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

                               FORM 10-KSB/A
(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, 2004
      [ ]  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:  $11,185,254
for the fiscal year ended October 31, 2004.

     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:  $6,178,312
as of January 25, 2005.  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 25,
2005, 2,777,750 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>

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal
years ended October 31, 2004 and 2003, which supersede the
Company's previously issued audited consolidated financial
statements for such fiscal years.  This Amendment No. 2
also includes related changes to the disclosures in
"Management's Discussion and Analysis or Plan of
Operation."  See Note 4 to the accompanying audited
consolidated financial statements.  Except as otherwise
specifically noted, all information contained herein is as
of October 31, 2004 and does not reflect any events or
changes that have occurred subsequent to that date.  For
the convenience of readers, this Amendment No. 2 restates
in its entirety the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 2004.



                                PART I

ITEM 1.   DESCRIPTION OF BUSINESS

OVERVIEW
          Touchstone Applied Science Associates, Inc. (the
"Company" or "TASA") now competes exclusively in the assessment
marketplace.  With the advent of No Child Left Behind legislation
("NCLB"), the Company's Board of Directors and management made the
strategic decision to refocus the organization on the fast-growing
assessment segment of the K-12 education market.  During the
Company's fiscal year ended October 31, 2003 ("Fiscal 2003"), TASA
sold both its post-secondary proprietary school, Mildred Elley
(originally acquired by TASA in fiscal 1999), and Modern Learning
Press, its supplemental instructional materials subsidiary
(originally acquired by TASA in fiscal 1997).  The net effect of
these transactions was that the Company's revenue stream decreased
from $16.3 million for the year ended October 31, 2002 ("Fiscal
2002"), to $9.8 million for Fiscal 2003.  In the year ended October
31, 2004 ("Fiscal 2004"), the Company's revenues increased to $11.2
million as a result of the growth in our assessment business.  Over
the past ten years, assessment revenues have increased from $2.1
million to $11.2 million, representing a compounded annual growth
rate in excess of 18%.

          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 assessment
products relate directly to the teaching and measurement of
progress of literacy skills.  The Company's Degrees of Reading
Power(r) ("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; both of these tests focus
on fundamental literacy skills.

          Through the Company's wholly-owned subsidiary, Beck
Evaluation and Testing Associates, Inc. ("BETA"), the Company
performs "custom services" for other test publishers as well as for
state education agencies directly.  Again, under NCLB, the needs
for custom design test development and for consulting and
psychometric services are increasing rapidly.  BETA now accounts
for approximately 60% of TASA's assessment revenues.

          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.

          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.

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal years
ended October 31, 2004 and 2003, which supersede the Company's
previously issued audited consolidated financial statements for
such fiscal years.  This Amendment No. 2 also includes related
changes to the disclosures in "Management's Discussion and Analysis
or Plan of Operation."  See Note 4 to the accompanying audited
consolidated financial statements.  Except as otherwise
specifically noted, all information contained herein is as of
October 31, 2004 and does not reflect any events or changes that
have occurred subsequent to that date.  For the convenience of
readers, this Amendment No. 2 restates in its entirety the
Company's Annual Report on Form 10-KSB for the fiscal year ended
October 31, 2004.

PROPRIETARY 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.  Substantially all of the sales volume for this
unit is derived from the sale of two proprietary tests and the sale
of scoring services and related software.

          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.

          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.  The Company is the sole source proprietor and publisher of
the DRP tests.

          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, Missouri and Arkansas.

          TEST DEVELOPMENT.  In addition to these two mainstream
          ----------------
tests, the Company is currently developing several new
instructionally supportive assessments.  These new products, when
available, will allow teachers to develop instructional programs
based upon identifying strengths and weakness of individual
students.  For the first time, the Company believes that we will be
able to generate a substantial selling effort at the school and
classroom level.  One assessment will be available in fall 2005.
The second assessment will be available in fall 2006.

          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.

          In Fiscal 2003, the Company quadrupled the capacity of
its scoring facility.  The Company now performs scoring services
also for our custom testing unit and for third parties.  Third
party scoring customers include the State of Indiana, RALLY!
Education and Harcourt Achieve.

          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
licensed 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 2004, we had
12 districts that utilize this software.

          The Company also provides DRP-->Booklink(R) software 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 Proprietary Assessment Income.

CUSTOM TEST PRODUCTS AND RELATED SERVICES

          BETA provides consulting services to states, school
districts 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 development and/or psychometric services to state
customers in Delaware, Indiana, Michigan, Minnesota, North
Carolina, Texas, Virginia, Washington and Wyoming.  BETA was
awarded a $7.5 million contract from the State of Michigan to
develop an alternative assessment test for special education
students.  In January 2004, BETA was notified that such contract
has been extended through September 2007.  The total value of this
contract over its term is $13,900,000.  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.  In
addition to various assessment activities related to state
assessment programs, BETA provides test development and program
evaluation services to major textbook companies and other
assessment developers.  In Fiscal 2004, these services accounted
for approximately 15% of BETA's revenues. The Company reports
revenues from BETA's operations as Custom Assessment Income.

          Effective January 1, 2005, the Company acquired all of
the outstanding stock of Assessment and Evaluation Concepts Inc.
("AEC").  AEC also provides services in the custom-testing arena.
(See "Management Discussion and Analysis or Plan of Operation --
Subsequent Events".)  AEC income will also be reported as Custom
Assessment Income.

DISCONTINUED OPERATIONS

          The Company has determined that its core business of
assessment products and services provides better long-term growth
and profit potential than did the instructional material business
and the proprietary school business.  Consequently, during the
second quarter of Fiscal 2002, the Company reached a decision to
sell its proprietary school, Mildred Elley School, Inc. ("Mildred
Elley") and the Company reached a similar decision to sell the
instructional material business in the third quarter of Fiscal 2003.

          Effective June 3, 2003, the Company completed the
transaction for the sale of the proprietary school business, and
sold Elley to its president and former owner.  At closing, the
Company received $50,000 in cash proceeds from the sale.  In
addition it will receive 25% of the proceeds from the sale or
refinancing of the schools to a third party, which must take place
within seven years from the date of closing.  Substantially all the
assets and liabilities on the balance sheet were acquired by the
purchaser, and all pending litigation with the previous owners of
the school was settled.

          During Fiscal 2003, the Company took a non-cash charge of
$584,941 for discontinued operations in connection with the sale of
Mildred Elley.  The total non-cash charge (since the school was
recognized as discontinued operations in Fiscal 2002) was
$3,117,043.  The revenues for the delivery segment were $3,225,410
and $5,882,026 for the period November 1, 2002 through the date of
sale, and for the fiscal year ended October 31, 2002, respectively.

          Consistent with the Company's belief that its resources
need be focused on the assessment segment of the K-12 market, in
July 2003, the Company sold substantially all the assets of Modern
Learning Press, Inc. ("MLP") its wholly owned subsidiary and sole
component of the Company's instructional segment.  Delta Education
LLC ("Delta") purchased such assets for $4,020,000, and Delta
assumed certain liabilities.  The Company retained the business and
assets related to its test preparation materials division,
Kingsbridge Press, which it considers consistent with the
activities of its sole remaining segment.  The Company recorded a
gain on the disposal of the instructional segment totaling
$1,748,272 less taxes of $699,309.  Revenues from the instructional
segment totaled $1,321,278, $2,862,927 for the period November 1,
2002 through the date of sale and for the fiscal year ended October
31, 2002, respectively.

          See "Management's Discussion and Analysis or Plan of
Operation".

MARKETING

          The Company markets its assessment products and services
as follows:

          *  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.

          *  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.

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

          *  Commencing in the fourth quarter of Fiscal 2004, the
    Company entered into a non-exclusive agreement with Sopris West
    pursuant to which Sopris West has agreed to sell TASA
    proprietary products through its catalog and sales force.

          *  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.

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.

          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, 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 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, National
Evaluation Systems (NES), Amherst, Massachusetts; and Pearson
Educational Measurement, 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, Measured Progress, Inc. (Dover, New
Hampshire), 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, and Harcourt's Stanford English Language Proficiency.  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 and the RPTE (Texas
Reading Proficiency Tests in English).

EMPLOYEES

          As of October 31, 2004, the Company employed a total of
58 employees in its continuing operations, 48 on a full-time basis,
and 10 on a part-time basis.  Of the 58 employees, 19 are engaged
in research and/or test development, 24 are in operations, 6 are in
executive capacities, and 9 are in marketing.

GOVERNMENT REGULATIONS

          ASSESSMENT MATERIALS.  The NCLB legislation bodes well
          --------------------
for TASA.  NCLB provides funding of approximately $26 billion.
Almost half of that amount is for Title I funding, which requires
schools that use a portion of this funding to evaluate student
progress in reading.

          NCLB also provides almost one-half billion dollars for
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 the funding opportunities under NCLB:


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

        Title I                        DRP/Signposts
        -------------------            -------------------------
        Early Childhood Literacy       DRP/Signposts
        -------------------            -------------------------
        Title III/ESL                  MAC II
        -------------------            -------------------------
        Annual Testing                 DRP/BETA
        -------------------            -------------------------

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 (for design and
preparation of educational testing materials); TASA (for
educational testing and instructional printed materials); TASA (for
computer programs used in association with educational testing and
instructional materials), Degrees of Reading Power, DRP, DRP
Program, The Readability Standard, DRP--> BOOKLINK, DRP-->EZ
Converter, DRP Linking Text to Ability, BookMatch, MicRA-->DRP
(with logo), TextSense, TASA Literacy, Signposts, Signposts (with
logo), We've Done the Research for You, and The MAC II Test of
English Language Proficiency (with logo).  Applications for
trademark registration are pending for DWM, Degrees of Word
Meaning, and SSSMART.

          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 $240,000 in the seventh year.  The Company paid Mr. Shapiro a
total of $161,558 in Fiscal 2002 and $158,440 in Fiscal 2003.  The
Company has no further royalty obligations to Mr. Shapiro.

ITEM 2. DESCRIPTION OF PROPERTY

          The Company completed the sale/lease-back of its 30,000
square-foot headquarters building in Brewster, New York in July
2003.  The building was constructed in 1987, with the second phase
completed in 1991.  In July 2003, the Company sold its headquarters
building to 26 Palmer LLC for $2,875,000.  The building and related
improvements had a net book value of $1,458,481.  The Company
reported a pre-tax gain on the sale totaling $1,254,383, net of
closing costs totaling $162,136.  The Company then signed a ten-
year triple net lease for the building.  The cost per square foot
is $10.50 for the July 2003/June 2004 period and increases each
year thereafter.  The final year of the lease has a rental cost of
$13.69 per square foot.  As a result of the sale/leaseback, the
gain has been deferred and will be recognized over the ten-year
term of the lease as other income.  Proceeds from the sale of the
building were used to repay debt, to increase the Company's working
capital and to fund the expansion of its scanning and scoring
facility.  In the fall of 2003, the Company completed an expansion
of this scanning and scoring facility at a cost of approximately
$250,000.  This facility is now four times the capacity of the
prior facility and will accommodate new growing business in this
area.

          BETA rents a small office facility in Austin, Texas,
which affords good proximity to the Texas Education Agency.
Because of increased business and personnel in Austin, effective
November 2004, BETA increased that office space from 500 to 1,100
square feet in the same complex.  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

          None.

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

          None.


