith Takes, Executive         --              --                  --                   --
Vice President, TESC;
President and Chief
Executive Officer,
MESI
---------------------------------------------------------------------------------------------
</TABLE>

(1)	To date, the Company has issued no SARs.



<TABLE>
<CAPTION>

                AGGREGATED OPTION/SAR EXERCISES IN LAST
                FISCAL YEAR AND FY-END OPTION/SAR VALUES


                                                             Number of
                                                             Securities         Value of
                                                             Underlying      Unexercised In-
                                                            Unexercised         the-Money
                                                           Options/SARs(1)    Options/SARs(1)
                                                            at FY-End (#)      at FY-End ($)
                                                         ---------------------------------------
                            Shares
                         Acquired on     Value Realized      Exercisable/      Exercisable/
    Name                 Exercise (#)         ($)           Unexercisable     Unexercisable
------------------------------------------------------------------------------------------------

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

Andrew L. Simon,              0                0            141,875/15,000     --/$1,800(2)
President, Chief
Executive Officer
------------------------------------------------------------------------------------------------
Michael D. Beck, Vice         0                0             70,750/12,000     --/$1,080(2)
President, TASA;
President and Chief
Executive Officer,
BETA
------------------------------------------------------------------------------------------------
Peter Duhamel, Chief          0                0             40,000/12,000     --/$1,080(2)
Operating Officer,
TASA/MLP
------------------------------------------------------------------------------------------------
Faith Takes, Executive        0                0             47,500/0          --/--(2)
Vice President, TESC;
President and Chief
Executive Officer,
MESI
------------------------------------------------------------------------------------------------
</TABLE>
(1)	To date, the Company has issued no SARs.
(2)	Based on the closing price of the Company's Common Stock on
        NASDAQ on October 31, 2002, or $0.55.

DIRECTORS COMPENSATION

            The Board of Directors of the Company adopted the Directors
Plan in February 1996 in order to aid the Company in attracting,
retaining and motivating independent directors, which Directors Plan
was approved by the stockholders of the Company on March 29, 1996.
The Directors Plan initially authorized awards up to an aggregate of
25,000 shares of Common Stock.  In February 2000, the Board of
Directors approved an amendment to the Directors Plan increasing to
75,000 the number of shares which may be the subject of stock options
under the Directors Plan.  The stockholders of the Company approved
such amendment at the Annual Meeting of Stockholders on March 31,
2000.  Under the Directors Plan, non-qualified stock options to
purchase up to 75,000 shares of Common Stock may be granted to non-
employee directors of the Company, which options are granted
automatically at the times and in the manner stated in the Directors
Plan.

            Subject to the terms of the Directors Plan, each non-
employee director receives 5,000 options on the day he (she) first is
elected to the Board of Directors, and 2,500 options on the date of
each annual meeting of the stockholders of the Company, provided he
(she) is re-elected to the Board of Directors.  The exercise price of
stock options granted under the Directors Plan is the fair market
value of the Company's Common Stock on the date of grant.  The options
become exercisable after the first anniversary of the date of grant
and the term of the option cannot exceed ten years.  On March 31,
2000, the Company granted 7,500 options; on June 7, 2000, the Company
granted 5,000 options; on March 30, 2001, the Company granted 10,000
options, on June 6, 2001, the Company granted 5,000 options; and on
March 20, 2002, the Company granted 12,500 options under the Directors
Plan.  As of October 31, 2002, an aggregate of 46,875 options were
outstanding under the Directors Plan.

            Directors receive no compensation, other than the options
pursuant to the Directors Plan, for services in such capacity.

OTHER PLANS

            CONSULTANTS STOCK INCENTIVE PLAN.  In March 1997, the Board
of Directors of the Company adopted the Consultants Plan, pursuant to
which options to purchase up to 50,000 shares of Common Stock may be
granted to consultants to the Company. The Consultants Plan is
administered by the Board of Directors of the Company.  Subject to the
terms of the Consultants Plan, the Board is authorized to select
optionees and determine the number of shares covered by each option
and certain of its other terms.  In general, the exercise price of
stock options granted under the Consultants Plan is the fair market
value of the Company's Common Stock on the date of the grant, however,
the Board has the discretion to use another method of valuation if it
determines that such other valuation is warranted.  In general,
options become exercisable six months from the date of grant, although
the Board has discretion to set either longer or shorter vesting
periods.  The period within which any stock option may be exercised
cannot exceed ten years from the date of grant.  If a consultant's
association with the Company is terminated prior to the end of its
agreed term, all unexercised, deferred and unpaid awards shall be
canceled immediately, except in the event of the Consultant's death or
disability.  During Fiscal 2002, the Company granted 7,500 options
under the Consultants Plan.  As of October 31, 2002, 7,500 options
were outstanding under the Consultants Plan.

            PROFIT SHARING PLAN. The Company has a qualified 401(k)
Profit Sharing Plan.  For fiscal years ended before November 1, 2000,
the 401(k) Plan allowed eligible employees to contribute up to 15
percent (15%) of income through Company contributions and a salary
reduction mechanism.  Company contributions to the 401(k) Plan were
optional and accrued at the discretion of the Board of Directors.  For
Fiscal 2000 and Fiscal 1999, the Board of Directors of the Company
elected not to make a contribution to the 401(k) Plan.  Effective
November 1, 2000, the Company amended the 401(k) Plan to provide a
matching component under the 401(k) Plan of up to five percent (5%) of
each eligible employee's compensation.  In addition, the eligibility
requirements were amended to that an employee is not eligible until
completing twelve months or two thousand hours of employment, and may
only enter the 401(k) Plan at specified entry dates.
Net assets for the 401(k) Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains such
plan's records, were $1,735,127, $1,667,686, and $1,794,313 at October
31, 2002, 2001 and 2000, respectively.

            MONEY PURCHASE PENSION PLAN.  In October 1991, the Company
adopted a Money Purchase Pension Plan, which has been qualified by the
Internal Revenue Service.  Under this Plan, for fiscal years ended
before November 1, 2000, the Company was required to make an annual
contribution to the Plan equal to ten percent (10%) of each eligible
employee's compensation.  Effective November 1, 2000, the Company
amended the Plan to exclude highly compensated employees and to reduce
the contribution to five percent (5%) of each eligible employee's
compensation.  In addition, the eligibility requirements were amended
to that an employee is not eligible until completing twelve months
employment, and may only enter the Pension Plan at specified entry dates.

            Net assets for the Money Purchase Pension Plan, as estimated
by the Massachusetts Mutual Life Insurance Company which maintains
such plan's records, were, and $940,550, $936,111, and $944,366 at
October 31, 2002, 2001 and 2000, respectively.

            For Fiscal 2002, Fiscal 2001, and Fiscal 2000, the Company's
retirement costs aggregated $166,000, $146,000, and $197,500,
respectively.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, executive officers and persons who
own beneficially more than ten percent of the Company's outstanding
common stock to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of common
stock and other securities of the Company on Forms 3, 4 and 5, and to
furnish the Company with copies of all such forms they file.  Based on
a review of copies of such reports received by the Company, all of the
Company's directors and officers timely filed all reports required
with respect to Fiscal 2002.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

            The following table sets forth certain information regarding
the beneficial ownership of the Company's Common Stock, as of January
20, 2003, by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock;
(ii) each of the Company's officers and directors; and (iii) all
officers and directors as a group.

            As of January 20, 2003, there were 2,594,453 shares of
Common Stock outstanding.  Each share of Common Stock is entitled to
one vote per share.



<PAGE>


                                                   Shares of        Percent of
Name and Address of                              Common Stock      Common Stock
Beneficial Owners and                            Beneficially      Beneficially
Directors and Officers                              Owned             Owned
-------------------------------------------------------------------------------
5% Beneficial Owners:
--------------------
Cahill, Warnock Strategic                         720,318(1,2)        25.3%
Partners Fund, L.P.
c/o Cahill, Warnock & Co., LLC
1 South Street, Suite 2150
Baltimore, MD 21202

-------------------------------------------------------------------------------
Officers and Directors:
-----------------------
Michael D. Beck                                   162,875(3)           6.1%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Steven R. Berger                                   10,625(4)             *
805 Third Avenue
New York, NY 10020
-------------------------------------------------------------------------------

Peter A. Duhamel                                   62,000(5)           2.3%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Joseph A. Fernandez                                10,275(6)             *
4392 Live Oak Boulevard
Palm Harbor, FL 34685
-------------------------------------------------------------------------------

Donald W. Hughes                                  767,731(7)          26.7%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------

Andrew L. Simon                                   252,113(8)           9.1%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Linda G. Straley                                  121,494(9)           4.6%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Thomas Struzzieri                                  15,000(10)            *
24 Closs Drive
Rhinebeck, NY  12472
-------------------------------------------------------------------------------

Faith Takes                                        47,500(11)          1.8%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

David L. Warnock                                  770,231(12)         26.8%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------

Officers and Directors as a                     1,434,011(13)         43.1%
Group (10 persons)
-------------------------------------------------------------------------------
________________
     * Less than 1%

       1           Includes 258,268 shares that Cahill, Warnock Strategic
Partners Fund, L.P. (the "Fund") has the right to acquire pursuant to
currently exercisable warrants (the "Fund Warrants").  Excludes (a)
25,602 shares, and (b) 14,311 shares which may be acquired pursuant to
currently exercisable warrants (the "Strategic Warrants"), owned by
Strategic Associates, L.P., an affiliate of the Fund, but as to which
the Fund disclaims beneficial ownership.  ("Strategic Associates";
together, with the Fund, the "Cahill, Warnock Entities").  Pursuant to
the Investor Rights Agreement (the "Investor Rights Agreement")
between the Company and the Cahill, Warnock Entities, the Company has
agreed that so long as the Cahill, Warnock Entities own at least 50%
of the Fund Warrants and the Strategic Warrants (the "Warrants") (or
if the Warrants have been exercised, the shares issuable pursuant
thereto), the Cahill, Warnock Entities have the right to nominate two
directors to the Board of Directors of the Company.  David L. Warnock
and Donald W. Hughes are the two current directors who were nominated
by the Cahill, Warnock Entities.  Pursuant to the Investor Rights
Agreement, the directors and executive officers of the Company have
agreed, at each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the nominees of
the Cahill, Warnock Entities.  In addition, for a period of 29 months
from the closing date of the investment by the Cahill Warnock
Entities, at each meeting of stockholders for the purpose of electing
directors, the Cahill, Warnock Entities have agreed to cast all of
their eligible votes in favor of the directors nominated by the
Company.

       2           Edward L. Cahill, David L. Warnock and Donald W. Hughes
are general partners of Cahill, Warnock Strategic Partners, L.P.
("Cahill, Warnock Partners"), the Fund's sole general partner, and the
sole general partner of Strategic Associates.  Each of David L.
Warnock and Donald W. Hughes is also a director of the Company (see
footnotes 7 and 12 to this table).

       3           Includes (i) 42,000 shares which are owned jointly with
Mr. Beck's wife, (ii) 9,375 shares owned by Mr. Beck's daughter, and
(iii) 82,750 shares which Mr. Beck has the right to acquire upon the
exercise of currently exercisable stock options or options that will
become exercisable within 60 days.  Excludes 9,375 shares owned by Mr.
Beck's wife, as to which Mr. Beck disclaims beneficial ownership, and
6,000 shares which are the subject of stock options that are not
currently exercisable.

       4           Includes 10,625 shares which Mr. Berger has the right to
acquire upon the exercise of currently exercisable stock options or
stock options which become exercisable within 60 days.

       5           Includes 52,000 shares which are the subject of options
granted to Mr. Duhamel which are currently exercisable or stock
options which become exercisable within 60 days. Excludes 6,000 shares
which are the subject of stock options that are not currently exercisable.

       6           Includes 9,375 shares which Mr. Fernandez has the right
to acquire upon the exercise of currently exercisable stock options or
stock options which become exercisable within 60 days.

       7           Includes (i) 487,652 shares owned by the Cahill Warnock
Entities, (ii) 258,268 shares which the Fund has the right to acquire
pursuant to the Fund Warrant; (iii) 14,311 shares which Strategic
Associates, has the right to acquire pursuant to the Strategic Warrant
(see footnotes 1 and 2 to this table);  and (iv) 7,500 shares which
Mr. Hughes has the right to acquire upon the exercise of options
currently exercisable stock options or stock options which become
exercisable within the next 60 days.

       8           Includes 161,875 shares which Mr. Simon has the right to
acquire upon the exercise of currently exercisable stock options or
stock options that will become exercisable within 60 days, and which
options are not included in the Voting Trust.  Excludes 375 shares of
Common Stock owned by the retirement account of Mr. Simon's wife, as
to which Mr. Simon disclaims beneficial ownership, and 10,000 shares
which are the subject of stock options that are not currently exercisable.

       9           Includes 70,800 shares which Ms. Straley has the right
to acquire upon the exercise of currently exercisable stock options or
options that will become exercisable within 60 days. Excludes 3,000 shares
which are the subject of stock options that are not currently exercisable.

      10           Includes 10,000 shares which Mr. Struzzieri has the
right to acquire upon the exercise of currently exercisable stock
options or options which become exercisable within the next 60 days.

      11           Includes 47,500 shares which Ms. Takes has the right to
acquire upon the exercise of currently exercisable stock options or
options.

      12           Includes (i) 10,000 shares which Mr. Warnock has the
right to acquire upon the exercise of currently exercisable stock
options or stock options which become exercisable within 60 days; (ii)
487,652 shares owned by the Cahill Warnock Entities, (iii) 258,268
shares which the Fund has the right to acquire pursuant to the Fund
Warrant; and (iv) 14,311  shares which Strategic Associates, has the
right to acquire pursuant to the Strategic Warrant (see footnotes 1
and 2 to this table).

      13           Includes 462,425 shares which officers and directors
have the right to acquire upon the exercise of currently exercisable
stock options, options which become exercisable within the next 60
days, or currently exercisable warrants, and includes 272,679 shares
which the Cahill Warnock Entities have the right to acquire upon the
exercise of currently exercisable warrants.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            In November 1998, the Company, through MESI, acquired
substantially all of the assets of Mildred Elley.  The Company
financed the acquisition through the issuance of the Debentures, with
the Warrants attached, pursuant to a Securities Purchase Agreement
(the "Securities Purchase Agreement"),  with the Cahill, Warnock
Entities.  Pursuant to the Securities Purchase Agreement, the Company:
(i) issued and sold to the Cahill, Warnock Entities 8% Debentures due
2003 (the "Debentures"), dated October 28, 1998 (the "Purchase Closing
Date"), in the aggregate principal amount of $4,000,000, (ii) issued
and sold to the Cahill, Warnock Entities, as additional consideration
for purchasing the Debentures, the Warrants to acquire an aggregate of
690,229.5 shares of the Company's Common Stock, which, on the Purchase
Closing Date, constituted 20% of the Company's issued and outstanding
common stock on a fully diluted basis, after giving effect to the
transactions contemplated in the Securities Purchase Agreement and
(iii) authorized the issuance and sale in the future to the Cahill,
Warnock Entities of additional shares of the Company's Common Stock
upon the Company's exercise of a put option, the terms and conditions
of which are set forth in the Securities Purchase Agreement.  The
exercise price of the Warrants upon issuance was $1.40 per share of
Common Stock, subject to certain antidilution adjustments set forth in
the Warrants.  On December 3, 1999, in exchange for the Cahill,
Warnock Entities' consent, among other things, to subordinate the
Debentures to certain financing the Company is seeking to obtain in
connection with the implementation of the Company's strategic plan and
pursuant to a Consent, Agreement and Amendment, dated as of December
3, 1999, among the Company and the Cahill, Warnock Entities, the Board
of Directors of the Company approved a repricing of the Warrants to an
exercise price of $1.125 per share of Common Stock, subject to the
same antidilution adjustments referred to above.  Pursuant to the
Registration Rights Agreement between the Company and the Cahill,
Warnock Entities, the Company registered the shares of Common Stock
underlying the Warrants with the Securities and Exchange Commission.
On October 1, 2002, the Company and the Cahill Warnock entities agreed
to an extension of the maturity date of the Debentures from October
28, 2003 until February 1, 2004.

            Pursuant to the Investor Rights Agreement between the
Company and the Cahill, Warnock Entities, the Company has agreed that
so long as the Cahill, Warnock Entities own at least 50% of the
Warrants (or if the Warrants have been exercised, the shares issuable
pursuant thereto), the Cahill, Warnock Entities shall have the right
to nominate two directors to the Board of Directors of the Company.
David L. Warnock and Donald W. Hughes are the current directors who
were nominated by the Cahill, Warnock Entities.  Pursuant to the
Investor Rights Agreement, the directors and executive officers have
agreed, at each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the nominees of
the Cahill, Warnock Entities.  In addition, for a period of 29 months
from the Purchase Closing Date, at each meeting of stockholders for
the purpose of electing directors, the Cahill, Warnock Entities had
agreed to cast all of their eligible votes in favor of the directors
nominated by the Company.

            As of January 2, 1997, the Company purchased all of the
outstanding capital stock of BETA from the holders of such shares for
a purchase price equal to (i) $130,000 in cash, (ii) $150,000 payable
in promissory notes (the "Notes"), bearing interest at the rate of
8.25% and maturing on January 2, 1999, and (iii) 150,000 shares of the
Company's Common Stock.  The Notes were paid in December 1998.
Michael D. Beck, Vice President and Director of the Company and
President and Chief Executive Officer of BETA, Connie Beck, Mr. Beck's
wife, and Amanda Beck, Mr. Beck's daughter, were the shareholders of
BETA at the time of its acquisition.  Pursuant to the Stock Purchase
Agreement, Mr. Beck had the option to repurchase all of the
outstanding capital stock of BETA from the Company for a period of six
years from the Agreement Date. This option expired unexercised on
January 2, 2003.

            In November 1998, the Company, through MESI, purchased
substantially all of the assets of Mildred Elley for an aggregate
purchase price of $3,000,000, paid as follows: (i) $2,000,000 in cash
at the closing and (ii) $1,000,000 by a five-year promissory note of
MESI, payable in equal quarterly installments of principal and
interest and bearing interest at a rate equal to 8.5% per annum. In
addition, MESI assumed certain liabilities of Mildred Elley related to
the acquired business (the "Assumed Liabilities").  The aggregate
amount of the Assumed Liabilities is approximately $1,000,000.
Simultaneous with the closing of such purchase, MESI entered into an
employment agreement with Faith Takes, pursuant to which Ms. Takes
agreed to remain as the President and Chief Executive Officer of MESI
and to become the Executive Vice President of TESC, a wholly-owned
subsidiary of the Company and the parent company of MESI.  See Item 3,
"Legal Proceedings".

            One of the Company's directors, Steven R. Berger, through
September 30, 2002, was a partner in Salans, which acted as special
securities counsel to the Company.  The Company paid legal fees of
$58,043, $62,217, and $88,081 to Salans for Fiscal 2002, 2001, and
2000, respectively.  As of October 1, 2002, Mr. Berger became a
partner in Vedder, Price, Kaufman & Kammholz.  The Company has
retained Vedder, Price, Kaufman & Kammholz as its special securities
counsel, though the Company did not pay any legal fees to that firm in
Fiscal 2002.

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

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

                3.1    Certificate of Incorporation, dated August
                       22, 1991 filed with the Secretary of State
                       of the State of Delaware (incorporated
                       herein by reference to the exhibit
                       contained in the Company's Quarterly Report
                       on Form 10-QSB for the fiscal quarter ended
                       January 31, 1999)


                3.2    Certificate of Merger dated August 26,
                       1992, filed with the Secretary of State of
                       the State of Delaware (incorporated herein
                       by reference to the exhibit contained in
                       the Company's Registration Statement on
                       Form SB-2 under the Securities Act of 1933,
                       as amended, filed with the Securities and
                       Exchange Commission on July 7, 1993)

                3.3    Certificate of Amendment of Certificate of
                       Incorporation dated March 4, 1999, filed
                       with the Secretary of State of the State of
                       Delaware (incorporated herein by reference
                       to the exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended January 31, 1999)

                3.4    Amended and Restated By-Laws (incorporated
                       by reference to the exhibit contained in
                       the Company's Registration Statement on
                       Form S-3 (File No. 333-27659) under the
                       Securities Act of 1933, as amended, filed
                       with the Securities and Exchange Commission
                       on May 22, 1997)

                4.1    Specimen Certificate evidencing shares of
                       Common Stock (incorporated herein by
                       reference to the exhibit contained in the
                       Company's Registration Statement on Form S-
                       3 (File No. 333-75377) under the Securities
                       Act of 1933, as amended, filed with the
                       Securities and Exchange Commission on March
                       31, 1999)

                4.2    Form of Warrant (incorporated by reference
                       to the exhibit contained in the Company's
                       Registration Statement on Form S-3 (File
                       No. 333-27659) under the Securities Act of
                       1933, as amended, filed with the Securities
                       and Exchange Commission on May 22, 1997)

                4.3    Investor Rights Agreement, dated as of
                       September 4, 1998, by and among the
                       Company, Cahill Warnock Strategic Partners
                       Fund, L.P., Strategic Associates, L.P., and
                       the Individual Shareholders Named Therein
                       (incorporated by reference to the exhibit
                       contained in the Company's Current Report
                       on Form 8-K, which was filed with the
                       Securities and Exchange Commission on
                       November 23, 1998 (the "November 1998 8-
                       K"))

                4.4    Registration Rights Agreement, dated as of
                       September 4, 1998, by and among the
                       Company, Cahill, Warnock Strategic Partners
                       Fund, L.P., and Strategic Associates, L.P.
                       (incorporated by reference to the exhibit
                       contained in the November 1998 8-K)

                4.5    Form of 8% Subordinated Debenture
                       (incorporated by reference to the exhibit
                       contained in the November 1998 8-K)

                4.6    Form of Warrant issued in connection with
                       the Securities Purchase Agreement by and
                       between the Company, Cahill, Warnock
                       Strategic Partners Fund, L.P. and Strategic
                       Associates, L.P. (incorporated by reference
                       to the exhibit contained in the November
                       1998 8-K)

                4.7    Amendment No. 1 to the Securities Purchase
                       Agreement, dated as of March 8, 1999, among
                       the Company, Cahill, Warnock Strategic
                       Partners Fund, L.P. and Strategic
                       Associates, L.P. (incorporated by reference
                       to the exhibit contained in the Company's
                       Annual Report on Form 10-KSB for the fiscal
                       year ended October 31, 1999)

                4.8    Consent, Agreement and Amendment, dated as
                       of December 3, 1999, by and among the
                       Company, Cahill, Warnock Strategic Partners
                       Fund, L.P. and Strategic Associates, L.P.
                       (incorporated by reference to the exhibit
                       contained in the Company's Annual Report on
                       Form 10-KSB for the fiscal year ended
                       October 31, 1999).