<PAGE>

                                 PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

          The Company's common stock, par value $.0001 per share
(the "Common Stock"), is 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, 2003 and October 31, 2004 were as follows:

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

       Fiscal Quarter:       High ($)       Low ($)
       ---------------       --------       -------

       1st Qtr 03              1.01          0.55
       2nd Qtr 03              1.01          0.60
       3rd Qtr 03              1.13          0.70
       4th Qtr 03              2.05          1.05
       1st Qtr 04              3.25          1.85
       2nd Qtr 04              4.35          2.50
       3rd Qtr 04              3.70          3.05
       4th Qtr 04              3.85          2.95


          During the first quarter of Fiscal 2005 (through January
24, 2005), the Company's Common Stock had a high closing price of
$3.35 and a low closing price of $3.05.

          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.  The Company's Common Stock is traded on the Nasdaq
Electronic Bulletin Board.

          In September 2004, the Company issued to Signal Hill
Capital Group LLC ("Signal Hill") a five-year warrant to purchase
up to 20,000 shares of the Company's Common Stock, at an exercise
price of $2.96 per share.  The warrant was issued in consideration
of strategic consulting services that Signal Hill has provided and
has agreed to provide to the Company.  Neither the warrant nor the
underlying shares of Common Stock have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), in
reliance upon the exemption from registration pursuant to Section
4(2) of the Securities Act.

          As of January 24, 2005, there were 76 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 600 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, 2004 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, 2004
<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               662,213                 $2.397                    209,675
--------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders                  --                     --                         --
--------------------------------------------------------------------------------------------------
</TABLE>


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.

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal years
ended October 31, 2004 and 2003, which supersede the Company's
previously issued audited consolidated financial statements for
such fiscal years.  This Amendment No. 2 also includes related
changes to the disclosures in "Management's Discussion and Analysis
or Plan of Operation."  See Note 4 to the accompanying audited
consolidated financial statements.  Except as otherwise
specifically noted, all information contained herein is as of
October 31, 2004 and does not reflect any events or changes that
have occurred subsequent to that date.  For the convenience of
readers, this Amendment No. 2 restates in its entirety the
Company's Annual Report on Form 10-KSB for the fiscal year ended
October 31, 2004.

COMPANY BACKGROUND

          For over twenty-eight years, TASA has served the rapidly
expanding education market, primarily through the publishing and
sale of its highly regarded proprietary reading tests.  In Fiscal
2002 and again in Fiscal 2003, the Company determined that its core
business was assessment.  It believed that this category provides
better long-term growth and profit potential than either the
proprietary school business or the supplemental instruction
segment.  Consequently, during the second fiscal quarter of Fiscal
2002, the Company reached a decision to sell its proprietary
school, and in the third quarter of Fiscal 2003, the Company
reached the decision to sell its supplemental instruction materials
business, Modern Learning Press.  Consequently both of these
segments have been reported as discontinued operations.  See
"Discontinued Operations" below.  TASA revenues from the assessment
segment in Fiscal 1994 were $2.1 million, and have increased by
acquisition and internal growth to $11.2 million in Fiscal 2004.

RESULTS OF OPERATIONS

          The assessment business has two units; proprietary
products and services, and custom test development.  The following
table sets forth the revenues in each of these units and the annual
percentage change for each of these units, for Fiscal 2004, 2003
and 2002:

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


<TABLE>
<CAPTION>
                                              Fiscal Year Ended October 31,
                          ----------------------------------------------------------------------------
                           2002-
                           2004               2004                 2003                  2002
                          ----------------------------------------------------------------------------

                             %                        %                     %                      %
                           Change         $        Change       $        Change        $        Change
                        ------------------------------------------------------------------------------
<S>                     <C>       <C>           <C>       <C>         <C>        <C>         <C>

Proprietary Products
and Services Revenues        5.1%     $4,481.0       1.2%    $4,428.3      3.9%     $4,262.8     18.0%
                        ------------------------------------------------------------------------------
Custom Services            103.1%     $6,704.3      25.7%    $5,333.4     61.6%     $3,299.8     10.7%
                        ------------------------------------------------------------------------------
Total Revenues from
Assessment Products
and Services                47.9%    $11,185.3      14.6%    $9,761.7     29.1%     $7,562.5     14.7%
                        ------------------------------------------------------------------------------
</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,
                                            -----------------------------

                                               2004      2003     2002
                                             ----------------------------

                                             ============================
Revenues from continuing operations. . . . .   100%      100%     100%
   Gross profit margins. . . . . . . . . . .    48%       48%      52%
Operating expenses:
   Selling expenses. . . . . . . . . . . . .    11%       15%      15%
   General & administrative. . . . . . . . .    25%       22%      27%
Income from operations. . . . . . . . . . . .   12%       11%      10%
Other income (expense). . . . . . . . . . . .    1%       (4%)     (7%)
   Interest expense, net. . . . . . . . . . .   --        (4%)     (7%)
Income (loss) before income taxes
from continuing operations. . . . . . . . . .   13%        7%       3%
Income taxes. . . . . . . . . . . . . . . . .    5%        3%       1%
Income (loss) from continuing operations. . .    7%        4%       2%
                                             ============================

FISCAL 2004 AS COMPARED TO FISCAL 2003

          REVENUES.  The Company's revenues from continuing
          --------
operations for the fiscal year ended October 31, 2004 were
$11,185,254, representing a 14.6% increase or $1,423,616 over
$9,761,638 for the fiscal year ended October 31, 2003.  The overall
increase was primarily attributable to internal growth of the
Company's custom testing unit.

          Revenues for assessment products and services, through
the Company's proprietary tests unit, increased 1.2%, or $52,654,
to $4,480,954 in Fiscal 2004 from $4,428,300 in Fiscal 2003.  The
increase in proprietary testing revenues was mitigated because, in
Fiscal 2003, TASA received contracts from two states relating to
Reading First Grants.  These grants did not repeat in 2004.

          Revenues from BETA, the Company's custom testing unit,
increased by $1,370,900, or 25.7%, during the same period, to
$6,704,300 in Fiscal 2004 from $5,333,400 in Fiscal 2003.  This
increase is a function of executing on several multi-year contracts
as well as the award of new assignments during the year.  Our
ability to acquire multi-year contracts allows BETA to continue to
build its revenue stream.

          COST OF GOODS SOLD.  Cost of goods sold increased by
          ------------------
14.2% or $720,610 from $5,075,148 in Fiscal 2003 to $5,795,758 in
Fiscal 2004.  As a percentage of revenue, cost of goods was flat
and represented 52% of revenues for both Fiscal 2003 and Fiscal
2004.  We are pleased with this statistic since, in general, the
delivery of custom assessment services has a higher cost than
delivery of proprietary services.  The mix of custom to proprietary
products and services increased from 55% in Fiscal 2003 to 60% in
Fiscal 2004.

          GROSS PROFIT.  The Company's gross profit for Fiscal 2004
          ------------
increased by $703,006, or 15.0%, from $4,686,490 in Fiscal 2003 to
$5,389,496 in Fiscal 2004.  The gross profit margin was 48% in both
Fiscal 2004 and Fiscal 2003.

          SELLING EXPENSES.  The Company's selling expenses
          ----------------
decreased by $175,012, or 12%, from $1,453,190 in Fiscal 2003 to
$1,278,178 in Fiscal 2004.  Two events that contributed to this
decline were:  a disproportionate amount of spending by the Company
in Fiscal 2003 to jump-start marketing activities associated with
NCLB and a number of revenue activities in Fiscal 2004 that were
not subject to sales commissions.

          GENERAL AND ADMINISTRATIVE.  The Company's general and
          --------------------------
administrative expenses for Fiscal 2004 increased $630,452, or
28.8%, from $2,189,318 in Fiscal 2003 to $2,819,770 in Fiscal 2004.
Almost 45% of the increase in G&A expense is due to the lease on
the company building.  In July 2003, the Company entered into a
sale-lease back on its corporate headquarters.  Therefore, during
Fiscal 2004, the Company had lease expense for the full year versus
four months of lease expense in Fiscal 2003.  Additionally, because
of strong performance in Fiscal 2004, approximately 12% of the
increase in G&A expense is represented by performance bonuses in
excess of those awarded in Fiscal 2003.

          INCOME FROM OPERATIONS.  Income from operations increased
          ----------------------
by $247,566, or from $1,043,982 in Fiscal 2003 to $1,291,548 in
Fiscal 2004.  The increase in income is due to increased revenues,
partially offset by higher cost of sales.

          EBITDA FROM OPERATIONS.  Earnings before interest, taxes,
          ----------------------
depreciation and amortization on the Company's operations were
$1,879,174 for Fiscal 2004 versus $1,649,292 for Fiscal 2003.
EBITDA has been adversely affected by the sale leaseback of the
Company's building.

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

                          EBITDA From Operations

                                        Fiscal 2004         Fiscal 2003
                                        -----------         -----------

Income from Operations                  $1,291,548          $1,043,982

Depreciation & amortization             $  587,626          $  605,310

EBITDA from Operations                  $1,879,174          $1,649,292


          OTHER INCOME (EXPENSE) FROM OPERATIONS.  Net other
          --------------------------------------
income (expense) decreased from ($362,127) in Fiscal 2003 to
$123,503 in Fiscal 2004.  Other income is positively effected by
the gain on the sale/leaseback of the building as well as a reduction
in interest expense, net.  In Fiscal 2004, the Company
recognized a gain of $125,439 from the sale/leaseback transaction,
compared to $41,813 recognized in Fiscal 2003.  The decrease in interest
expense in Fiscal 2004 was primarily due to a reduction in interest
expense from the repayment of the Company's subordinated debt.  In
Fiscal 2004, the Company's only interest expense coincided with a
capital loan to finance equipment partially offset by excess cash
in an interest-bearing money market account.

          DISCONTINUED OPERATIONS.  See "Fiscal 2003 as Compared to
          -----------------------
Fiscal 2002-Discontinued Operations".

          INCOME AND EARNINGS PER SHARE.  Combining income from both
          -----------------------------
continuing and discontinued operations, the Company had net income
of $535,533 in Fiscal 2003 versus net income of $822,603 in Fiscal
2004.

          For Fiscal 2003, the Company had diluted earnings per
share of $0.20, versus diluted earnings per share of $0.29 in
Fiscal 2004.  Diluted earnings from continuing operations were
$0.13 per share in Fiscal 2003, as compared to $0.29 in Fiscal
2004.

          The diluted weighted average shares outstanding were
2,661,014 in Fiscal 2003 versus 2,870,327 in Fiscal 2004.

FISCAL 2003 AS COMPARED TO FISCAL 2002

          REVENUES.  The Company's revenues from continuing
          --------
operations for the fiscal year ended October 31, 2003 were
$9,761,638, representing a 29.1% increase or $2,199,170 over
$7,562,468 for the fiscal year ended October 31, 2002.  The overall
increase was primarily attributable to internal growth of the
Company's custom testing unit.

          Revenues for assessment products and services, through
the Company's proprietary tests unit, increased 3.9%, or $165,500,
to $4,428,300 in Fiscal 2003 from $4,262,800 in Fiscal 2002.  This
increase was minimal due to reduced state and school district
budgets during the fourth quarter of the year.  While the economy
appears to be improving, the Company is uncertain if state tax
revenues will improve sufficiently during the coming fiscal year to
boost materially the sale of proprietary tests to school districts.
During the fourth quarter of Fiscal 2003, the Company expanded its
scoring and scanning capabilities, in anticipation of being able to
increase its third party scoring business.