                4.9    Consent, Agreement and Amendment, dated as
                       of October 1, 2002, by and among the
                       Company, Cahill, Warnock Strategic Partners
                       Fund, L.P. and Strategic Associates, L.P.
                       (filed herewith).

                10.1   Lease Agreement between the Town of
                       Southeast Industrial Development
                       Agency/Industrial Development Reserve Bonds
                       and the Company;  Mortgage and Security
                       Agreement between the Company and the Town
                       of Southeast Industrial Development Agency
                       to Barclays Bank of New York, N.A., now The
                       Bank of New York, as mortgagee; Note
                       between the Company and Barclays Bank of
                       New York, N.A., now The Bank of New York;
                       Lease Guarantee Agreement from the Company
                       as guarantor and Barclays Bank of New York,
                       N.A., now The Bank of New York, as Trustee;
                       Amendment to Lease between the Town of
                       Southeast Industrial Development Agency and
                       the Company (incorporated herein by
                       reference to the exhibit contained in the
                       Company's Registration Statement on Form
                       SB-2 under the Securities Act of 1933, as
                       amended, filed with the Securities and
                       Exchange Commission on July 7, 1993)

                10.2   Extension and Modification Agreement, dated
                       as of October 31, 1996, between the Company
                       and the Town of Southeast Industrial
                       Development Agency, and the Bank of New
                       York (incorporated herein by reference to
                       the exhibit contained in the Company's
                       Annual Report on Form 10-KSB for the fiscal
                       year ended October 31, 1996)

                10.3   Agreement between the Company and the State
                       of Connecticut (incorporated herein by
                       reference to the exhibit contained in the
                       Company's Registration Statement on Form
                       SB-2 under the Securities Act of 1933, as
                       amended, filed with the Securities and
                       Exchange Commission on July 7, 1993)

                10.4   401(k) Plan (incorporated herein by
                       reference to the exhibit contained in the
                       Company's Registration Statement on Form
                       SB-2 under the Securities Act of 1933, as
                       amended, filed with the Securities and
                       Exchange Commission on July 7, 1993)

                10.5   Patent Assignment by Bertram Koslin to the
                       Company (incorporated herein by reference
                       to the exhibit contained in the Company's
                       Registration Statement on Form SB-2 (File
                       No. 33-65766) under the Securities Act of
                       1933, as amended, filed with the Securities
                       and Exchange Commission on July 7, 1993)

                10.6   Amended and Restated 1991 Stock Option
                       Incentive Plan (incorporated herein by
                       reference to the exhibit contained in the
                       Company's Quarterly Report on Form 10-QSB
                       for the fiscal quarter ended April 30, 1996)

                10.7   Directors Stock Option Plan (incorporated
                       herein by reference to the exhibit
                       contained in the Company's Quarterly Report
                       on Form 10-QSB for the fiscal quarter ended
                       April 30, 1996)

                10.8   2000 Stock Incentive Plan (incorporated
                       herein by reference to the exhibit
                       contained in the Company's Annual Report on
                       Form 10-KSB for the fiscal year ended
                       October 31, 2001)

                10.9  Employment Agreement with Andrew L. Simon
                       (incorporated herein by reference to the
                       exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended April 30, 1996)

                10.10  Employment Agreement with Linda G. Straley
                       (incorporated herein by reference to the
                       exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended April 30, 1996)

                10.11  Stock Purchase Agreement, dated as of
                       January 2, 1997, between Beck Evaluation &
                       Testing Associates, Inc., Connie K. Beck,
                       Michael D. Beck, Amanda P. Beck and the
                       Company, together with all schedules and
                       exhibits thereto (incorporated by reference
                       to the exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended January 31, 1997)

                10.12  Employment Agreement, dated as of January
                       2, 1997, between the Company and Michael D.
                       Beck (incorporated by reference to the
                       exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended January 31, 1997)

                10.13  Assignment, Assumption and Sale Agreement,
                       dated as of December 30, 1996, between
                       Steck-Vaughn Company and the Company
                       (incorporated by reference to the exhibit
                       contained in the Company's Quarterly Report
                       on Form 10-QSB for the fiscal quarter ended
                       January 31, 1997)

                10.14  Consultants Stock Incentive Plan
                       (incorporated by reference to the exhibit
                       contained in the Company's Quarterly Report
                       on Form 10-QSB for the fiscal quarter ended
                       April 30, 1997)

                10.15  Asset Purchase Agreement, dated as of May
                       30, 1997, by and between Programs for
                       Education, Inc., Bernard B. Shapiro, Modern
                       Learning Press, Inc. and the Company
                       (incorporated by reference to the exhibit
                       contained in the Company's Current Report
                       on Form 8-K, which was filed with the
                       Securities and Exchange Commission on June
                       16, 1997)

                10.16  Secured Promissory Note, dated May 30,
                       1997, of Modern Learning Press, Inc.
                       (incorporated by reference to the exhibit
                       contained in the Company's Current Report
                       on Form 8-K, which was filed with the
                       Securities and Exchange Commission on June
                       16, 1997)

                10.17  Security Agreement, dated May 30, 1997, by
                       and between Programs for Education, Inc.,
                       Bernard B. Shapiro and Modern Learning
                       Press, Inc. (incorporated by reference to
                       the exhibit contained in the Company's
                       Current Report on Form 8-K, which was filed
                       with the Securities and Exchange Commission
                       on June 16, 1997)

                10.18  Stock Pledge Agreement with Escrow
                       Provisions, dated May 30, 1997, by and
                       among the Company, Programs for Education,
                       Inc. and Pluese, Lihotz, Incollingo & Leone
                       (incorporated by reference to the exhibit
                       contained in the Company's Current Report
                       on Form 8-K, which was filed with the
                       Securities and Exchange Commission on June
                       16, 1997)

                10.19  Guaranty Agreement, dated May 30, 1997, by
                       the Company in favor of Programs for
                       Education, Inc. and Bernard B. Shapiro
                       (incorporated by reference to the exhibit
                       contained in the Company's Current Report
                       on Form 8-K, which was filed with the
                       Securities and Exchange Commission on June
                       16, 1997)

                10.20  Royalty Agreement, dated May 30, 1997, by
                       and between Modern Learning Press, Inc. and
                       Bernard B. Shapiro (incorporated by
                       reference to the exhibit contained in the
                       Company's Current Report on Form 8-K, which
                       was filed with the Securities and Exchange
                       Commission on June 16, 1997)

                10.21  Mortgage Modification and Extension
                       Agreement, dated as of August 28, 1997,
                       between MSB Bank and the Company
                       (incorporated by reference to the exhibit
                       contained in the Company's Annual Report on
                       Form 10-KSB for the fiscal year ended
                       October 31, 1997 ( the "1997 10-KSB")

                10.22  Amended and Restated Mortgage Note, dated
                       August 28, 1997, of the Company in favor of
                       MSB Bank (incorporated by reference to the
                       exhibit contained in the 1997 10-KSB)

                10.23  Term Loan Agreement, dated August 28, 1997,
                       between the Company and MSB Bank
                       (incorporated by reference to the exhibit
                       contained in the 1997 10-KSB)

                10.24  Note, dated August 28, 1997, of the Company
                       in favor of MSB Bank (incorporated by
                       reference to the exhibit contained in the
                       1997 10-KSB)

                10.25  Security Agreement between the Company and
                       MSB Bank (incorporated by reference to the
                       exhibit contained in the 1997 10-KSB)

                10.26  Environmental Guaranty, dated August 28,
                       1997, of the Company (incorporated by
                       reference to the exhibit contained in the
                       1997 10-KSB)

                10.27  Asset Purchase Agreement, dated as of
                       November 2, 1998, between Mildred Elley
                       School, Inc. and MESI Acquisition Corp.
                       (incorporated by reference to the exhibit
                       contained in the November 1998 8-K)

                10.28  Promissory Note of MESI Acquisition Corp.
                       (incorporated by reference to the exhibit
                       contained in the November 1998 8-K)

                10.29  Guaranty of TASA with respect to Promissory
                       Note of MESI Acquisition Corp.
                       (incorporated by reference to the exhibit
                       contained in the November 1998 8-K)

                10.30  Employment Agreement, dated as of November
                       2, 1998, by and among Mildred Elley School,
                       Inc. and Faith Takes (incorporated by
                       reference to the exhibit contained in the
                       November 1998 8-K)

                10.31  Securities Purchase Agreement, dated as of
                       September 4, 1998, by and among the
                       Company, Cahill Warnock Strategic Partners
                       Fund, L.P., and Strategic Associates, L.P.
                       (incorporated by reference to the exhibit
                       contained in the November 1998 8-K)

                10.32  Employment Agreement, dated December 1,
                       1999, by and among the Company and Peter
                       Duhamel (incorporated by reference to the
                       exhibit contained in the Company's Annual
                       Report on Form 10-KSB for the fiscal year
                       ended October 31, 1999)

                11     Computation of Earnings Per Share (filed
                       herewith)

                21     Subsidiaries of the Registrant
                       (incorporated by reference to the exhibit
                       contained in the Company's Annual Report on
                       Form 10-KSB for the fiscal year ended
                       October 31, 1998)

                23     Consent of Lazar, Levine & Felix LLP (filed
                       herewith)



            (b) Reports on Form 8-K

                None.

ITEM 14.    CONTROLS AND PROCEDURES

            (i) QUARTERLY EVALUATION OF THE COMPANY'S DISCLOSURE
CONTROLS AND INTERNAL CONTROLS.  Within the 90-day period prior
to the date of this Annual Report on Form 10-KSB, 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.

            (ii) CEO AND CFO CERTIFICATIONS.  Appearing immediately
following the Signatures section of this Annual Report, there is
a Certification of Mr. Simon, as the CEO and the CFO.  The first
form of Certification is required in accord with Section 302 of
the Sarbanes-Oxley Act of 2002 (the "Section 302
Certification").  This section of the Annual Report is the
information concerning the Evaluation referred to in the Section
302 Certifications and this information should be read in
conjunction with the Section 302 Certifications for a more
complete understanding of the topic presented.

            (iii) DISCLOSURE CONTROLS AND INTERNAL CONTROLS.  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 Annual Report, is
recorded, processed, summarized and reported within the time
periods specified in the rule 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 the 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.

            (iv) LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS.  The
Company's management does not expect that the Company's
Disclosure Controls or our Internal Controls will prevent all
error 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.

            (v) SCOPE OF THE CONTROLS EVALUATION.  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 Annual
Report. In 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 undertake.  This type of evaluation will 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 Annual 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.

            (vi) CONCLUSIONS.  Based upon the Controls Evaluation, Mr.
Simon, as CEO and CFO, has concluded that, subject to the
limitations noted above, the Company's Disclosure Controls are
effective to ensure that material information relating to the
Company and its consolidated subsidiaries is made known to
management, particularly during the period when periodic reports
are being prepared, and that the Company's Internal controls are
effective to provide reasonable assurance that our financial
statements are fairly presented in conformity with generally
accepted accounting principles.



                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                        PAGE
                                                        ----

         INDEPENDENT AUDITORS' REPORT                   F - 2

         CONSOLIDATED BALANCE SHEETS                    F - 3

         CONSOLIDATED STATEMENTS OF OPERATIONS AND
           COMPREHENSIVE INCOME                         F - 5

         CONSOLIDATED STATEMENT OF CHANGES IN
           STOCKHOLDERS' EQUITY                         F - 6

         CONSOLIDATED STATEMENTS OF CASH FLOWS          F - 7

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     F - 9




<PAGE>          F-2

                 INDEPENDENT AUDITORS' REPORT


To The Board of Directors
Touchstone Applied Science Associates, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheets of
Touchstone Applied Science Associates, Inc. and Subsidiaries as of
October 31, 2002 and 2001, and the related consolidated statements
of operations and comprehensive income, changes in stockholders'
equity and cash flows for the three fiscal years ended October 31,
2002.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America.  Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Touchstone Applied Science Associates, Inc. and
Subsidiaries as of October 31, 2002 and 2001 and the results of its
operations and its cash flows for the three fiscal years ended
October 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.



Lazar, Levine & Felix LLP
Certified Public Accountants
New York, New York
December 20, 2002
                                  F - 2


<PAGE>          F-3

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                   Page 1 of 2
                        CONSOLIDATED BALANCE SHEETS
                                                                  October 31,
                                                             2 0 0 2       2 0 0 1
                                                             -------       -------
<S>                                                    <C>             <C>
        ASSETS
        ------

Current assets:
  Cash and temporary investments                            $   182,788    $    47,643
  Accounts receivable, net of allowance for doubtful
   accounts of  $72,597 and $70,891, respectively             1,285,727      1,630,432
  Inventories                                                   600,244        600,361
  Prepaid expenses and other current assets                     465,790        212,822
  Current assets held for sale                                2,631,481      2,403,761
                                                            -----------    -----------

        Total current assets                                  5,166,030      4,895,019

Property, plant and equipment - net of
  accumulated depreciation of $1,336,875 and
  $1,584,836, respectively                                    1,588,546      1,652,737
Property, plant and equipment held for sale                     170,345        214,968

Other assets:
  Test passage bank and test development, net of
    accumulated amortization of $2,362,963 and
    $1,993,978, respectively                                  2,202,998      2,357,997
  Goodwill, net of accumulated amortization of $352,201
    and $621,902, respectively                                  510,056      3,649,130
  Deferred income taxes                                       2,387,895      1,078,027
  Other assets                                                  604,970        664,353
  Other assets held for sale                                    175,922        856,823
                                                            -----------    -----------

        Total assets                                        $12,806,762    $15,369,054
                                                            ===========    ===========



<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

                                  F - 3


<PAGE>          F-4

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                   Page 2 of 2
                       CONSOLIDATED BALANCE SHEETS

                                                                  October 31,
                                                             2 0 0 2       2 0 0 1
                                                             -------       -------
<S>                                                   <C>               <C>
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------


Current liabilities:
  Lines of credit                                           $        --     $       --
  Current maturities of long-term debt                           55,556        288,520
  Accounts payable                                              631,454        838,565
  Accrued expenses                                              899,502        816,184
  Current liabilities held for sale                           1,479,534      1,253,158
                                                            -----------     ----------

        Total current liabilities                             3,066,046      3,196,427

Long-term debt:
  Subordinated debt                                           3,530,141      3,530,141
  Long-term debt, net of current portion                      1,530,144      1,496,652
  Other liabilities held for sale                               241,547        494,556
                                                            -----------     ----------

        Total liabilities                                     8,367,878      8,717,776
                                                            -----------     ----------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.0001 par value, 5,000,000
   authorized, 0 shares
   issued and outstanding, respectively                              --             --
  Common stock, $.0001 par value, 20,000,000 shares
   authorized, 2,594,453 and 2,559,453 shares issued
   and outstanding , respectively                                   259            256
  Additional paid-in capital                                  5,538,393      5,522,296
  Deferred interest                                            (117,293)      (235,553)
  Unearned compensatory stock                                        --         (1,251)
  Retained earnings (deficit)                                  (982,475)     1,365,530
                                                            -----------    -----------

        Total stockholders' equity                            4,438,884      6,651,278
                                                            -----------    -----------

        Total liabilities and stockholders' equity          $12,806,762    $15,369,054
                                                            ===========    ===========

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 4


<PAGE>          F-5

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                          AND COMPREHENSIVE INCOME
                                                            Fiscal Years Ended
                                                                 October 31,
                                                   2 0 0 2        2 0 0 1        2 0 0 0
                                                   -------        -------        -------
<S>                                          <C>            <C>            <C>
Assessment products and services revenues       $ 7,562,468    $ 6,594,163    $ 4,897,923
Instructional revenues                            2,862,927      2,839,008      2,785,497
                                                -----------    -----------    -----------

Total net revenue                                10,425,395      9,433,171      7,683,420

Cost of goods sold                                4,671,262      3,426,117      2,926,825
                                                -----------    -----------    -----------

Gross profit                                      5,754,133      6,007,054      4,756,595
                                                -----------    -----------    -----------

Operating expenses:
  Selling expenses                                2,108,402      1,858,549      1,959,744
  General and administrative expenses             2,797,414      2,785,701      2,955,620
  Write down of software development costs               --             --        120,853
  Impairment of test passage bank                        --             --        685,722
                                                -----------    -----------    -----------

Total operating expenses                          4,905,816      4,644,250      5,721,939
                                                -----------    -----------    -----------

Income (loss) from operations                       848,317      1,362,804       (965,344)
Other income (expense):
  Gain (loss) on sale of assets                     (14,245)            --         26,241
  Interest expense                                 (554,391)      (614,168)      (637,640)
  Investment income                                     887          6,064          6,560
                                                -----------    -----------    -----------

Income (loss) before income taxes                   280,568        754,700     (1,570,183)

Income taxes (benefit)                              113,660        253,464       (605,698)
                                                -----------    -----------    -----------

Income (loss) from continuing operations            166,908        501,236       (964,485)
                                                -----------    -----------    -----------

Income (loss) from discontinued operations:
  Income (loss) from operations net of income
    tax (benefit) of $11,460, $(130,293) and
    $(134,114) respectively                          17,189       (257,660)      (201,153)
  (Loss) on disposal, net of income
    tax (benefit) of $(1,604,734)                (2,532,102)            --             --
                                                -----------    -----------    -----------

  Loss from discontinued operations              (2,514,913)      (257,660)      (201,153)
                                                -----------    -----------    -----------

Net (loss) income                               $(2,348,005)   $   243,576    $(1,165,638)
                                                -----------    -----------    -----------

Weighted average shares outstanding:
  Basic                                           2,587,241      2,559,453      2,438,167
  Diluted                                         2,587,241      2,560,042      2,438,167

Basic and diluted (loss) earnings per share
  Continuing operations                         $       .06    $       .20     $     (.40)
  Discontinued operations                              (.97)          (.10)          (.08)
                                                -----------    -----------     ----------

                                                $      (.91)   $       .10     $     (.48)
                                                ===========    ===========     ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 5


<PAGE>          F-6

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES
<TABLE>
<CAPTION>

         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY




                                                              Additional                    Unearned
                  Preferred Stock          Common  Stock        Paid-in        Deferred     Compensatory     Retained
                Shares      Amount      Shares      Amount      Capital        Interest     Stock            Earnings
                ------      ------      ------      ------      -------        --------     ----------       --------


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


Balance at
 November 1,
 1999              --       $   --      2,141,801     $214       $5,052,479    $ (470,460)   $(19,965)      $2,287,592

 Issuance on
  conversion of
  subordinated
  debentures       --           --        417,652       42          469,817            --          --               --
 Financial
  advisory
  services         --           --             --       --               --            --       9,357               --
 Interest
  expense          --           --             --       --               --       117,937          --               --
 Net (loss)        --           --             --       --               --            --          --       (1,165,638)
                 ----       ------      ---------     ----       ----------    ----------    --------       ----------

Balance at
 October 31,
 2000              --           --      2,559,453      256        5,522,296      (352,523)    (10,608)       1,121,954

 Financial
  advisory
  services         --           --             --       --               --            --       9,357               --
 Interest
  expense          --           --             --       --               --       116,970          --               --
 Net income        --           --             --       --               --            --          --          243,576
                 ----       ------      ---------     ----       ----------    ----------    --------       ----------

Balance at
 October 31,
 2001              --           --      2,559,453      256        5,522,296      (235,553)     (1,251)       1,365,530

 Issuance of
  common stock
  for payment of
  prior year
  bonuses          --           --         35,000        3           16,097            --          --               --
 Financial
  advisory
  services         --           --             --       --               --            --       1,251               --
 Interest
  expense          --           --             --       --               --       118,260          --               --
 Net (loss)        --           --             --       --               --            --          --       (2,348,005)
                 ----       ------      ---------     ----       ----------    ----------    --------       ----------

Balance at
 October 31,
 2002              --       $   --      2,594,453     $259       $5,538,393    $ (117,293)   $     --       $ (982,475)
                 ====       ======      =========     ====       ==========    ==========    ========       ==========










<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 6



<PAGE>          F-7

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES
<TABLE>
<CAPTION>

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                   Page 1 of 2

                                                           Fiscal Years Ended October 31,
                                                         2 0 0 2      2 0 0 1      2 0 0 0
                                                         -------      -------      -------
<S>                                                <C>            <C>         <C>
OPERATING ACTIVITIES
  Net income (loss)                                   $(2,348,005)   $ 243,576   $(1,165,638)
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
    Depreciation and amortization                         795,727      728,357       972,151
    Deferred interest                                     118,260      116,970       117,937
    Deferred income taxes                              (1,309,868)     168,308      (830,935)
    Financial advisory services                             1,251        9,357         9,357
    Loss on discontinued operations                     1,109,248           --            --
    Impairment of goodwill - discontinued operations    3,027,588           --            --
    Write down of software development costs                   --           --       120,853
    Impairment of test passage bank                            --           --       685,722
    Bad debt expense                                        1,706           --        97,545
    Gain (loss) on sale of assets                          14,245           --            --
  Changes in operating assets and liabilities:
    Accounts receivable                                   342,999     (335,676)      (80,153)
    Inventories                                               117      (30,596)     (127,586)
    Prepaid expenses                                     (252,968)      20,593        31,518
    Other assets                                               --           --        (1,388)
    Net assets from discontinued operations              (638,077)    (473,574)       22,746
    Accounts payable and accrued expenses                 (85,236)     593,816       156,740
                                                      -----------    ---------   -----------

        NET CASH FLOWS FROM OPERATING ACTIVITIES          776,988    1,041,131         8,869
                                                      -----------    ---------   -----------

INVESTING ACTIVITIES
  Test passage bank and test development                 (213,986)    (346,398)     (564,700)
  Software development costs                              (12,616)     (20,493)      (93,529)
  Prepublication costs                                   (149,279)     (65,504)     (112,470)
  Proceeds from sale of marketable securities                  --           --       175,000
  Proceeds from sale of assets                                 --       17,000            --
  Acquisition of fixed assets                             (68,383)     (24,961)      (67,444)
                                                      -----------    ---------   -----------


NET CASH FLOWS FROM INVESTING ACTIVITIES                 (444,264)    (440,356)     (663,143)
                                                      -----------    ---------   -----------





<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 7


<PAGE>          F-8

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>

              CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                                                   Page 2 of 2