          Revenues from BETA, the Company's custom testing unit,
increased by $2,033,600, or 61.6%, during the same period, to
$5,333,400 in Fiscal 2003, from $3,299,800 in Fiscal 2002.  This
increase was due to BETA's obtaining a number of multi-year
contracts in the later half of Fiscal 2002 with specific
assignments in Fiscal 2003.  These multi-year contracts also have
an impact on future fiscal years.

          COST OF GOODS SOLD.  Cost of goods sold increased by 41%
          ------------------
or $1,478,468 from $3,596,680 in Fiscal 2002 to $5,075,148 in
Fiscal 2003.  As a percentage of revenue, cost of goods increased
from 48% in Fiscal 2002 to 52% in Fiscal 2003.  This increase is
primarily due to the change in revenue mix between proprietary and
custom products and services.  In Fiscal 2002, BETA, the custom
business, accounted for 45% of the revenue stream, and in Fiscal
2003, BETA accounted for 55% of the revenue stream.  The delivery
of custom products and services has a higher cost per revenue
dollar.  Consequently, as the revenue mix changes towards custom
revenues, the percentage cost of goods increases.

          GROSS PROFIT.  The Company's gross profit for Fiscal 2003
          ------------
increased by $720,702, or 18.2%, from $3,965,788 in Fiscal 2002 to
$4,686,490 in Fiscal 2003.  The gross profit margin was 48% in
Fiscal 2003 versus 52% in Fiscal 2002. This change is a result of
changes in product mix.

          SELLING EXPENSES.  The Company's selling expenses
          ----------------
increased $284,278, or 24%, in Fiscal 2003, from $1,168,912 in
Fiscal 2002 to $1,453,190 in Fiscal 2003.  Selling expenses were
15% of revenues in both years.  The increased dollar expenditure
was a result of higher sales commission and shipping expenses, as
well as increased marketing expenditures to respond to marketing
opportunities created by NCLB.  The Company believes that this is
the appropriate level of expenditure as a percentage of revenues
for the coming fiscal year.

          GENERAL AND ADMINISTRATIVE.  The Company's general and
          --------------------------
administrative expenses for Fiscal 2003 increased $170,199, or
8.4%, from $2,019,119 in Fiscal 2002 to $2,189,318 in Fiscal 2003.
However, as a percentage of revenues, G&A decreased from 27% in
Fiscal 2002 to 22% in Fiscal 2003.  The Company believes that as
revenues continue to grow in the future, the ratio of G&A to
revenues will remain steady or may decline slightly.

          INCOME FROM OPERATIONS.  Income from operations increased
          ----------------------
by $266,225, or from $777,757 in Fiscal 2002 to $1,043,982 in
Fiscal 2003.  The increase in income is due to increased revenues,
partially offset by higher cost of sales.

          EBITDA FROM OPERATIONS.  Earnings before interest, taxes,
          ----------------------
depreciation and amortization on the Company's operations was
$1,649,292 for Fiscal 2003 versus $1,400,949 for Fiscal 2002.

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

                          EBITDA From Operations

                                        Fiscal 2003         Fiscal 2002
                                        -----------         -----------

Income from Operations                  $1,043,982          $  777,757

Depreciation & amortization             $  605,310          $  623,192

EBITDA from Operations                  $1,649,292          $1,400,949


          OTHER INCOME (EXPENSE) FROM OPERATIONS.  Net other
          --------------------------------------
(expense) decreased 36%, or $202,009, from ($564,136) in Fiscal
2002 to ($362,127) in Fiscal 2003.  The decrease in other income
expense was primarily due to a reduction in interest expense from
the repayment of the Company's subordinated debt, as well as the
gain on the sale/leaseback of the building.  In Fiscal 2003, the
Company recognized gain of $41,813 from the sale/leaseback
transaction, and there was no comparable amount in Fiscal 2002.
The Company does not currently anticipate that it will need to
borrow significant capital in the next fiscal year in order to
finance its core business.

          DISCONTINUED OPERATIONS. In July 2003, the Company sold
          -----------------------
substantially all the assets of MLP, sole component of the Company's
instructional segment, to Delta Education, LLC ("Delta") for,
$4,020,000 and Delta's assumption of certain related liabilities.
In addition, the Company was responsible for the payment of up to
$200,000 of certain royalties for a one-year period from June 1,
2003 through May 31, 2004.  The Company retained the business and
assets related to its test preparation materials, Kingsbridge Press,
which it considers consistent with the activities of its sole
remaining segment.  The Company recorded a gain on the disposal of
instructional segment totaling $1,748,272 less taxes of $699,309.
Revenues from the instructional segment totaled $1,321,278,
$2,862,927 and $2,839,008 for the period November 1, 2002 through
the date of sale, and for the fiscal years ended October 31, 2002
and 2001, respectively.

          In addition, the Company entered into a transitional
agreement with Delta, whereby the Company would continue to pay the
rent costs and employees of MLP through October 31, 2003 in exchange
for $130,000.  On October 31, 2003, the facilities utilized by MLP
were closed and the employees were terminated.

          On June 3, 2003, the Company sold substantially all the
assets of the Mildred Elley Schools.  Pursuant to the agreement, the
Company received $50,000.  In addition, the Company will receive 25
percent of the proceeds from any sale or refinancing of the school
by the purchaser to a third party, which must take place within
seven years from the closing date. The assets sold constitute
substantially all the assets and operations of the Company's
educational delivery segment.  The Company recorded a loss on the
disposal of Mildred Elley Schools totaling $974,901 and a tax
benefit of $389,960, to reflect the change in the fair value of the
net assets sold during the period November 1, 2002 through June 3,
2003.  The revenues for the delivery segment were $3,225,417 and
$5,882,026 for the period from November 1, 2002 through June 3,
2003, the date of sale, and the fiscal years ended October 31, 2002,
respectively.

          INCOME AND EARNINGS PER SHARE.  Combining income from both
          -----------------------------
continuing and discontinued operations, the Company had net income
of $535,533 in Fiscal 2003 versus a net (loss) of ($2,348,005) in
Fiscal 2002.

          For Fiscal 2003, the Company had diluted earnings per
share of $0.20, versus a loss of ($0.91) per share in Fiscal 2002.
Earnings from continuing operations were $355,315, or $0.13 per
share, in Fiscal 2003, as compared to $.05 in Fiscal 2002.

          The diluted weighted average shares outstanding were
2,661,014 in Fiscal 2003 versus 2,587,241 in Fiscal 2002.

LIQUIDITY AND WORKING CAPITAL

          WORKING CAPITAL.  Working capital increased by $1,311,161
          ---------------
during Fiscal 2004 from $1,670,790 at October 31, 2003 to $2,981,951
at October 31, 2004.  This increase resulted primarily from the
increase in cash and accounts receivable.  The ratio of current
assets to current liabilities was approximately 2.26 to 1.0 at the
end of the Fiscal 2003 versus 2.84 to 1.0 at the end of Fiscal 2004.

          CASH FLOW FROM OPERATING ACTIVITIES.  During Fiscal 2004,
          -----------------------------------
the Company had net cash provided by operating activities of
$1,581,615, as compared to $688,354 in Fiscal 2003.  The increase in
cash provided by operating activities resulted primarily from
increased net operating income, excluding the gain from the sale-
leaseback of the Company's building.

          CASH FLOW FROM INVESTING ACTIVITIES.  During Fiscal 2004,
          -----------------------------------
the Company had net cash used in investing activities of $921,655,
as compared to $5,226,738 provided by investing activities for
Fiscal 2003.  The cash provided by investing activities in Fiscal
2003 resulted from the sale of the discontinued operations and the
sale-leaseback of the Company's headquarters facilities.  Cash was
used to purchase fixed assets and to develop test products totaling
$921,655 in Fiscal 2004 and $1,000,334 in Fiscal 2003.

          CASH FLOW FROM FINANCING ACTIVITIES.  The Company had net
          -----------------------------------
cash provided by financing activities of $128,092 for Fiscal 2004 as
compared to ($5,067,566) used in financing activities for Fiscal
2003. The cash provided by financing activities in Fiscal 2004
resulted primarily from the equipment financing to expand scanning
and scoring facilities and from the exercise of employee stock
options.  The cash used in financing activities in Fiscal 2003
resulted primarily from the repayment of the subordinated debenture
and mortgage on the headquarters facilities.

          In July 2003, the Company sold its headquarters building
to 26 Palmer LLC for $2,875,000.  The building and related
improvements had a net book value of $1,458,481.  The Company
reported a pre-tax gain on the sale totaling $1,254,383, net of
closing costs totaling $162,136.  The building was then leased under
a ten-year lease agreement.  As a result of the sale/leaseback, the
gain was deferred and recognized over the ten-year term of the lease
as "other income."  The Company used approximately $253,000 of the
proceeds for improvements to the facilities.

          During Fiscal 2004, options to purchase 24,250 shares of
the Company's Common Stock were exercised resulting in proceeds
totaling $17,195.

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



Long-term debt, operating leases and other long-term
obligations as of October 31, 2004 mature as follows:

<TABLE>
<CAPTION>

                                               Payments Due
                                               ------------
Obligations             Total        Less Than                                 More Than
-----------                           1 Year       1-3 Years     4-5 Years      5 Years
<S>              <C>            <C>            <C>           <C>           <C>

Long-term debt      $  148,897     $   28,606     $   61,178     $ 59,113      $       --

Operating Leases     3,186,097        357,938        724,118      701,360       1,402,681

Other long-term
obligations(1)       2,083,489        868,926      1,062,185      152,378              --

TOTAL
OBLIGATIONS         $5,418,483     $1,255,470     $1,847,481     $912,851      $1,402,681

</TABLE>

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

SUBSEQUENT EVENTS

          On January 18, 2005, the Company announced the completion
of its acquisition of Assessment & Evaluation Concepts, Inc.
("AEC"), a firm with experience and relationships in the
educational assessment field which complement the Company's
experience and relationships.  The purchase price paid by the
Company consisted of $83,000 in cash, and the issuance of 12,000
shares of Common Stock of the Company.

          The Company has entered into employment agreements for an
initial two-year term with each of the former principals of AEC-
Richard S. Zusman, Ed.D. and Pasquale J. DeVito, Ph.D.  Such
employment agreements are automatically renewable for additional
one-year terms, subject to early termination notices given by
either party prior to the expiration of the then current term.
Each of Drs. Zusman and DeVito were issued 25,000 options to
purchase shares of the Company's Common Stock pursuant to the
Company's stock option plan, at an exercise price of $3.06 per
share, subject to vesting upon the completion of one year of
employment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

          The preparation of financial statements and related
disclosures in conformity with generally accepted accounting
principles in the United States of America requires management to
make estimates and assumptions that affect the amounts reported in
the Consolidated Financial Statements and accompanying notes.
Estimates are used for, but not limited to, the accounting for the
allowance for doubtful accounts, inventories, 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,
    including sales of the related ancillary materials, are recognized
    when the Company ships the physical product from its warehouse.
    The Company's revenues from performance of assessment consulting
    and psychometric services under long-term contracts are recognized
    on the percentage-of-completion basis pursuant to the provisions of
    Statement of Position No. 81-1, "Accounting for Performance of
    Construction-Type and Certain Production-Type Contracts" and
    Accounting Research Bulletin No. 45, "Long-Term Construction-Type
    Contracts".  For each contract, the Company compares the costs
    incurred in the course of performing such contract during a fiscal
    period to the total estimated costs of full performance of the
    contract, and recognizes a proportionate amount of revenue for
    such period.

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

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

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

SELECTED FINANCIAL DATA

          The following tables summarize certain financial data for
the continuing operations of the Company for Fiscal 2004, 2003, and
2002, respectively.  See "Financial Statements" in Item 7 below.

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

                                        2004            2003            2002
                                    ------------------------------------------

Income Statement Data:
Operating revenues                  $11,185,254      $9,761,638     $ 7,562,468
Gross profit                          5,389,496       4,686,490       3,965,788
Income before income taxes            1,415,051         681,855         213,621
Income from continuing operations       822,603         355,315         126,739
Income (loss) from discontinued
  operations
  Income (loss) from operations
  net of income tax (benefit) of
  $0, ($248,127), and $38,239,
  respectively                                0        (372,190)         57,358
  Income (loss) on disposal, net
  of income tax (benefit) of $0,
  $309,349 and ($1,604,734),
  respectively                                0         552,408      (2,532,102)
  Income (loss) from discontinued
  operations                                  0         180,218      (2,474,744)
Net income (loss)                       822,603         535,533      (2,348,005)
Diluted earnings per share from
  continuing operations                   $0.29           $0.13           $0.05
Balance Sheets:
Current assets                       $4,605,990      $2,998,149     $ 5,166,030
Total assets                          8,690,506       7,546,876      12,806,762
Long-term obligations                   120,291          30,400       5,301,832
Total liabilities                     2,706,022       2,444,890       8,367,878
Working capital                       2,981,951       1,670,790       2,099,984
Stockholders' equity                  5,984,484       5,101,986       4,438,884



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 any of the Company's material state
             contracts;

          *  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 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; and

          *  Any decrease in the market for educational consulting
             services.

          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

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

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal years
ended October 31, 2004 and 2003, which supersede the Company's
previously issued audited consolidated financial statements for
such fiscal years.  This Amendment No. 2 also includes related
changes to the disclosures in "Management's Discussion and Analysis
or Plan of Operation."  See Note 4 to the accompanying audited
consolidated financial statements.  Except as otherwise
specifically noted, all information contained herein is as of
October 31, 2004 and does not reflect any events or changes that
have occurred subsequent to that date.  For the convenience of
readers, this Amendment No. 2 restates in its entirety the
Company's Annual Report on Form 10-KSB for the fiscal year ended
October 31, 2004.

          Financial information required by this item appears in
the pages marked F-1 through F-29 at the end of this Report and are
incorporated herein by reference as if fully set forth herein

<PAGE>

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                        PAGE
                                                        ----


    REPORT OF INDEPENDENT REGISTERED PUBLIC
       ACCOUNTING FIRM                                   F-2


    CONSOLIDATED FINANCIAL STATEMENTS:



       CONSOLIDATED BALANCE SHEETS                       F-3


       CONSOLIDATED STATEMENTS OF OPERATIONS             F-5


       CONSOLIDATED STATEMENT OF CHANGES IN
       STOCKHOLDERS' EQUITY                              F-7


       CONSOLIDATED STATEMENTS OF CASH FLOWS             F-8


    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           F-10


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

          None.


ITEM 8A.  CONTROLS AND PROCEDURES

          (a) Evaluation of the Company's Disclosure Controls and
Procedures.  As of the end of the most recent fiscal year covered by
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.

          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.

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

          The Evaluation included a review of the controls'
objectives and design, the controls' implementation by the Company
and the effect of the controls on the information generated for use
in this 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 undertaken.  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.

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

          (b) Changes in Internal Controls.  Other than changes to
our accounting for the sale-leaseback transactions noted above, there
was no change in the Company's Internal Controls occurring in the
Company's fourth fiscal quarter that materially affected, or is
reasonably likely to materially affect, the Company's Internal Controls.

ITEM 8B.  OTHER INFORMATION

          None.


                                 PART III

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

            As of January 24, 2005, the directors and executive
officers of the Company were as follows:




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

Michael D. Beck             58   Director; Vice President, TASA; and
                                 President, Chief Executive Officer, BETA

Steven R. Berger(1)(2)      49   Director

Peter A. Duhamel            59   Senior Vice President, TASA

Donald W. Hughes(1)         54   Director

Chris L. Nguyen(1)(2)       43   Director

Andrew L. Simon             62   Chairman of the Board of Directors;
                                 President, Chief Executive Officer
                                 and Chief Financial Officer, TASA

Linda G. Straley            48   Director; Vice President, and Secretary, TASA

Thomas G. Struzzieri(1)(2)  46   Director

David L. Warnock(2)         47   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.  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.  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
shareholder in the law firm of Vedder, Price, Kaufman & Kammholz,
P.C. in New York City.  The Company has retained Vedder, Price,
Kaufman & Kammholz, P.C. since October 2002 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 Modern Learning Press, Inc. in
January 2000.  He is currently Senior Vice President of the
Company.  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.

          DONALD W. HUGHES was elected as Director in June 2001.
Since July 2001, Mr. Hughes has served on, and is Chairman of, the
Company's Audit Committee.  Since 1999, Mr. Hughes has served as
Executive Vice President and Chief Financial Officer of Camden
Partners, Inc. and a member of and Chief Financial Officer of
Camden Partners Holdings, LLC, each of which is an affiliate of
Cahill Warnock.  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 board of Occupational Health +
Rehabilitation 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.

          CHRIS L. NGUYEN was elected as a Director at the Annual
Stockholders Meeting of the Company in April 2004.  Mr. Nguyen was
a senior executive with Sylvan Learning Systems from 1989 to 1996.
During his tenure at Sylvan, Mr. Nguyen was COO of Sylvan's
computer-based testing division, Sylvan Prometric.  From 1996
through 2001, Mr. Nguyen was President and CEO of Caliber Learning
Network, a publicly-traded company specializing in distance
learning services for adults.  Currently, Mr. Nguyen is the
principal and owner of Dynanet Consulting Services, LLC.  Dynanet
provides management consulting and technology development services
to companies within the education and testing markets.  Mr. Nguyen
received a B.A from Johns Hopkins University.

          ANDREW L. SIMON was elected as Director and as President
and Chief Financial Officer of the Company in March 1995.  Mr.
Simon serves as Chairman of the Board of Directors.  Mr. Simon is
also 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 and a director of The Hudson Valley
Trust.

          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 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 G. 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 Horse
Shows In The Sun (HITS).  Based in Saugerties, New York, HITS
produces horse shows in California, Florida, Virginia, New York,
and Arizona.  Mr. Struzzieri is a director of the United States
Equestrian Federation, and is a founding member and a director of
the United States Hunter/Jumper Association.  He also serves on the
Board of Directors of the United Way of Ulster County and the
Ulster County Development Corporation, and is a member of the SUNY
Ulster County Community College Board of Trustees.  Mr. Struzzieri
is a member of the Chamber of Commerce of Ulster County as well as
the Business and Community Leaders' Advisory Committee of the
Institute of Ecosystem 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.  Since 1999, Mr. Warnock has been
President and Chief Executive Officer of each of Camden Partners,
Inc. and Camden Partners Holdings, LLC, each of which is an
affiliate of Cahill Warnock.  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 Bridges Learning Systems, Concorde Career
Colleges, Inc., the National Alliance to End Homelessness, the
Center for Fathers, Families and Workforce Development, Nobel
Learning Communities, and CardSystems Solutions, Inc.  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 2004, 2003 and 2002,
respectively, by the Chief Executive Officer, the President of
BETA, the Senior Vice President of TASA, a Vice President of TASA,
and the former Executive Vice President of the Company's
proprietary secondary school unit.  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 2004.  Therefore, pursuant to Item 402 of
Regulation S-B, only compensation for each of the persons listed
below is shown in the Summary Compensation Table below.

<TABLE>
<CAPTION>

                      SUMMARY COMPENSATION TABLE



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

                                                                         Restricted     Securities            All Other
                                                          Other Annual     Stock        Underlying     LTIP    Compen-
 Name and Principal                   Salary      Bonus   Compensation    Award(s)       Option/      Payouts  sation
     Position                Year       ($)        ($)         ($)          ($)          SARs(1)        ($)      ($)
-----------------------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>         <C>       <C>            <C>         <C>              <C>       <C>
Andrew L. Simon,             2004    $234,945    $70,000    $23,922(2)       0         20,000/0(2)       0        0
President, Chief             2003    $227,000    $50,000    $23,346(2)       0         20,000/0(2)       0        0
Executive Officer            2002    $219,166    $25,000    $22,125(2)       0         10,000/0(2)       0        0
and Chief Financial
Officer
------------------------------------------------------------------------------------------------------------------------
Michael D. Beck,             2004    $160,684    $70,000    $24,251(3)       0         12,000/0(3)       0        0
Vice President,              2003    $155,250    $65,048    $21,899(3)       0         12,000/0(3)       0        0
TASA; President and          2002    $150,000    $25,414    $19,928(3)       0          6,000/0(3)       0        0
Chief Executive
Officer, BETA
------------------------------------------------------------------------------------------------------------------------
Peter A. Duhamel             2004    $155,250          0    $19,891(4)       0               --          0        0
Senior Vice                  2003    $155,250    $25,857    $20,834(4)       0          5,000/0(4)       0        0
President, TASA              2002    $150,000    $43,902    $18,831(4)       0          6,000/0(4)       0        0
------------------------------------------------------------------------------------------------------------------------
Linda G. Straley             2004    $102,937    $13,100    $18,832(5)       0          6,000/0(5)       0        0
Vice President               2003    $ 79,400    $ 6,000    $16,156(5)       0          6,000/0(5)       0        0
and Secretary, TASA          2002    $ 71,750    $ 5,000    $13,954(5)       0          3,000/0(5)       0        0
------------------------------------------------------------------------------------------------------------------------
Faith Takes,                 2004          --         --            --      --               --         --       --
Executive Vice President,    2003    $ 87,115          0    $ 7,531(6)       0                0          0        0
TESC; President and          2002    $150,000          0    $12,093(6)       0                0          0        0
Chief Executive
Officer, MESI
(resigned effective
June 2003)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(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 $10,250 in Fiscal
        2004, $10,000 in Fiscal 2003, and $8,500 in Fiscal 2002, and
        $8,250, $8,250, and $9,000 for a company car in Fiscal 2004,
        203, and 2002, respectively.  Also includes: restricted shares
        issued pursuant to the Company's 2000 Stock Incentive Plan after
        the end of Fiscal 2002, as part of a bonus paid in respect of
        Fiscal 2002; and stock options issued pursuant to the Company's
        2000 Stock Incentive Plan after the end of each of Fiscal 2004,
        Fiscal 2003 and Fiscal 2002 in respect of such fiscal years,
        respectively.

(3)     Includes: contributions to the Company's 401(k) and Pension
        Plan of $10,212 in Fiscal 2004, $10,000 in Fiscal 2003, and
        $8,500 in Fiscal 2002; and $8,906, $7,091, and $7,091 for a
        company car in Fiscal 2004, 2003, and 2002, respectively.  Also
        includes: restricted shares issued pursuant to the Company's
        2000 Stock Incentive Plan after the end of Fiscal 2002, as part
        of a bonus paid in respect of Fiscal 2002; and stock options
        issued pursuant to the Company's 2000 Stock Incentive Plan after
        the end of each of Fiscal 2004, Fiscal 2003 and Fiscal 2002 in
        respect of such fiscal years, respectively.

(4)     Includes: contributions to the Company's 401(k) and Pension
        Plan of $9,055 in Fiscal 2004, $10,000 in Fiscal 2003, and
        $8,500 in Fiscal 2002; and $5,671, $5,994 and $5,994 for a
        company car in Fiscal 2004, 2003 and 2002, respectively.  Also
        includes: restricted shares issued pursuant to the Company's
        2000 Stock Incentive Plan after   the end of Fiscal 2002, as
        part of a bonus paid in respect of Fiscal 2002; and stock
        options issued pursuant to the Company's 2000 Stock Incentive
        Plan after the end of each of Fiscal 2004, Fiscal 2003 and
        Fiscal 2002 in respect of such fiscal years, respectively.