                                                           Fiscal Years Ended October 31,
                                                         2 0 0 2      2 0 0 1      2 0 0 0
                                                         -------      -------      -------
<S>                                                  <C>          <C>          <C>
FINANCING ACTIVITIES
  Net proceeds (repayments) from loan payable            (197,579)   (697,748)      697,748
  Repayment of long-term debt                                  --    (247,485)     (196,354)
                                                       ----------   ---------   -----------

NET CASH FLOWS FROM FINANCING ACTIVITIES                 (197,579)   (945,233)      501,394
                                                       ----------   ---------   -----------

NET CHANGE IN CASH AND TEMPORARY INVESTMENTS              135,145    (344,458)     (152,880)

CASH AND TEMPORARY INVESTMENTS
  AT BEGINNING OF PERIOD                                   47,643     392,101       544,981
                                                       ----------   ---------   -----------

CASH AND TEMPORARY INVESTMENTS
  AT END OF PERIOD                                     $  182,788   $  47,643   $   392,101
                                                       ==========   =========   ===========

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

  Interest                                             $  554,391   $ 722,030   $   824,852
                                                       ==========   =========   ===========
  Income taxes                                         $  163,660   $  29,700   $   102,982
                                                       ==========   =========   ===========

  Noncash investing and financing activities:

  Conversion of debt to common stock                   $       --   $      --   $   469,859
                                                       ==========   =========   ===========







<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 8


<PAGE>          F-9

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Organization
------------
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
assessment segment is comprised of Beck Evaluation & Testing
Associates, Inc. ("BETA"), a company which designs, develops and
evaluates assessment needs for schools, school districts and test
and textbook publishers throughout the United States.  The Company's
instructional segment is comprised of Modern Learning Press, Inc.
("MLP"), a company which designs, publishes and distributes
"consumable" student workbooks for grades K-6 and creates and
publishes books, pamphlets and test preparation materials for
teachers, students and parents throughout the United States.  The
Company's educational delivery segment is comprised of TASA
Educational Services Corporation ("TESC"), which was established
to manage the Company's educational delivery business and MESI
Acquisition Corp. ("MESI"), which operates a post-secondary school
in two locations.

The Company was originally incorporated in the State of New York in
1976.  In August 1991, the Company changed its corporate domicile to
Delaware by merger into a Delaware corporation created exclusively
for that purpose.  In January 1997, the Company purchased the
outstanding capital stock of  BETA.  In May 1997, the Company formed
a wholly-owned subsidiary, MLP, which purchased certain assets of
Programs for Education, Inc.  In July 1998, the Company formed a
wholly-owned subsidiary, TESC.  In November 1998, TESC formed a
wholly-owned subsidiary, which purchased substantially all of the
operating assets of the Mildred Elley School, Inc. ("Former
Elley").  In June 2000, MESI changed its name to Mildred Elley
School, Inc. ("Elley").  (See also note 2 re:  discontinued
operations).


Principles of Consolidation and Basis of Presentation
-----------------------------------------------------

The consolidated financial statements include the accounts of the
Company and its wholly- owned subsidiaries, BETA, MLP, TESC and its
wholly-owned subsidiary Elley.  All material intercompany
transactions have been eliminated in consolidation.  In addition,
certain reclassifications have been made in the accompanying
consolidated financial statements in order to conform to the
presentation of the fiscal year ended October 31, 2002.  Due to the
proposed sale of Elley, Elley's operations have been reflected as
discontinued operations (note 2).


                                  F - 9







<PAGE>          F-10

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Goodwill
--------

Included in the purchase of the Company's subsidiaries was goodwill
totaling $374,067 for BETA, $2,490,864 for MLP and $3,408,776 for
Elley.  This goodwill was being amortized over a period of fifteen
years for BETA and MLP and thirty years for Elley.  In July 1997,
the Company deemed goodwill purchased in the MLP transaction
totaling $2,002,674 to be impaired based upon the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of".  Accordingly, goodwill was reduced
to fair value.  During the second quarter of the fiscal year ended
October 31, 2002 as a result of the proposed sale of the delivery
segment (Note 2) the Company deemed the goodwill purchased in the
Elley transaction, with the remaining book value totaling
approximately $3,021,000, to be similarly impaired.  The impairment
of the goodwill from the Elley transaction is being reported as part
of the loss on the disposal from discontinued operations.

In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations", and No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15,
2001.  Under the new rules, the pooling of interests method of
accounting for acquisitions is no longer allowed and goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in
accordance with the Statements.

The Company will apply the new rules for goodwill and other
intangible assets beginning in the first quarter of the fiscal year
ending October 31, 2003.  Application of the non-amortization
provisions of the Statement is expected to result in an increase in
net income of approximately $58,000 per year.  The Company has
performed the first of the required impairment tests of goodwill as
of November 1, 2002 and has determined there to be no impairment of
the remaining goodwill on that date.  The net carrying value of
goodwill at November 1, 2002 is $198,159 and $311,897 for Beta and
MLP, respectively.

Cash and Temporary Investments
------------------------------

Cash and temporary investments include all cash balances on hand and
short-term, highly liquid investments with original maturities of
three months or less.  These investments historically have consisted
primarily of money market mutual funds which make monthly tax-free
dividend payments.

                                  F - 10



<PAGE>          F-11

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------

Inventories
-----------

Inventories, which based on the nature of the Company's operations
consist solely of finished goods, are stated at the lower of cost
(first-in, first-out method) or market.

Property, Plant and Equipment
-----------------------------

Property, plant and equipment are stated at cost.  The Company
provides for depreciation generally on an accelerated method
(double-declining balance) for personal property and on the
straight-line method for real property, by charges  to income at
rates based upon estimated recovery periods as follows:

                Building                            31-1/2 years
                Building improvements               15 to 31-1/2 years
                Leasehold improvements              39 years
                Furniture, fixtures and equipment   5 to 7 years
                Automobiles                         5 years

Income Taxes
------------

The Company has elected to file a consolidated Federal income tax
return with its subsidiaries. The Company's deferred income taxes
arise principally from the differences in the recording of expenses
relating to the test passage bank and test development (Note 4),
differences relating to the reporting of goodwill by the Company's
subsidiaries, and net operating losses.  Income taxes are reported
based upon Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes".

                                  F - 11


<PAGE>          F-12

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Software Development
--------------------

The Company accounts for costs associated with the development of
software products pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed".  Pursuant to
these rules for product development, the work performed prior to the
determination of technological feasibility is treated as research
and development costs and is expensed as incurred.  From the point a
project obtains technological feasibility until it is ready for
sale, the payroll and payroll-related charges and any direct
material costs are capitalized.  Capitalization of computer software
costs is discontinued when the product is available to be sold.
During Fiscal 2000, the Company, pursuant to the provisions set
forth in SFAS No. 86, determined that the unamortized software
development costs associated with certain of its saleable computer
software products exceeded net realizable value by approximately
$121,000.  Accordingly, the Company wrote down these costs to net
realizable value as of October 31, 2000.

As of October 31, 2002, 2001 and 2000 unamortized software
development costs totaled approximately $97,000, $124,000 and
$140,000, respectively, and were included as a component of other
assets within the Company's balance sheets.

Amortization
------------

Loan origination costs and mortgage costs (see Note 7) are amortized
using the straight-line method over the term of the indebtedness.
Other capitalized costs are amortized using the straight-line method
over a period of five (5) years for software development, seven (7)
years for non-compete agreements, seven to eleven (7 - 11) years for
test passage bank and test development costs, and fifteen to thirty
(15 - 30) years for goodwill.  Amortization expense totaled
$677,397, $706,723 and $826,658 for the fiscal years ended October
31, 2002, 2001 and 2000, respectively.

                                  F - 12

<PAGE>          F-13

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Accrued Expenses
----------------

Accrued expenses consist of the following:
                                              October 31,
                                            2002       2001
                                            ----       ----

Profit sharing                           $166,397    $166,999
Commissions                                66,946      55,001
Salary                                    161,174     181,865
Professional fees                         116,078     144,616
Royalties                                 135,378     157,800
Consulting                                142,748          --
Other                                     110,781     109,903
                                         --------    --------

                                         $899,502    $816,184
                                         ========    ========

Concentration of Credit Risk
----------------------------

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable.  The Company maintains substantially all its
cash balances in a limited number of financial institutions.  The
balances are insured by the Federal Deposit Insurance Corporation up
to $100,000.  At October 31, 2002, the Company's uninsured cash
balances totaled $82,788.  At October 31, 2001, all of the Company's
cash balances were insured.  The Company performs periodic reviews
of the relative credit rating of its banks to lower its risk.  The
Company believes that concentration with regards to accounts
receivable is limited due to its large customer base.

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

Revenues from the Company's sales of its proprietary tests and other
assessment-related products, as well as from its instructional
materials, are recognized when product is shipped from the Company's
warehouse.  Assessment consulting revenues are recognized when the
consulting services are rendered.

                                  F - 13



<PAGE>          F-14

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Rights of Return
----------------

There is a right of return on test booklets, answer sheets and
certain software products. Upon return within a specified period, a
credit is issued, with certain chargeoffs, or, in the case of
software products, the item is replaced.  In the past, the Company's
returns have been insignificant.  As a result, no reserve has been
provided.

Use of Estimates
----------------

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and make
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ
from those estimates.

Fair Value
----------

The Company has a number of financial instruments, none of which is
held for trading purposes.  The Company estimates that the fair
value of all financial instruments at October 31, 2002 and 2001,
does not differ materially from the aggregate carrying values of
these financial instruments recorded in the accompanying balance
sheets.  The estimated fair value amounts have been determined by
the Company using available market information and appropriate
valuation methodologies.  Considerable judgment is necessarily
required in interpreting market data to develop the estimates of
fair value, and, accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a
current market exchange.

Earnings (loss) per Share
-------------------------

Earnings (loss) per share for each of the fiscal years ended October
31, 2002, 2001 and 2000 was computed by dividing net 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 Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share".  The Company had a net
loss for the fiscal years ended October 31, 2002 and 2000 and,
accordingly, common stock equivalents are excluded from this
computation as the effect would be anti-dilutive.

                                  F - 14

<PAGE>          F-15

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Marketing and Promotional Costs
-------------------------------

Marketing and promotional costs are expensed as incurred and
aggregated approximately $721,000, $750,000 and $688,000 from
continuing operations for the fiscal years ended October 31, 2002,
2001 and 2000, respectively.

Recently Issued Accounting Pronouncements
-----------------------------------------

On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets" ("SFAS 144"), that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001.
The FASB's new rules on asset impairment supercede SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", and portions of Accounting Principles Board
Opinion 30, "Reporting the Results of Operations".  This standard
provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that would have to
be met to classify an asset as held-for-sale.  Classification as held-
for-sale is an important distinction since such assets are not
depreciated and are stated at the lower of fair value and carrying
amount.  This standard also requires expected future operating losses
from discontinued operations to be displayed in the periods in which
the losses are incurred, rather than as of the measurement date as
previously required.  The Company has implemented SFAS 144 as it
relates to the sale of the delivery segment (see Note 2).

On July 30, 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" ("SFAS 146"), that is applicable to exit or
disposal activities initiated after December 31, 2002.  This standard
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan.  This standard does not apply
where SFAS 144 is applicable.  The Company has reported the disposal
of its delivery segment pursuant to SFAS 144.