(5)     Includes: contributions to the Company's 401(k) and Pension
        Plan of $9,947 in Fiscal 2004, $8,410 in Fiscal 2003, and $7,675
        in Fiscal 2002; and $3,540, $3,540 and $3,540 for a company car
        in Fiscal 2004, 2003 and 2002, respectively.  Also includes:
        restricted shares issued pursuant to the Company's 2000 Stock
        Incentive Plan after the end of Fiscal 2002, as part of a bonus
        paid in respect of Fiscal 2002; and stock options issued
        pursuant to the Company's 2000 Stock Incentive Plan after the
        end of each of Fiscal 2004, Fiscal 2003 and Fiscal 2002 in
        respect of such fiscal years, respectively.

(6)     Includes: $0, $4,990, and $8,556 for a company car in Fiscal
        2004, Fiscal 2003, and Fiscal 2002, respectively.

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) and the termination of such
executive's employment agreement, each such executive officer would
be awarded a lump sum bonus equal to and one-half times such
executive officer's base salary plus such executive's highest
annual bonus during the preceding three fiscal years, such lump sum
bonus to be paid for each of three years following termination of
employment following a change in control.

          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.  Mr. Duhamel serves as Senior Vice President of the
Company.  Mr. Duhamel's contract expires June 30, 2005.  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.  In
addition, any options outstanding under the Amended Plan, which
expire after the adoption of the 2000 Plan, are added to the number
of shares available under the 2000 Plan.  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.

          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.

          The following table summarizes the options granted,
exercised and cancelled or expired under the Amended Option Plan
and the 2000 Option Plan during the preceding three fiscal years:


<TABLE>
<CAPTION>

                            FISCAL 2004          FISCAL 2003         FISCAL 2002
                            -----------          -----------         -----------
<S>                      <C>                  <C>                 <C>
Options granted                73,000               39,500              79,800
Options exercised              19,250                9,000                  --
Restricted shares
awarded                            --                   --              35,000
Options
cancelled/expired                  --               57,500               4,500

</TABLE>

As of October 31, 2004, options to purchase up to an aggregate of
164,300 shares were outstanding under the 2000 Plan.  As of October
31, 2004, options to purchase up to an aggregate of 413,038 shares
were outstanding under the Amended Option 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            29.9%             $2.10           1/22/14
President, Chief
Executive Officer and
Chief Financial
Officer
---------------------------------------------------------------------------------------------
Michael D. Beck,            12,000            17.9%             $2.10           1/22/14
Vice President, TASA;
President and Chief
Executive Officer,
BETA
---------------------------------------------------------------------------------------------
Peter Duhamel,               5,000             7.5%             $2.10           1/22/14
Senior Vice President,
TASA
---------------------------------------------------------------------------------------------
Linda G. Straley,            6,000             9.0%             $2.10           1/22/14
Vice President and
Secretary, TASA
---------------------------------------------------------------------------------------------
Faith Takes,                    --              --                 --                --
Executive Vice President,
TESC; President and Chief
Executive Officer, MESI
(resigned June 2003)
---------------------------------------------------------------------------------------------
</TABLE>

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


<TABLE>
<CAPTION>

                  AGGREGATED OPTION/SAR EXERCISES IN LAST
                FISCAL YEAR AND FISCAL-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            171,875/20,000    $94,993/$22,000(2)
President, Chief
Executive Officer
and Chief Financial
Officer
------------------------------------------------------------------------------------------------
Michael D. Beck,              0                0             88,750/12,000    $90,124/$13,200(2)
Vice President, TASA;
President and Chief
Executive Officer,
BETA
------------------------------------------------------------------------------------------------
Peter Duhamel,                0                0             58,000/5,000     $91,180/$5,500(2)
Senior Vice
President, TASA
------------------------------------------------------------------------------------------------
Linda G. Straley,             0                0             73,800/6,000     $26,581/$6,600(2)
Vice President and
Secretary, TASA
------------------------------------------------------------------------------------------------
Faith Takes,                  0                0                   0                 0
Executive Vice President,
TESC; President and Chief
Executive Officer, MESI
(resigned June 2003)
------------------------------------------------------------------------------------------------
</TABLE>

(1)     To date, the Company has issued no SARs.  Amounts are
        calculated net of exercise price of the options.
(2)     Based on the closing price of the Company's Common Stock on
        NASDAQ on October 31, 2004, of $3.20.

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 20, 2002, the Company granted 12,500 options under the
Directors Plan; on April 25, 2003, the Company granted 10,000
options under the Directors Plan; on April 30, 2004, the Company
granted 15,000 options under the Directors Plan.  In Fiscal 2004,
5,000 options under the Directors Plan were exercised.  As of
October 31, 2004, an aggregate of 66,875 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.  As of October 31, 2004, 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 are optional and accrue at the discretion of the Board of
Directors.  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 provide that an employee is not eligible until
completing twelve months, or one 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 $2,809,037, $2,341,940, and $1,735,127, at
October 31, 2004, 2003, and 2002 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 so that an
employee is not eligible until completing twelve months, or one
thousand hours, of 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 $1,231,078, $1,191,537, and
$940,550, at October 31, 2004, 2003, and 2002, respectively.

          For Fiscal 2004, 2003, and Fiscal 2002, the Company's
retirement costs aggregated $238,000, $198,000, and $142,000,
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 2004.

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 24, 2005, 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 24, 2005, there were 2,777,750 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                         592,849(1,2)          21.1%
Partners Fund, L.P.
c/o Cahill, Warnock & Co., LLC
1 South Street, Suite 2150
Baltimore, MD 21202
-------------------------------------------------------------------------------

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

Officers and Directors
----------------------

Michael D. Beck                                   186,875(3)             6.4%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------
Steven R. Berger                                   10,625(4)               *
805 Third Avenue
New York, NY 10022
-------------------------------------------------------------------------------
Peter A. Duhamel                                   79,000(5)             2.7%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------
Donald W. Hughes                                  635,699(6)            22.5%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------
Chris L. Nguyen                                        ..(7)               *
4204 St. Paul Street
Baltimore, Maryland  21218
-------------------------------------------------------------------------------
Andrew L. Simon                                   285,088(8)             9.5%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------
Linda G. Straley                                  130,494(9)             4.5%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------
Thomas G. Struzzieri                               15,000(10)              *
319 Main Street
Saugerties, NY  12477
-------------------------------------------------------------------------------
David L. Warnock                                  638,199(11)           22.6%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------
Officers and Directors as a                     1,354,656(12)           41.1%
Group (9 persons)
-------------------------------------------------------------------------------

________________
    * Less than 1%


          1  Excludes 32,850 shares owned by Strategic Associates,
L.P., an affiliate of Cahill, Warnock Strategic Partners Fund, L.P.
(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 shares
issuable or issued pursuant to warrants held by the Cahill, Warnock
Entities), 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.

          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 6 and 11 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) 100,750 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 12,000 shares which are the
subject of 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, and
excludes 2,500 shares which are the subject of options that are not
currently exercisable.

          5  Includes 63,000 shares which are the subject of
options granted to Mr. Duhamel which are currently exercisable or
stock options which become exercisable within 60 days.

          6  Includes (i) 625,699 shares owned by the Cahill
Warnock Entities, and (ii) 10,000 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.  Excludes 2,500 shares which are the subject of
options that are not currently exercisable.

          7  Excludes 5,000 shares which are the subject of options
that are not currently exercisable.

          8  Includes 191,875 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.
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 20,000 shares which are the subject of
options that are not currently exercisable.

          9  Includes 79,800 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
6,000 shares which are the subject of 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.  Excludes 2,500 shares which are the subject of options that
are not currently exercisable

         11   Includes (i) 625,699 shares owned by the Cahill
Warnock Entities, and (ii) 11,875 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.
Excludes 2,500 shares which are the subject of options that are not
currently exercisable.

         12   Includes 477,925 shares which officers and directors
have the right to acquire upon the exercise of currently
exercisable stock options or options which become exercisable
within the next 60 days.  Excludes 53,000 shares which are the
subject of options that are not currently exercisable.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          In November 1998, the Company acquired substantially all
of the assets of Mildred Elley.  The Company financed the
acquisition through the issuance of debentures, with 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 was 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.  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.  Using a portion of the proceeds from the sale of
MLP and the sale/leaseback of the Company's headquarters building,
both of which occurred in Fiscal 2003, the Company prepaid the
outstanding Debentures in the fourth quarter of Fiscal 2003.  A
portion of the Warrants held by the Cahill, Warnock Entities
expired at the end of Fiscal 2003. The Cahill Warnock Entities
exercised its remaining 138,047 warrants outstanding in December
2004 (after the end of Fiscal 2004), resulting in additional paid-
in capital to the Company of $155,303.

          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
issued 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.

          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 purchased substantially all
of the assets of Mildred Elley for an aggregate purchase price of
$3,000,000, paid a portion in cash and the balance with a five-year
promissory note.   Simultaneous with the closing of such purchase,
the Company's subsidiary entered into an employment agreement with
Faith Takes, pursuant to which Ms. Takes agreed to remain as the
President and Chief Executive Officer of the Company's post-
secondary proprietary schools division.  Effective June 3, 2003,
the Company completed the disposition of the proprietary school
business, and sold Mildred Elley to its current president and
former owner.  At closing, the Company received $50,000 in cash
proceeds from the sale.  In addition, the Company will receive 25%
of the proceeds from the sale or refinancing of the schools to a
third party, which must take place within seven years from the date
of closing.  Substantially all the assets and liabilities on the
balance sheet were acquired by the purchaser, and all pending
litigations with the previous owner of the school were settled.

          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 to Salans for Fiscal 2002.  As of October 1, 2002, Mr.
Berger became a shareholder in Vedder, Price, Kaufman & Kammholz,
P.C.  The Company has retained Vedder, Price, Kaufman & Kammholz,
P.C. as its special securities counsel, and the Company paid an
aggregate of $83,082 and $59,351in legal fees to Vedder Price in
Fiscal 2003 and Fiscal 2004, respectively.



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 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)

                4.6    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)

                4.7    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).

                4.8    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.
                       (incorporated by reference to the exhibit
                       contained in the Company's Annual Report on
                       Form 10-KSB for the fiscal year ended
                       October 31, 2002)

               10.1    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)

               10.2    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)

               10.3    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)

               10.4    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)

               10.5    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)

               10.6    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)

               10.7    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)

               10.8    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)

               10.9    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)

               10.10   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)

               10.11   Asset Sale Agreement, dated as of June 3,
                       2003, among Mildred Elley School, Inc.,
                       Touchstone Applied Science Associates,
                       Inc., TASA Educational Services
                       Corporation, Faith A. Takes and Empire
                       Education Corporation (incorporated by
                       reference to the exhibit contained in the
                       Company's Current Report on Form 8-K, as
                       amended, which was filed with the
                       Securities and Exchange Commission on June
                       18, 2003, as amended on September 15, 2003
                       (the "ME 8-K"))

               10.12   Escrow Agreement, dated as of June 3, 2003,
                       by and among Mildred Elley School, Inc.,
                       Touchstone Applied Science Associates,
                       Inc., TASA Educational Services
                       Corporation, Empire Education Corporation,
                       and Hodgson Russ LLP, as escrow agent.
                       (incorporated by reference to the exhibit
                       contained in the ME 8-K)

               10.13   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)

               10.14   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)

               10.15   Contract of Sale, dated as of January 31,
                       2003, between the Company and 26 Palmer,
                       LLC (incorporated by reference to the
                       exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended January 31, 2003)

               10.16   Agreement of Lease between the Company and
                       26 Palmer, LLC (incorporated by reference
                       to the exhibit contained in the Company's
                       Quarterly Report on Form 10-QSB for the
                       fiscal quarter ended January 31, 2003)

               10.17   Stock Purchase Agreement, dated as of
                       January 1, 2005, by and between Pasquale J.
                       DeVito, Ph.D. and Richard S. Zusman, Ed.D.,
                       and Touchstone Applied Science Associates,
                       Inc. (incorporated by reference to the
                       exhibit contained in the Company's Current
                       Report on Form 8-K, filed January 21, 2005).

               21      Subsidiaries of the Company (filed
                       herewith)

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

               31      Certification by Chief Executive Officer
                       and Chief Financial Officer (filed
                       herewith)

               32      Certification by Chief Executive Officer
                       pursuant to 18 U.S.C. Section 1350, as
                       adopted pursuant to Section 906 of the
                       Sarbanes-Oxley Act of 2002 (filed herewith)

          (b) Reports on Form 8-K

              None.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

          The Board of Directors of the Company appointed, and the
Audit Committee confirmed, the firm of Lazar, Levine & Felix LLP
("Lazar") as its independent auditors for the 2004 fiscal year.
Lazar has been serving the Company in this capacity since September
1995.  In Fiscal 2004 and Fiscal 2003, the Company incurred the
following professional fees from Lazar:

          AUDIT FEES.  In Fiscal 2004 and Fiscal 2003, the Company
          ----------
incurred $62,283 and $85,042, respectively, in fees in connection
with the audits of the Company's annual financial statements for
the fiscal years ended October 31, 2004 and October 31, 2003,
respectively, and for the reviews of the financial statements of
the Company included in the Company's quarterly reports for such
fiscal years.

          AUDIT-RELATED FEES.  In Fiscal 2003, the Company incurred
          ------------------
$12,100 in fees in connection with Lazar's audits of the Company's
performance during Fiscal 2002 and Fiscal 2003 under a contract to
provide assessment and scoring services for a particular state
contract.  Such audits were required by the state contract.  In
addition, the Company incurred $11,000 in Fiscal 2003 in fees for a
separate Department of Education audit required for Mildred Elley,
prior to the disposition of such division.

          TAX FEES.  The Company did not incur any fees to Lazar in
          --------
Fiscal 2004 or Fiscal 2003 for services related to tax compliance,
tax planning, and reporting

          ALL OTHER FEES.  For all other services, the Company
          --------------
incurred an aggregate of $0 and $16,544, respectively, in fees to
Lazar during the Fiscal 2004 and Fiscal 2003, respectively, for all
non-audit services.  These services were rendered principally in
connection with the sale of the Company's post-secondary school
division and instructional materials division which have been
classified as discontinued operations.

          The Audit Committee believes that, on the basis of the
relevant facts and circumstances pertaining to that firm's
engagement by the Company, Lazar satisfies the requirements for
independence from the Company.

          AUDIT COMMITTEE PRE-APPROVAL OF AUDIT SERVICES AND
          --------------------------------------------------
PERMISSIBLE NON-AUDIT SERVICES.  Consistent with Sarbanes-Oxley and
------------------------------
the SEC regulations promulgated thereunder, the Audit Committee has
established a policy to pre-approve all audit and permissible non-
audit services to be performed by the Company's independent
accountants.








<PAGE>          F-1

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS






                                                                PAGE
                                                                ----

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         F - 2

CONSOLIDATED BALANCE SHEETS                                     F - 3

CONSOLIDATED STATEMENTS OF OPERATIONS                           F - 5

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY       F - 7

CONSOLIDATED STATEMENTS OF CASH FLOWS                           F - 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      F - 10



                                  F - 1


<PAGE>          F-2


        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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


We have audited the accompanying consolidated balance sheets of
Touchstone Applied Science Associates, Inc. and Subsidiaries as of
October 31, 2004 and 2003, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the
three fiscal years ended October 31, 2004.  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 the standards of the Public
Company Accounting Oversight Board (United States).  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, 2004 and 2003 and the results of its operations and its
cash flows for the three fiscal years ended October 31, 2004 in
conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 4 to the Consolidated Financial Statements, the
accompanying 2004 and 2003 financial statements have been restated.


Lazar Levine & Felix LLP
New York, New York
January 6, 2005
(Except for Note 15, the date of
  which is January 14, 2005) and
  (June 3, 2005 as to the effects of the
  restatement discussed in Note 4, and
  August 3, 2005 as to the revenue
  recognition disclosure in Note 1)


                                  F - 2

<PAGE>          F-3

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>

                        CONSOLIDATED BALANCE SHEETS

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

Current assets:
  Cash and temporary investments                         $1,751,487     $   963,435
  Accounts receivable, net of allowance for
    doubtful accounts of $4,417 and
    $6,971, respectively                                  1,526,559         959,987
  Inventories                                               431,196         511,410
  Prepaid expenses and other current assets                 338,354         285,844
  Restricted cash                                            21,954          21,456
  Deferred income taxes                                     536,440         256,017
                                                         ----------     -----------


        Total current assets                              4,605,990       2,998,149



Property, plant and equipment - net of
  accumulated depreciation of $284,567 and
  $395,327, respectively                                    525,319         195,341


Other assets:
  Test passage bank and test development,
    net of accumulated amortization of
    $3,174,865 and $2,767,504, respectively               2,227,077       2,153,975
  Goodwill                                                  198,159         198,159
  Deferred income taxes                                     807,672       1,605,011
  Other assets                                              326,289         396,241
                                                         ----------     -----------


        Total assets                                     $8,690,506     $ 7,546,876
                                                         ----------     -----------









</TABLE>












See notes to consolidated financial statements.

                                  F - 3


<PAGE>          F-4

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>

                        CONSOLIDATED BALANCE SHEETS (Continued)

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

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

Current liabilities:
  Lines of credit                                          $        --     $       --
  Current maturities of long-term debt                          28,606          7,600
  Accounts payable                                             119,448        131,667
  Accrued expenses                                           1,350,546      1,062,653
  Deferred gain on sale of building -
    current portion                                            125,439        125,439
                                                            ----------     ----------


        Total current liabilities                            1,624,039      1,327,359
                                                            ----------     ----------


Long-term debt, net of current portion                         120,291         30,400
Deferred gain on sale of building, net
  of current portion                                           961,692      1,087,131
                                                            ----------     ----------


        Total liabilities                                    2,706,022      2,444,890
                                                            ==========     ==========

Commitments and contingencies


Stockholders' equity:
  Preferred stock, $.0001 par value,
    5,000,000 shares authorized,
    0 shares-issued and outstanding,
    respectively                                                    --             --
  Common stock, $.0001 par value,
    20,000,000 shares authorized,
    2,627,703 and 2,603,453 shares issued
    and outstanding, respectively                                  263            260
  Additional paid-in capital                                 5,609,480      5,548,668
  Subscriptions receivable                                        (920)            --
  Retained earnings                                            375,661       (446,942)
                                                            ----------     ----------


        Total stockholders' equity                           5,984,484      5,101,986
                                                            ----------     ----------


Total liabilities and stockholders' equity                  $8,690,506     $7,546,876
                                                            ==========     ==========

</TABLE>







See notes to consolidated financial statements.

                                  F - 4


<PAGE>          F-5

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS



                                                       Fiscal Year Ended October 31,
                                                   2 0 0 4        2 0 0 3        2 0 0 2
                                                   -------        -------        -------
                                                (As Restated)  (As Restated)
<S>                                          <C>            <C>             <C>

Net revenue                                     $11,185,254     $9,761,638      $7,562,468

Cost of goods sold                                5,795,758      5,075,148       3,596,680
                                                -----------     ----------      ----------

Gross profit                                      5,389,496      4,686,490       3,965,788
                                                -----------     ----------      ----------

Operating expenses:
  Selling expenses                                1,278,178      1,453,190       1,168,912
  General and administrative expenses             2,819,770      2,189,318       2,019,119
                                                -----------     ----------      ----------

Total operating expenses                          4,097,948      3,642,508       3,188,031
                                                -----------     ----------      ----------

Income from operations                            1,291,548      1,043,982         777,757

Other income (expense):
  Gain on sale/leaseback of building                125,439         41,813              --
  Gain (loss) on sale of assets                          --             --         (14,245)
  Interest expense, net                              (1,936)      (403,940)       (549,891)
                                                -----------     ----------      ----------

Income before income taxes                        1,415,051        681,855         213,621

Income taxes                                        592,448        326,540          86,882
                                                -----------     ----------      ----------

Income from continuing operations                   822,603        355,315         126,739
                                                -----------     ----------      ----------

Income (loss) from discontinued
operations:
  Income (loss) from operations
    net of income tax expense
    (benefit) of $ --, $(248,127),
    and $38,239, respectively                            --       (372,190)         57,358
  Income (loss) on disposal, net
    of income tax expense (benefit)
    of $ --, $309,349 and $(1,604,734),
    respectively                                         --        552,408      (2,532,102)
                                                -----------     ----------      ----------
Income (loss) from discontinued operations               --        180,218      (2,474,744)
                                                -----------     ----------      ----------

Net income (loss)                               $   822,603     $  535,533     $(2,348,005)
                                                ===========     ==========      ----------




</TABLE>







See notes to consolidated financial statements.

                                  F - 5


<PAGE>          F-6

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)



                                                       Fiscal Year Ended October 31,
                                                   -------------------------------------
                                                   2 0 0 4        2 0 0 3        2 0 0 2
                                                   -------        -------        -------
                                                (As Restated)  (As Restated)
<S>                                          <C>            <C>             <C>
Weighted average shares outstanding:
  Basic                                          2,614,662       2,596,252      2,587,241
  Diluted                                        2,870,327       2,661,014      2,587,241


Basic earnings (loss) per share
  Continuing operations                          $     .31       $     .14      $     .05
  Discontinued operations                               --             .07           (.96)
                                                 ---------       ---------      ---------

                                                 $     .31       $     .21      $    (.91)
                                                 =========       =========      =========

Diluted earnings (loss) per share
  Continuing operations                          $     .29       $     .13      $     .05
  Discontinued operations                               --             .07           (.96)
                                                 ---------       ---------      ---------


                                                 $     .29       $     .20      $    (.91)
                                                 =========       =========      =========







</TABLE>

















See notes to consolidated financial statements.

                                  F - 6


<PAGE>          F-7

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

         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY




                                                             Additional                Unearned                         Retained
                  Preferred Stock         Common Stock       Paid-in      Deferred     Compensatory   Subscriptions     Earnings
                Shares      Amount     Shares      Amount    Capital      Interest     Stock          Receivable        (Deficit)
                ------      ------     ------      ------    -------      --------     ------------   -------------     --------


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


Balance at
 November 1,
 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)


Exercise of
 employee
 stock
 options          --          --         9,000       1         10,275            --          --             --                  --
Interest
 expense          --          --            --      --             --       117,293          --             --                  --
Net income        --          --            --      --             --            --          --             --             535,533
               -----        ----     ---------    ----      ---------       -------       -----          -----          ----------


Balance at
 October 31,
 2003             --          --     2,603,453     260      5,548,668            --          --             --            (446,942)
(As Restated)


Issuance of
 warrants         --          --            --      --         42,700            --          --             --                  --
Exercise of
 employee
 stock
 options          --          --        24,250       3         18,112            --          --            (920)                --
Net income        --          --            --      --             --            --          --              --            748,594
               -----        ----     ---------    ----     ----------       -------       -----           -----         ----------


Balance at
 October 31,
 2004             --      $   --     2,627,703    $263     $5,609,480     $      --      $   --        $   (920)       $   375,661
(As Restated)  =====      ======     =========    ====     ==========     =========      =======       =========       ===========


</TABLE>


See notes to consolidated financial statements.