On December 31, 2002, the FASB issued Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS 148"), that is
applicable to financial statements issued for fiscal years ending
after December 15, 2002.  In addition, interim disclosure provisions
are applicable for financial statements issued for interim periods
beginning after December 15, 2002.  This standard amends SFAS 123 and
provides guidance to companies electing to voluntarily change to the
fair value method of accounting for stock-based compensation.  In
addition, this standard amends SFAS 123 to require more prominent and
more frequent disclosures in financial statements regarding the
effects of stock-based compensation.

                                  F - 15

<PAGE>          F-16

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SALE OF DELIVERY SEGMENT
---------------------------------

The Company has determined that its core businesses of assessment
and instruction provide better long-term growth and profit
potential than the proprietary school business.  Consequently,
during the second fiscal quarter of the fiscal year ended October
31, 2002, the Company reached a decision to sell its proprietary
school.  Consistent with this determination, the Company entered
into a letter of intent to sell substantially all the assets and
liabilities of Elley to Elley's current president and former owner
(the Elley Letter of Intent - "ELI").  The Company will receive
$1,000,000, payable in cash and a promissory note.  At closing, the
amount due on the promissory note will be equal to the note payable
to the United States Small Business Administration ("SBA"). The
remainder is payable in cash.  The promissory note will incur
interest at prime plus .75% commencing on the first anniversary of
the closing with monthly interest only payments for months 13
through 24.  Beginning with month 25, the payments will consist of
principal and interest amortized over a four-year period. At the
end of the 48 months, a balloon payment is due. At October 31,
2002, the SBA loan totaled approximately $251,000.

The assets to be sold constitute substantially all the assets and
operations of the Company's educational delivery segment.  Under
the provisions of SFAS 144, since the Company entered into a plan
to dispose of the operations of Elley during the current fiscal
year, the Company is reporting the proposed sale of the segment's
operations as discontinued operations.  In addition, the Company
has written down the assets of Elley to reflect the fair value of
the net assets to be sold, and has taken an additional loss on
disposal of approximately $4,137,000  less a tax benefit of
approximately $1,605,000 which included the impairment of goodwill
of approximately $3,021,000 less a tax benefit of approximately
$1,162,000. The revenues for the delivery segment were $5,882,026,
$4,966,974 and $5,150,496 for the years ended October 31, 2002,
2001 and 2000, respectively.

Completion of definitive documentation and closing has been delayed
as a result of two intervening actions of the United States
Department of Education ("USDOE"). USDOE had permitted a temporary
suspension of the required Title IV recertification process in lieu
of Elley's pending application to change ownership in connection
with the sale.  In early October 2002, USDOE advised Elley to
complete the recertification process prior to continuing pursuit of
a change of ownership.  Elley also received a Final Audit
Determination letter from USDOE for the audit period through
October 31, 2001 which indicated a referral to Administrative
Actions and Appeals for action, if any, deemed necessary from its
"Repeat Finding-Failure to Take Corrective Action" related to late
refunds.  Although Elley permitted the ELI to expire, the parties
have agreed to continue negotiations to complete the definitive
documentation upon receipt of the USDOE recertification and
determination related to the Repeat Finding.  The transaction is
expected to be completed by the end of April 2003.

                                  F - 16

<PAGE>          F-17

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SALE OF DELIVERY SEGMENT (continued)
---------------------------------
<TABLE>
                                                                    October 31,
                                                                 2002         2001
                                                                 ----         ----
<S>                                                       <C>           <C>
Net current assets held for sale consist of the following:
  Cash                                                       $  166,327    $   89,409
  Tuition receivable                                          2,260,832     2,234,908
  Inventory                                                     130,475        33,112
  Note receivable                                                 9,327         9,327
  Prepaid expenses                                               64,520        37,005
                                                             ----------    ----------

                                                             $2,631,481    $2,403,761
                                                             ==========    ==========

Net property plan and equipment held for sale                $  170,345    $  214,968
                                                             ==========    ==========

Net other assets held for sale consist of the following:
  Notes receivable                                           $  150,000    $  150,000
  Tuition receivable                                                 --       702,409
  Other                                                          25,922         4,414
                                                             ----------    ----------

                                                             $  175,922    $  856,823
                                                             ==========    ==========

Current liabilities held for sale consist of the following:
  Lines of credit                                            $  400,000    $  400,000
  Current maturities of long-term debt                           57,540       226,285
  Current maturities of capital lease obligations                19,738        34,096
  Accounts payable                                              694,875       466,201
  Accrued expenses                                              307,381       126,576
                                                             ----------    ----------

                                                             $1,479,534    $1,253,158
                                                             ==========    ==========

Other liabilities held for sale consist of the following:
  Long-term debt, net of current portion                     $  227,053    $  461,667
  Long-term capitalized lease obligations,
   net of current portion                                        14,494        32,889
                                                             ----------    ----------

                                                             $  241,547    $  494,556
                                                             ==========    ==========
</TABLE>

                                  F - 17


<PAGE>          F-18

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

Tuition Receivable
------------------

Elley provides alternate financing arrangements for those students
who do not qualify for Federal and state financial aid to cover
their tuition.  Since student contracts acquired as part of the
Elley acquisition, as well as self-funded students who entered
school subsequent thereto, have varying repayment terms which extend
beyond the next twelve-month period, these receivables have been
classified as current and non-current, as appropriate.

Notes Receivable
----------------

As of October 31, 2002 and 2001, Elley held two notes receivable in
the aggregate amount of $159,327.  The notes receivable include (1)
a $150,000 note with interest at a rate of 6.17% per annum secured
by a mortgage on certain of the obligor's real property, with
principal due on December 31, 2003 and (2) a $9,327 note with an
annual interest rate of 8.75% requiring monthly payments of $516
consisting of principal and interest, commencing February 1, 2001.

Lines of Credit
---------------

As of October 31, 2002, Elley owed $400,000 to a bank, which is the
maximum available under its lines of credit promissory notes.  The
notes are collateralized by a second lien on all of Elley's
corporate assets as well as the guarantees of both TESC and TASA.
The notes bear interest at a rate of 1.0% above the prime lending
rate and are due on February 28, 2003.

                                  F - 18

<PAGE>          F-19

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SALE OF DELIVERY SEGMENT (Continued)
---------------------------------

Long-Term Debt
--------------

Long-term debt for liabilities held for sale consist of the
following:

<TABLE>
<CAPTION>
                                                       Interest    Due          October 31,
                                                         Rate      Date       2002       2001
                                                         ----      ----       ----       ----
<S>                                                 <C>        <C>      <C>         <C>
Unsecured notes payable to stockholders
 of Former Elley in equal quarterly
 installments of $73,830 including interest            8 1/5%      2003    $     --    $139,176

Unsecured notes to tap in equal monthly
 installments of $20,791 including interest                7%      2002          --     201,398

Secured note payable to bank for working
 capital requirements in equal monthly principal
 payments of $3,512 plus interest, secured by
 substantially all the assets of MESI              Prime + 2%      2008     240,891     283,050

Secured notes payable for equipment
 financing in equal monthly installments of
 $2,273 and $1,500 including interest              Prime + 1%      2003      43,702      63,788
                                                                           --------    --------

                                                                            284,593     687,952
Less:  current maturities                                                    57,540     226,285
                                                                           --------    --------

Non-current portion                                                        $227,053    $461,667
                                                                           ========    ========
</TABLE>

Concentration of Credit Risk
----------------------------

As part of the acquisition of Elley, the Company acquired unsecured
student loans which are being reflected at net realizable value.
Additionally, Elley initiated unsecured student loans until
readmitted into the federal student loan program in January 2001.
The risk of loss to the Company is the balance owed by the student
at the time of default.  Elley monitors these loans as closely as
possible to mitigate the potential risk.

                                  F - 19

<PAGE>          F-20

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SALE OF DELIVERY SEGMENT (Continued)
---------------------------------

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

Tuition revenues from Elley's educational delivery division are
recognized at the point in time in which Elley has no exposure to
future tuition refunds associated with the respective academic
semester.

Regulatory Compliance
---------------------

As an educational institution, Elley is subject to licensure from
various accrediting and state authorities and other regulatory
requirements of the United States Department of Education.  As of
October 31, 2002 and 2001, Elley was not in compliance with all
such requirements, having received in August 2002 a Final Audit
Determination for the period November 1, 2000 through October 31,
2001 with two open findings - (i) requirement that Elley return or
repay an aggregate of $10,500 of funds from various federal
programs and (ii) a Repeat Finding related to late refunds.  The
repayment has been made; however, Elley is still awaiting
determination of the action, if any, to be taken by USDOE related
to the Repeat Finding.

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

Property, plant and equipment are summarized as follows:


                                                   October 31,
                                            2 0 0 2          2 0 0 1
                                            -------          -------

Land                                      $  161,367      $  161,367
Building and improvements                  2,351,722       2,340,597
Furniture, fixtures and equipment            412,332         653,560
Automobiles                                       --          82,049
                                          ----------      ----------

                                           2,925,421       3,237,573
Less:  accumulated depreciation            1,336,875       1,584,836
                                          ----------      ----------

                                          $1,588,546      $1,652,737
                                          ==========      ==========

Depreciation expense for the fiscal years ended October 31, 2002,
2001 and 2000 was $118,330, $133,914 and $156,676, respectively.

                                  F - 20

<PAGE>          F-21

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - TEST PASSAGE BANK AND TEST DEVELOPMENT
-----------------------------------------------

The test passage bank is principally comprised of payroll and payroll-
related costs as well as freelance consulting costs expended in the
development of test passages which are used in the creation of the
Company's tests.  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
Degrees of Reading Power Test ("DRP") have been estimated to have a
useful life of eleven years and, accordingly, are being amortized over
an eleven-year period.  Costs capitalized in connection with the
development of passages used in all other of the Company's tests have
been estimated to have a useful life of seven years and, accordingly,
are being amortized over a seven-year period.

During the year ended October 31, 2000, the Company deemed certain of
its test passages, in the net aggregate amount of $685,722, to be
impaired based upon the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". Accordingly, the value of these passages was reduced to
zero.

NOTE 5 - LINES OF CREDIT
------------------------

In March 2000, the Company obtained a line of credit totaling $750,000
from a bank.  Borrowings under the line of credit accrue interest at
the bank's prime rate plus one percent (1.0%) and the line, as
amended, expires on April 1, 2003  The line is collateralized by the
Company's accounts receivable (excluding those receivables associated
with the Company's wholly-owned subsidiary TESC and its related
subsidiaries) and inventory and contains various financial covenants
pertaining to the maintenance of working capital and debt service
coverage.  In May 2002, the Company increased its availability under
the line from $750,000 to $1,000,000.    As of October 31, 2002, the
Company was in compliance with all such covenants.  There were no
outstanding borrowings under this line as of October 31, 2002 and
2001.

                                  F - 21

<PAGE>          F-22

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6- MORTGAGE PAYABLE
------------------------

In August 1997, the Company remortgaged its facilities for $1,800,000.
Borrowings on the mortgage incur interest at the rate of 8 1/8% per
annum.  The mortgage is to be repaid through equal monthly
installments with a balloon payment due in Fiscal 2007 (Note 7).
Proceeds from this remortgaging were used to retire all prior
mortgages held on the facilities and certain short-term debt
associated with the acquisition of MLP.