                                  F - 7

<PAGE>          F-8

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

                   CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                              Fiscal Year Ended October 31,
                                                         2 0 0 4        2 0 0 3         2 0 0 2
                                                         -------        -------         -------
                                                      (As Restated)  (As Restated)
<S>                                                <C>            <C>             <C>

OPERATING ACTIVITIES
Net income (loss)                                     $   822,603     $  535,533     $(2,348,005)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
  Depreciation and amortization                           587,626        605,310         623,192
  Deferred interest                                            --        117,293         118,260
  Deferred income taxes                                   516,916        252,759          82,319
  Financial advisory services                                  --             --           1,251
  (Income) loss on discontinued operations                     --       (861,757)      1,109,248
  Impairment of goodwill -
    discontinued operations                                    --             --       3,027,588
  Bad debt expense                                             --        (17,463)         19,912
  (Gain) loss on sale of assets                                --             --          14,245
  (Gain) on sale/leaseback of building                   (125,439)       (41,813)             --
Changes in operating assets and liabilities:
  Restricted cash                                            (498)       (21,456)             --
  Accounts receivable                                    (566,572)       128,583         187,395
  Inventories                                              80,214        (82,668)        (34,644)
  Prepaid expenses                                         (8,906)       108,087        (241,414)
  Other assets                                                 --         (1,388)             --
  Net assets from discontinued operations                      --             --      (2,061,462)
  Accounts payable and accrued expenses                   275,671        (32,666)        (88,483)
                                                       ----------     ----------     -----------


NET CASH FLOWS FROM OPERATING ACTIVITIES                1,581,615        688,354         409,402
                                                       ----------     ----------     -----------


INVESTING ACTIVITIES
  Test passage bank and test development                 (480,463)      (355,518)       (213,986)
  Software development costs                              (13,971)      (175,682)        (12,616)
  Prepublication costs                                   (135,927)      (169,960)             --
  Proceeds from the sale of building                           --      2,875,000              --
  Proceeds from the sale of discontinued operations            --      4,070,000              --
  Closing costs on sale of building                            --       (161,891)             --
  Closing costs on sale of discontinued operations             --       (556,037)             --
  Acquisition of fixed assets                            (291,294)      (299,174)        (65,062)
                                                       ----------     ----------     -----------


NET CASH FLOWS FROM INVESTING ACTIVITIES                 (921,655)     5,226,738        (291,664)
                                                       ----------     ----------     -----------








</TABLE>







See notes to consolidated financial statements.

                                  F - 8


<PAGE>          F-9

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>

              CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



                                                              Fiscal Year Ended October 31,
                                                         2 0 0 4        2 0 0 3         2 0 0 2
                                                         -------        -------         -------
                                                      (As Restated)  (As Restated)
<S>                                                  <C>          <C>             <C>

FINANCING ACTIVITIES
  Repayments from loan payable                                --             --         (49,472)
  Repayment of subordinated debt                              --     (3,530,141)             --
  Proceeds from the exercise
    of employee stock options                             17,195         10,275              --
  Proceeds from long-term debt                           118,497         38,000              --
  Repayment of long-term debt                             (7,600)    (1,585,700)             --
                                                      ----------    -----------      ----------


NET CASH FLOWS FROM FINANCING ACTIVITIES                 128,092     (5,067,566)        (49,472)
                                                      ----------    -----------      ----------


NET CHANGE IN CASH AND TEMPORARY INVESTMENTS             788,052        847,526          68,266


CASH AND TEMPORARY INVESTMENTS
AT BEGINNING OF PERIOD                                   963,435        115,909          47,643
                                                      ----------    -----------      ----------


CASH AND TEMPORARY INVESTMENTS
AT END OF PERIOD                                      $1,751,487    $   963,435      $  115,909
                                                      ----------    -----------      ----------


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

  Interest                                            $    5,621    $   404,333      $  554,391
                                                      ----------    -----------      ----------
  Income taxes                                        $   57,158    $    34,442      $  163,660
                                                      ==========    ===========      ==========







</TABLE>












See notes to consolidated financial statements.

                                  F - 9


<PAGE>          F-10

                 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
continuing operations 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 was comprised of Modern Learning
Press, Inc. ("MLP").  Substantially all the assets of MLP were
sold in July 2003 (Note 2).  The Company's educational delivery
segment was comprised of TASA Educational Services Corporation
("TESC"), and MESI Acquisition Corp. ("Elley"), the assets of
which were sold in June 2003 (Note 2).

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.

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 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, 2004.  Due to
the sale of Elley and MLP, the operations of the instructional
and delivery segments have been reflected as discontinued
operations (Note 2).  During the fiscal year ended October 31,
2004, MLP and TESC were dissolved.  The Company is in the
process of dissolving Elley.

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

The audited consolidated financial statements included in this
Report for the Company's fiscal years ended October 31, 2004
and 2003, have been restated and supersede the Company's
previously-issued audited consolidated financial statements for
such fiscal years (note 4).

Goodwill
--------

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 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 applied the rules for goodwill and other intangible
assets beginning in the first quarter of the fiscal year ending
October 31, 2003.  The Company performed the first of the
required impairment tests of goodwill as of November 1, 2002
and performed the annual tests at October 31, 2004 and 2003 and
has determined there to be no impairment of the remaining
goodwill on those dates.  The net carrying value of goodwill at
November 1, 2003 is $198,159 for BETA.  Amortization of
goodwill included in continuing operations for the year ended
October 31, 2002 totaled $24,778.


                                  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)
---------------------------------------------------------

Goodwill (Continued)
--------

During the second quarter of the fiscal year ended October 31,
2002 as a result of the then pending sale of its delivery
segment (Note 2) the Company deemed the goodwill purchased in
the Elley transaction, with a remaining book value totaling
approximately $3,027,000, to be impaired.  The impairment of
the goodwill from the Elley transaction was reported as part of
the loss on the disposal from discontinued operations in the
fiscal year ended October 31, 2002.

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.

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 (until its sale)                 31-1/2 years
     Building improvements (until its sale)    15 to 31-1/2 years
     Leasehold improvements                    Remaining lease term
                                                or useful life
     Furniture, fixtures and equipment         5 to 7 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 net operating losses and other
timing differences.  Income taxes are reported based upon
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes".  (see Note 12).


                                  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.

As of October 31, 2004, 2003 and 2002 unamortized software
development costs totaled approximately $85,000, $21,000, and
$97,000, respectively, and were included as a component of
other assets within the Company's balance sheets.

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

Certain capitalized costs are amortized using the straight-line
method over a period of five (5) years for software development
and seven to eleven (7-11) years for test passage bank and test
development costs.  Loan origination costs and mortgage costs
(see Note 7) were amortized using the straight-line method over
the term of the indebtedness prior to the sale of the Company's
headquarters.  Amortization expense from continuing operations
other than goodwill totaled $486,274, $522,584, and $489,005
for the fiscal years ended October 31, 2004, 2003 and 2002,
respectively.  Amortization expense for the next five years is
as follows:

Year Ended October 31,
       2005            $458,046
       2006             418,034
       2007             356,170
       2008             293,001
       2009             246,320



                                  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,
                                            -----------
                                      2 0 0 4         2 0 0 3
                                      -------         -------
                                   (As Restated)  (As Restated)

   Retirement plans                $  238,107      $  217,999
   Commissions                         14,651          27,093
   Salary                             256,510         333,326
   Professional fees                  100,565         106,394
   Royalties                           25,054          99,524
   Outside services                   127,939         162,998
   Other                              587,720         115,319
                                   ----------      ----------

                                   $1,350,546      $1,062,653
                                   ==========      ==========


Included in the accrued expenses for the year ended October 31,
2003 are expenses related to the closing down of the MLP
operations for salaries, retirement plan contributions and
royalties totaling $129,627, $23,064 and $75,335 respectively.

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, 2004 and
2003, the Company's uninsured cash balances totaled $1,551,086
and $568,294, respectively.  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,
including sales of the related ancillary materials, are recognized
when the Company ships the physical product from its warehouse.
The Company's revenues from performance of assessment consulting
and psychometric services under long-term contracts are recognized
on the percentage-of-completion basis pursuant to the provisions of
Statement of Position No. 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" and
Accounting Research Bulleting No. 45, "Long-Term Construction-Type
Contracts".  For each contract, the Company compares the costs
incurred in the course of performing such contract during a fiscal
period to the total estimated costs of full performance of the
contract and recognizes a proportionate amount of revenue for
such period.



                                  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.  Historically,
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, 2004 and
2003, 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.




                                  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)
---------------------------------------------------------

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, as amended, 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 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, 2004, 2003, and 2002, respectively: expected
volatility of 109%, 142% and 165%, respectively; risk free
interest rate of 3.00%, 3.63% and 4.16%, respectively; and
expected lives of 5 to 10 years.

The effects of applying SFAS No. 123, as amended, 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.

The pro forma net income (loss) and income (loss) per share
consists of the following:

<TABLE>
<CAPTION>

                                              Fiscal Years Ended October 31,
                                     --------------------------------------------
                                       2 0 0 4          2 0 0 3          2 0 0 2
                                       -------          -------          -------
                                    (As Restated)    (As Restated)
<S>                                <C>             <C>             <C>

Net income as reported                $ 822,603        $ 535,533       $(2,348,005)
Effect of stock options                (138,993)         (18,443)         (242,918)
                                      ---------        ---------       -----------

Proforma net income                   $ 683,610        $ 517,090       $(2,590,923)
                                      =========        =========       ===========
Historic basic earnings
  per share                           $     .31        $     .21       $      (.91)
Historic diluted earnings
  per share                           $     .29        $     .20       $      (.91)
Proforma basic earnings
per share                             $     .26        $     .20       $     (1.00)
Proforma diluted earnings
  per share                           $     .24        $     .19       $     (1.00)



</TABLE>

                                  F - 15


<PAGE>          F-16

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

Earnings (Loss) per Share
-------------------------

Earnings (loss) per share for each of the fiscal years ended
October 31, 2004, 2003, and 2002 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 SFAS No. 128, "Earnings
Per Share".  The Company had a net loss for the fiscal year
ended October 31, 2002 and, accordingly, potential dilutive
common shares are excluded from this computation for such year
as the effect would be anti-dilutive.  The total potential
dilutive common shares excluded from this computation totaled
560,595, 661,238 and 877,541 in the fiscal years ended October
31, 2004, 2003 and 2002, respectively.  The reconciliation
between basic and diluted average shares outstanding is as
follows:

<TABLE>
<CAPTION>
                                             Fiscal Years Ended October 31,
                                             ------------------------------
                                                2 0 0 4          2 0 0 3          2 0 0 2
                                                -------          -------          -------
<S>                                         <C>              <C>              <C>
Basic weighted average shares outstanding      2,614,662        2,596,252        2,587,241
Dilutive effect of stock options                 170,678           64,762               --
Dilutive effect of warrants                       84,987               --               --
                                               ---------        ---------        ---------
Diluted weighted average shares outstanding    2,870,327        2,661,014        2,587,241
                                               =========        =========        =========
</TABLE>


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

Marketing and promotional costs are expensed as incurred and
aggregated approximately $304,000, $353,000, and $276,000 from
continuing operations for the fiscal years ended October 31,
2004, 2003 and 2002, respectively.