NOTE 7 - LONG-TERM DEBT
-----------------------

Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                  Interest      Due            October 31,
Description                                         Rate        Date      2 0 0 2       2 0 0 1
-----------                                         ----        ----      -------       -------
<S>                                         <C>            <C>       <C>           <C>
Secured mortgage payable to bank in
    monthly installments of $15,196
    including interest (Note 7)                     8 1/8%      2007    $1,585,700    $1,635,172

Secured note payable to stockholder of
    Programs for Education, Inc. in equal
    quarterly installments of $50,000           Prime + 1%
    plus interest, secured by certain titles    (but no less
                                                 than 9%)       2002            --       150,000
                                                                        ----------    ----------

                                                                         1,585,700     1,785,172

Less:  current  maturities                                                  55,556       288,520
                                                                        ----------    ----------

Non-current portion                                                     $1,530,144    $1,496,652
                                                                        ==========    ==========
</TABLE>

Long-term debt matures as follows:

Fiscal year ending October 31:
                2003                            $   55,556
                2004                                60,241
                2005                                65,322
                2006                                70,832
                2007                             1,333,749
                                                ----------

                Principal payments remaining    $1,585,700
                                                ==========
                                  F - 22


<PAGE>          F-23

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - SUBORDINATED DEBENTURE AGREEMENT
-----------------------------------------

In October 1998, the Company issued debentures to Cahill Warnock
Strategic Partners Fund L.P. ("CWSPF") and Strategic Associates,
L.P. ("SA") for an aggregate of $4,000,000 pursuant to a Securities
Purchase Agreement entered into among the parties in September 1998.
These debentures are subordinate to certain senior indebtedness
(Note 6).  Interest pursuant to the debentures is incurred at an
annual rate of eight percent (8%) and is payable quarterly. The
debentures, which were originally due in October 2003, contain
provisions for the prepayment of the loan's principal.  Among other
provisions, the Company agreed to use the proceeds from the
debentures to acquire Elley and other comparable educational
institutions which are approved by CWSPF and SA.  Additionally, the
agreement contains provisions for the issuance of warrants, allowing
CWSPF and SA to acquire an aggregate of 690,230 shares of the
Company's common stock at $1.125 per share.  These warrants are
exercisable for a five-year period from designated initial dates as
set forth in the debenture agreement.  The value of the warrants has
been reflected as a deferred interest charge and is being
amortized over the original life of the agreement.  In February
2000, CWSPF and SA exercised an aggregate of 417,652 warrants for
$469,859.  The proceeds from the exercise were used to reduce the
principal balance of the subordinated debentures.  The agreement
calls for certain restrictive covenants, with which the Company was
in compliance at October 31, 2002 and 2001.  In September 2002, the
due date of the note was extended to February 1, 2004.

NOTE 9 - RETIREMENT PLANS
-------------------------

The Company has a qualified 401(k) Profit Sharing Plan under which
eligible employees who are eighteen years of age and have completed
either six months or one thousand hours of employment become
participants.  For fiscal years ended before November 1, 2000, the
Plan allowed total contributions of up to fifteen percent (15%) of
the eligible employee's salary through Company contributions and a
salary reduction mechanism.  Company contributions to the Plan were
optional and accrued at the discretion of the Board of Directors.
For the fiscal year ended October 31, 2000, the Company did not
contribute to the profit sharing plan.  Effective November 1, 2000,
the Company amended the Plan to provide a matching component under
the 401 (k) Profit Sharing Plan of up to five percent (5%) of each
eligible employee's compensation.  In addition, the eligibility
requirements were amended so that an employee is not eligible until
completing twelve months or two thousand hours of employment and may
enter the plan at specified entry dates.

                                  F - 23


<PAGE>          F-24

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - RETIREMENT PLANS (Continued)
-------------------------

Net assets for the Profit Sharing Plan, as estimated by the
Massachusetts Mutual Life Insurance Company, which maintains the
plan's records, were $1,735,127 and $1,667,686 at October 31, 2002
and 2001, respectively.

In October 1991, the Company adopted a Money Purchase Pension Plan
under which eligible employees who are eighteen years of age and
have completed either six months or one thousand hours of employment
become participants.  Under this plan, for fiscal years ended before
November 1, 2000,  the Company was required to make mandatory annual
contributions equal to ten percent (10%) of each eligible employee's
compensation for the Company and all its nonschool subsidiaries.
Effective November 1, 2000, the Company amended the Plan to exclude
highly compensated employees and to reduce the annual contribution
to five percent (5%) of each eligible employee's compensation. In
addition, the eligibility requirements were amended so that an
employee is not eligible until completing twelve months or two
thousand hours of employment and may enter the plan at specified
entry dates.

Net assets for the Money Purchase Pension Plan, as estimated by the
Massachusetts Mutual Life Insurance Company, which maintains the
plan's records, were $940,550 and $936,111 at October 31, 2002 and
2001, respectively.

For the fiscal years ended October 31, 2002, 2001 and 2000,
retirement plan costs aggregated $166,000, $146,000 and $197,500,
respectively.

NOTE 10 - STOCKHOLDERS' EQUITY
------------------------------

Preferred Stock
---------------

The Company is authorized to issue 5,000,000 shares of $.0001 par
value preferred stock. The stock may be issued by the Board of
Directors of the Company in one or more series and with such
preferences, conversion or other rights, voting powers and other
provisions as may be fixed by the Board of Directors in the
resolution authorizing their issuance without any further action of
the stockholders.

Stock Issued for Bonuses
------------------------

In January 2002, the Company paid approximately $16,000 of bonuses
due to certain officers for the year ended October 31, 2001 through
the issuance of 35,000 shares of restricted common stock.

                                  F - 24

<PAGE>          F-25

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Amended and Restated 1991 Stock Option Incentive Plan
-----------------------------------------------------

The Company has adopted an Amended and Restated 1991 Stock Option
Incentive Plan (the "1991 Plan") whereby options to purchase up to
an aggregate of 625,000 shares of common stock, may be granted to
officers, key employees, directors, and consultants of the Company.
Subject to the terms of the 1991 Plan, the Board of Directors is
authorized to select optionees and determine the number of shares
covered by each option, its exercise price and certain of its other
terms.  No one participant may receive an award in excess of 50,000
shares in any one fiscal year.  All options are 100% vested after
twelve months and may be exercised for a nine-year period commencing
one year from the date of the grant.  The exercise price of an option
granted under the Plan may not be less than the fair market value of
the Company's common stock on the date of the grant.

1991 Plan activity is summarized as follows:
                                                       Option Price
                                             Shares    Per Share
                                             ------    ---------

Options outstanding - November 1, 2000      498,308    $1.438 - $11.00
Granted                                          --    --
Canceled                                     22,750    $1.438 - $2.88
Exercised                                        --    --
                                            -------

Options outstanding - October 31, 2001      475,288    $1.668 - $11.00
Granted                                          --    --
Canceled                                        375    $1.668
Exercised                                        --    --
                                            -------

Options outstanding - October 31, 2002      474,913    $1.668 - $11.00
                                            =======
Options exercisable - October 31, 2002      474,913
                                            =======

                                  F - 25


<PAGE>          F-26

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

2000 Stock Incentive Plan
-------------------------

In February of Fiscal 2000, the Company adopted the 2000 Stock
Incentive Plan (the "2000 Plan") which supercedes the 1991 Plan.
Options outstanding under the 1991 Plan at October 31, 2000 will
remain effective until forfeited, cancelled, or expired without
exercise. The 2000 Plan calls for options to purchase up to an
aggregate of an additional 300,000 shares of the Company's common
stock plus such additional shares as becomes available under the
1991 Plan by reason of forfeiture of awards granted thereunder or
cancellation or expiration of such shares without exercise, and may
be granted to officers, key employees, directors, and consultants of
the Company.  Subject to the terms of the 2000 Plan, the Board of
Directors is authorized to select optionees and determine the number
of shares covered by each option, its exercise price and certain of
its other terms.  No one participant may receive an award in excess
of 150,000 shares in any three fiscal-year period.  All options are
100% vested after twelve months and may be exercised for a nine-year
period commencing one year from the date of grant.  The exercise
price of an option granted under the 2000 Plan may not be less than
the fair market value of the Company's common stock on the date of
grant.

Options outstanding November 1, 2001           --    --
Granted                                    79,800    $0.46
Canceled                                       --    --
Exercised                                      --    --
                                           ------

Options outstanding - October 31, 2002     79,800    $0.46
                                           ======
Options exercisable - October 31, 2002         --    --
                                           ======

Directors Stock Option Plan
---------------------------

In 1996, the Company adopted a Directors Stock Option Plan (the "DSO
Plan") whereby options may be granted to purchase up to an aggregate
of 25,000 shares of the Company's common stock to directors of the
Company who are not officers or employees of the Company or otherwise
eligible to receive awards under the 1991 Plan.  Pursuant to the DSO
Plan, eligible directors would receive an option to purchase 1,250
shares of the Company's common stock on the date the director first
becomes eligible.  The eligible director would subsequently receive an
option to purchase 625 shares of the Company's common stock on the
date of each succeeding annual meeting of the stockholders, unless the
director's term ends on or before that date.  Each option granted is
exercisable at the fair market value of the Company's common stock on
the date granted, and may be exercised for a nine-year period
commencing one year from the date of the grant.

                                  F - 26

<PAGE>          F-27

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Directors Stock Option Plan (continued)
---------------------------

In February 2000, the Company adopted an amendment to the DSO Plan
increasing the number of options, which may be granted under the DSO
Plan, to an aggregate of 75,000 shares.  The amendment also increased
the number of shares of the Company's common stock to be subject to
the automatic grants made to directors from 1,250 shares to 5,000
shares upon first being elected to the Board of Directors of the
Company and 625 shares to 2,500 shares upon each re-election to the
Board of Directors.

Directors stock option plan activity is summarized as follows:

                                                       Option Price
                                             Shares    Per Share
                                             ------    ---------

Options outstanding - November 1, 2000       19,375    $1.50 - $7.85
Granted                                      15,000    $0.62 - $0.6875
Canceled                                         --    --
Exercised                                        --    --
                                             ------

Options outstanding - October 31, 2001       34,375    $1.50 - $7.85
Granted                                      12,500    $1.00
Canceled                                         --    --
Exercised                                        --    --
                                             ------

Options outstanding - October 31, 2002       46,875    $0.62 - $7.85
                                             ======
Options exercisable - October 31, 2002       34,375    $0.62 - $7.85
                                             ======


Consultants Stock Incentive Plan
--------------------------------

The Company has adopted a Consultants Stock Incentive Plan (the "CSI
Plan") whereby options to purchase up to 50,000 shares of the
Company's common stock may be granted to consultants or advisors of
the Company.  Subject to the terms of the CSI Plan, a committee of the
Board of Directors is authorized to select participants and determine
the number of shares covered by each option, its exercise price and
other terms.  The exercise price, however, may not be less than the
fair market value of the Company's common stock on the date of the
grant.

                                  F - 27

<PAGE>          F-28

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Consultants Stock Incentive Plan (continued)
--------------------------------
                                                       Option Price
                                             Shares    Per Share
                                             ------    ---------

Options outstanding - November 1, 2000       3,750     $1.752 - $1.76
Granted                                         --     --
Canceled                                     3,750     $1.752 - $1.76
Exercised                                       --     --
                                             -----

Options outstanding - October 31, 2001          --     --
Granted                                      7,500     $.90
Canceled                                        --     --
Exercised                                       --     --
                                             -----

Options outstanding - October 31, 2002       7,500     $.90
Options exercisable - October 31, 2002          --     --

Stock Based Compensation
------------------------

In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation". The Company currently
accounts for its stock-based compensation plans using the accounting
prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". As the Company is not
required to adopt the fair value based recognition provisions
prescribed under SFAS No. 123, it has elected only to comply with the
disclosure requirements set forth in the statement which includes
disclosing pro forma net income (loss) and earnings (loss) per share
as if the fair value based method of accounting had been applied.
The pro forma net income (loss) and income (loss) per share for the
fiscal years ended October 31, 2002, 2001 and 2000 would have been
$(2,590,923) and $(.91), and $238,279 and $.09 and $(1,181,682) and
$(.48), respectively had the fair value method been applied.

The fair value of each option grant was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for the fiscal years ended October 31,
2002, 2001 and 2000, respectively: expected volatility of 145%, 142%
and 165%, 136% and 83% respectively; risk free interest rate of 4.16%
and 4.50%, 4.66% and 6 1/2%, respectively; and expected lives of 5 to
10 years.

The effects of applying SFAS No. 123 in the above pro forma
disclosures are not indicative of future amounts as they do not
include the effects of awards granted prior to Fiscal 1996.
Additionally, future amounts are likely to be affected by the number
of grants awarded since additional awards are generally expected to
be made at varying amounts.

                                  F - 28

<PAGE>          F-29

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Compensatory Stock
------------------

In 1996 and 1997, the Company entered into written consulting
agreements with several financial consulting firms.  The agreements
were for one to five year periods.  The consultants received an
aggregate of 75,000 shares of the Company's common stock in exchange
for consulting services.  In addition, several of the agreements
provide for the issuance of warrants to purchase an aggregate of
187,500 shares of the Company's common stock  for a five year period
at exercise prices ranging from $1.876 to $2 per share.  The cost of
these services was valued at $140,626 and is being expensed over the
term of the agreements. At October 31, 2002, this amount had been
fully amortized.  The amount of unearned compensation related to the
shares issued under these agreements was reflected as a reduction of
stockholders' equity.

NOTE  11 - INCOME TAXES
-----------------------

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes using the enacted tax rates in effect in the years in which
the differences are expected to reverse.  Deferred income tax
liabilities and assets are comprised as follows:


                                                          October 31,
                                                    2 0 0 2          2 0 0 1
                                                    -------          -------
    Deferred tax assets:
      Goodwill                                  $   523,875       $  481,954
      Net operating loss                          1,842,891          314,297
      Bad debt allowance                             29,039          285,188
      Other                                          14,652           30,096
                                                -----------       ----------

      Gross deferred tax assets                   2,410,457        1,111,535
                                                -----------       ----------

    Deferred tax liability:
      Test passage bank and test development        (22,562)         (33,508)
                                                -----------        ----------

      Gross deferred tax liability                  (22,562)         (33,508)
                                                -----------        ----------

      Net deferred tax assets                    $2,387,895       $1,078,027

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.

                                  F - 29

<PAGE>          F-30

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 11 - INCOME TAXES (Continued)
----------------------

The Company's income tax expense from continuing operations consists of
the following:

<TABLE>
<CAPTION>
                                                Fiscal Years Ended October 31,
                                           2 0 0 2        2 0 0 1         2 0 0 0
                                           -------        -------         -------
<S>                                   <C>           <C>             <C>
  Current:
    Federal                               $     --      $(119,521)      $  24,616
    State                                    7,563         44,113          27,611
                                          --------      ---------       ---------

                                             7,563        (75,408)         52,227
                                          --------      ---------       ---------
  Deferred:
    Federal                                 81,925        254,876        (509,892)
    State                                   24,172         73,996        (148,033)
                                          --------      ---------       ---------

                                           106,097        328,872        (657,925)
                                          --------      ---------       ---------

  Provision (benefit) for income taxes    $113,660      $ 253,464       $(605,698)
                                          ========      =========       =========
</TABLE>

A reconciliation of the difference between the expected income tax
rate using the statutory Federal tax rate and the Company's
effective rate for continuing operations is as follows:

<TABLE>
                                                   Fiscal Years Ended October 31,
                                                    2 0 0 2    2 0 0 1   2 0 0 0
                                                    -------    -------   -------
<S>                                               <C>       <C>        <C>
U.S. Federal income tax statutory rate                34%        34%      (34)%

State income tax, net of Federal income tax benefit    7          7        (7)


Other - including tax free income, goodwill
     and net operating losses                         --         (7)        2
                                                      --         ---      ----

Effective tax rate                                    41%        34%      (39)%
                                                      ==         ==       ====
</TABLE>

                                  F - 30




<PAGE>          F-31

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - EMPLOYMENT AGREEMENTS
-------------------------------

The Company has employment agreements with several of its key
employees.  The agreements are for varying terms ranging from one
to three years and are automatically extended each year unless the
Company notifies the employee, in writing, ranging from at least 60
to 180 days prior to the anniversary date, that the agreement will
not be extended.

Each agreement calls for a base salary, which may be adjusted
annually at the discretion of the Company's Board of Directors, and
also provides for eligibility in the Company's benefit plans,
incentive bonuses which are payable based upon the attainment of
certain profitability goals, and key man insurance.  Among other
provisions, the agreements include a non-compete clause for varying
periods not exceeding three years following termination of
employment.

The aggregate commitment for future salaries as of October 31,
2002, excluding bonuses, is as follows:

Fiscal year ending October 31:
                            2003        $  877,300
                            2004           511,481
                            2005           292,163
                            2006            30,966
                                        ----------

                                        $1,711,910
                                        ==========









                                  F - 31



<PAGE>          F-32

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13- SEGMENT INFORMATION
----------------------------

<TABLE>
<CAPTION>
                                            Assessment    Instructional      Total
                                            ----------    -------------      -----
<S>                                     <C>            <C>             <C>
Fiscal Year Ended October 31, 2002:
Revenues                                    $7,562,468     $2,862,927     $10,425,395
Interest and dividend income                        --            887             887
Interest expense                               549,891          4,500         554,391
Depreciation and amortization                  623,192        172,535         795,727
Income (loss) from continuing operations
  before income taxes                          213,620         66,948         280,568
Total segment assets                         8,027,930      1,801,084       9,829,014
Expenditures for segment assets                291,663        152,601         444,264

Fiscal Year Ended October 31, 2001:
Revenues                                    $6,594,163     $2,839,008      $9,433,171
Interest and dividend income                     6,064             --           6,064
Interest expense                               590,300         23,868         614,168
Depreciation and amortization                  562,635        165,722         728,357
Income (loss) from continuing operations
  before income taxes                          583,933        170,767         754,700
Total segment assets                         6,929,437      1,917,446       8,846,883
Expenditures for segment assets                435,961         58,188         494,149

Fiscal Year Ended October 31, 2000:

Revenues                                    $4,897,923     $2,785,497      $7,638,420
Interest and dividend income                     3,476          3,084           6,560
Interest expense                               593,619         44,021         637,640
Depreciation and amortization                  832,786        139,365         972,151
Loss from continuing operations
  before income taxes                       (1,491,295)       (78,888)     (1,570,183)
Total segment assets                         6,759,378      2,556,857       9,316,235
Expenditures for segment assets                706,081        162,981         869,062

</TABLE>

Included in the assessment segment reporting are corporate overhead
expenses of approximately $448,000, $467,000 and $500,000 for the
fiscal years ended October 31, 2002, 2001 and 2000, respectively.

The Company's operations are primarily conducted in the United
States.  Information about the Company's operations in different
geographic areas for the fiscal years ended October 31, 2002, 2001
and 2000, is not considered material to the financial statements.

                                  F - 32


<PAGE>          F-33

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Termination of Former Employee
------------------------------

In January 2000, a former employee of Elley commenced an action
against the Company, Elley and an executive officer of Elley in the
Supreme Court of the State of New York in the county of Albany.
The complaint alleged claims of wrongful termination of employment
and sought damages as compensation.  An agreement to settle the
action has been reached with the complainant.  The Company has
fulfilled all its obligations under such agreement.

Litigation Proceedings
----------------------

The former owner of the Mildred Elley School, Inc. ("Plaintiff")
commenced an action alleging defaults in the payment of certain
amounts under the asset purchase agreement between the Company
and Mildred Elley School, Inc. and the accompanying promissory
notes of Elley (TASA's wholly-owned subsidiary).  The complaint
also alleges certain defaults by Elley in the employment
agreement between Elley and the Plaintiff, the former owner of
the Mildred Elley School, Inc. who is currently Elley's president
and chief executive officer.  The Company has defended primarily
based on offsets related to breaches of warranties in the asset
purchase agreement.

The court issued a decision which granted summary judgment to the
plaintiff on two demand notes in the total principal amount of
$67,000 plus attorneys fees of $7,690 and recognized the right of
offset and granted summary judgment in favor of Elley on a
separate issue.  Cross-appeals of the lower court's decision are
pending currently in the New York State Appellate Division and
enforcement of the decision is stayed pending adjudication of the
appeal.  An agreement to settle all the claims in this litigation
is part of the contemplated sale transaction referenced in Note
2.

The foregoing alleged defaults trigger a potential cross default
under the Company's outstanding 8% subordinated debentures, in the
outstanding principal amount of $3,530,141 currently held by CWSPF
and SA (See Note 8).   As of October 31, 2002, the Company has not
received a notice of default from CWSPF and SA.

                                  F - 33





                                SIGNATURES

            In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                            TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

January 29, 2003           By:  /s/ ANDREW L. SIMON
                               ----------------------------------------
                             Andrew L. Simon
                             President and Chief Executive
                             Officer (principal executive officer and
                             principal financial officer)


            In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

     Signature                        Title                   Date
     ---------                        -----                   ----

/s/ ANDREW L. SIMON            Director and Chairman     January 29, 2003
-------------------------
    Andrew L. Simon                of the Board

/s/ MICHAEL D. BECK                  Director            January 29, 2003
-------------------------
    Michael D. Beck

/s/ STEVEN R. BERGER                 Director            January 29, 2003
-------------------------
    Steven R. Berger

/s/ JOSEPH A. FERNANDEZ              Director            January 29, 2003
-------------------------
    Joseph A. Fernandez

/s/ DONALD W. HUGHES                 Director            January 29, 2003
-------------------------
    Donald W. Hughes

/s/ LINDA G. STRALEY                 Director            January 29, 2003
-------------------------
    Linda G. Straley

/s/THOMAS STRUZZIERI                 Director            January 29, 2003
-------------------------
   Thomas Struzzieri

/s/ DAVID L. WARNOCK                 Director            January 29, 2003
-------------------------
    David L. Warnock





                                CERTIFICATION

            I, ANDREW L. SIMON, certify that:

            1.  I have reviewed this Annual Report on Form 10-KSB of
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. for the fiscal year ended
October 31, 2002.

            2.  Based on my knowledge, this Annual Report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this Annual Report;

            3.  Based on my knowledge, the financial statements, and
other financial information included in this Annual Report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this Annual Report;

            4.  The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:

            a)  designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this Annual
Report is being prepared;

            b)  evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior
to the filing date of this Annual Report (the "Evaluation Date");
and

            c)  presented in this Annual Report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

            5.  The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

            a)  all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and

            b)  any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

            6.  The registrant's other certifying officers and I have
indicated in this Annual Report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

Date:  January 29, 2003

                                        /s/ ANDREW L. SIMON
                                        --------------------

                                        President, Chief Executive Officer
                                        and Chief Financial Officer