Shipping Costs
--------------

The Company classifies shipping costs as a component of
selling expenses.  Shipping costs from continuing operations
totaled $73,083, $72,893 and $86,885 for the years ended
October 31, 2004, 2003 and 2002, respectively.

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

In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities ("SFAS 149").  This statement
amends and clarifies the financial reporting for certain
derivative instruments, including certain derivative instruments
embedded in other contracts.  The Company does not currently
have any financial instruments covered by this statement.

In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" ("SFAS
150") that is applicable to financial statements issued for the
first interim period beginning after June 15, 2003.  This
statement establishes standards for the classification of
certain financial instruments with characteristics of both
liabilities and equity.  The Company does not currently have any
financial instruments covered by this statement.


                                  F - 16

<PAGE>          F-17


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

Recently Issued Accounting Pronouncements (Continued)
-----------------------------------------

In March 2004, the FASB reached a consensus on Emerging Issues
Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain
Investments," which provides guidance to determine the meaning
of other-than-temporary impairment and its application to
investments classified as either available-for-sale or held-to-
maturity (including individual securities and investments in
mutual funds), and investments accounted for under the cost
method or the equity method.  The guidance for evaluating
whether an investment is other-than-temporarily impaired should
be applied in other-than-temporary impairment evaluations made
in reporting periods beginning after June 15, 2004.  The
adoption of Issue No. 03-1 has not had any impact on the
Company's financial statements and results of operations.

In December 2004, the FASB issued a revision of SFAS NO. 123
"Share-Based Payment".  The statement establishes standards for
the accounting for transactions in which an entity exchanges its
equity investments for goods and services. It also addresses
transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the
issuance of those equity instruments.  The statement does not
change the accounting guidance for share-based payments with
parties other than employees.

The statement requires a public entity to measure the cost of
employee service received in exchange for an award of equity
instruments based on the grant-date fair value of the award
(with limited exception).  That cost will be recognized over the
period during which an employee is required to provide service
in exchange for the award (usually the vesting period).  A
public entity will initially measure the cost of employee
services received in exchange for an award of a liability
instrument based on its current fair value; the fair value of
that award will be remeasured subsequently at each reporting
date through the settlement date.  Changes in fair value during
the requisite service period will be recognized as compensation
over that period.

The grant-date for fair value of employee share options and
similar instruments will be estimated using option-pricing
models adjusted for the unique characteristics of these
instruments.  The Company will be required to comply with this
pronouncement with periods beginning after December 15, 2005.



                                  F - 17


<PAGE>          F-18

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SALE OF NON-CORE SEGMENTS/DISCONTINUED OPERATIONS
----------------------------------------------------------

With the advent of the No Child Left Behind legislation, the
Company made the strategic decision to refocus itself in the
assessment segment of the K-12 market.

Instructional Segment
---------------------

In July 2003, the Company sold substantially all the assets of
Modern Learning Press, Inc.,("MLP") its wholly-owned subsidiary
and the sole component of the Company's instructional segment to
Delta Education, LLC ("Delta") for, $4,020,000 and Delta assumed
certain related liabilities.  In addition, the Company was
responsible, for the payment of up to $200,000 of certain
royalties for a one year period from June 1, 2003 through May
31, 2004.  The Company estimated these royalties based on
historical amounts paid, to amount to approximately $175,000,
which has reduced the gain from the sale of the segment.  The
Company retained the business and assets related to its test
preparation materials, Kingsbridge Press, which it considers
consistent with the activities of its sole remaining segment.
The Company recorded a gain on the disposal of the Instructional
segment totaling $1,748,272 less taxes of $699,309.  Revenues
from the Instructional Segment totaled $1,321,278 and $2,862,927
for the period November 1, 2002 through the date of sale and for
the fiscal year ended October 31, 2002 respectively.

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

Delivery Segment
----------------

On June 3, 2003, the Company sold substantially all the assets
of Elley.  Pursuant to the agreement, the Company received
$50,000.  In addition, the Company will receive 25 percent of
the proceeds from any sale or refinancing of the school by the
purchaser to a third party, which must take place within seven
years. The assets sold constitute substantially all the assets
and operations of the Company's educational delivery segment.
The Company recorded a loss on the disposal of Elley totaling
$974,901, and a tax benefit of $389,960, to reflect the change
in the fair value of the net assets sold during the period
November 1, 2002 through June 3, 2003.  The revenues for the
delivery segment were $3,225,417 and $5,882,026 for the period
from November 1, 2002 through June 3, 2003, the date of sale,
and the fiscal year ended October 31, 2002, respectively.



                                  F - 18


<PAGE>          F-19

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




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




                                                   October 31,
                                            ------------------------
                                            2 0 0 3          2 0 0 2
                                            -------          -------

Leashold improvements (Note 4)             $253,290         $200,129

Furniture, fixtures and
equipment                                   556,596          390,539
                                           --------         --------

                                            809,886          590,668
Less: accumulated depreciation              284,567          395,327
                                           --------         --------

                                           $525,319         $195,341
                                           ========         ========


Depreciation expense for the fiscal years ended October 31, 2004,
2003, and 2002 was $101,352, $82,726, and $109,409, respectively.


NOTE 4 - SALE-LEASEBACK OF BUILDING
-------------------------------------

In July 2003, the Company sold its headquarters building to 26
Palmer LLC for $2,875,000.  The building and related
improvements had a net book value of $1,458,481.  The Company
reported a gain on the sale totaling $1,254,383, net of closing
costs totaling $162,136 in fiscal 2003.  The building was then
leased back to the Company under a ten-year lease agreement.  As
a result of the sale/leaseback, the gain was deferred and
recognized over the term of the lease.  Among other provisions,
the lease provides for additional rent to be paid by the Company
for real estate taxes and insurance.  The Company also has a
lease for its Texas office for payments aggregating $37,289 over
the next five years.  In addition, the Company has leases on
certain of its equipment.  Future minimum rentals on the leases
are as follows:

Year ended October 31,
----------------------
2005                       $  357,938
2006                          364,380
2007                          359,738
2008                          346,110
2009                          355,250
2010 and thereafter         1,402,681
                          -----------

                           $3,186,097
                           ==========



            Subsequent to the issuance of Company's audited
consolidated financial statements in its Form 10-KSB for the
fiscal year ended October 31, 2004, the Company concluded that
its treatment of the gain from the sale-leaseback transaction
was not consistent with generally accepted accounting
principles.  The Company concluded that it was necessary to
restate such financial statements.  The restatement does not
affect previously-reported revenues for the restated period or
future periods.

                                  F - 19


<PAGE>          F-20

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - SALE-LEASEBACK OF BUILDING (Continued)
-----------------------------------


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


                                                 As Previously      As Restated
                                                   Reported

As of October 31, 2004:
-----------------------

Deferred income taxes-long term                  $   361,948       $   807,672
Deferred gain on sale of building (current)               --           125,439
Deferred gain on sale of building
  (net of current)                                        --           961,692
Retained earnings                                  1,017,068           375,661


For the fiscal year ended October 31, 2004:
-------------------------------------------

Gain on Sale/Leaseback of building                        --           125,439
Income before income taxes                         1,289,612         1,415,051
Income taxes                                         541,018           592,448
Income from continuing operations                    748,594           822,603
Net income                                           748,594           822,603
Earnings per common share
     Basic                                             $0.29             $0.31
     Diluted                                           $0.26             $0.29



                                  F - 20


<PAGE>          F-21

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - 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.  On
October 31, 2004, the Company tested the test passage bank and
test development costs for potential impairment using the
discounted cash flow method.  At that time, the Company deemed
no impairment had occurred.


NOTE 6 - LINES OF CREDIT
------------------------

The Company obtained a line of credit totaling $1,000,000 from
a bank.  Borrowings under the line of credit accrue interest at
the bank's prime rate plus one percent (1.0%) per annum and the
line, as amended, expires on April 1, 2005.  The line is
collateralized by the Company's accounts receivable and
inventory and contains various financial covenants pertaining
to the maintenance of working capital and debt service
coverage.  As of October 31, 2004, the Company was in
compliance with all such covenants.  There were no outstanding
borrowings under this line as of October 31, 2004 and 2003.


NOTE 7 - MORTGAGE
-----------------

The Company mortgaged its facilities for $1,800,000 in 1997.
Borrowings on the mortgage incurred interest at the rate of 8
1/8% per annum.  The mortgage was to be repaid through equal
monthly installments with a balloon payment due in Fiscal 2007.
The mortgage was prepaid in July 2003 upon the sale-leaseback
of the facilities (note 4).




                                  F - 21


<PAGE>          F-22

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 8 - LONG-TERM DEBT
-----------------------

Long-term debt consists of the following:


                                                                 October 31,
Description                Interest Rate      Due Date        2004         2003
-----------                -------------      --------        ----         ----



Equipment loan
payable in monthly
installments of
$2,295 including
interest                        6%              2009       $118,497    $     --

Equipment loan
payable in monthly
installments of
$633 plus interest      Prime + 1%              2008         30,400      38,000
                                                           --------    --------

                                                            148,897      38,000

Less:  current
maturities                                                   28,606       7,600
                                                           --------    --------

                                                           $120,291    $ 30,400
                                                           ========    ========



Long-term debt matures as follows:

Fiscal year ended October 31,
2005                 $ 28,606
2006                   29,901
2007                   31,277
2008                   32,737
2009                   26,376
                     --------

                     $148,897
                     ========



                                  F - 22


<PAGE>          F-23

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - 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.   Interest pursuant to the debentures was incurred
at an annual rate of eight percent (8%) and was payable quarterly.
The debentures, which were originally due in October 2003, contain
provisions for the prepayment of the loan's principal.  In
September 2002, the due date of the debentures was extended to
February 1, 2004.  Additionally, there were warrants issued to
acquire an aggregate of 690,230 shares of the Company's common
stock at $1.25 per share.  These warrants were exercisable for a
five year period from designated start dates as set forth in the
agreement.  In December 1999, pursuant to an agreement among the
Company, CWSPF and SA, the exercise price of the warrants was
amended to be $1.125 per share.  On October 31, 2004, there were
warrants outstanding to purchase 138,047 shares of the Company's
common stock.  In July 2003, the remaining principal balance due
on the debentures was repaid.  In December 2004, subsequent to the
balance sheet date, warrants to purchase 138,047 shares of the
Company's common stock were exercised in exchange for $155,303.


NOTE 10 - RETIREMENT PLANS
--------------------------

The Company has a qualified 401(k) Profit Sharing Plan, as
amended, under which eligible employees who are eighteen years of
age and have completed either twelve months', or one thousand
hours, of employment become participants.  The Plan provides a
matching component under the 401 (k) Profit Sharing Plan of up to
five percent (5%) of each eligible employee's compensation.

Net assets for the Profit Sharing Plan, as estimated by the
Massachusetts Mutual Life Insurance Company, which maintains the
plan's records, were $2,809,037 and $2,341,940 at October 31, 2004
and 2003, respectively.

The Company has a Money Purchase Pension Plan, as amended, under
which eligible employees who are eighteen years of age and have
completed either twelve months', or one thousand hours, of
employment become participants.  The Plan excludes highly
compensated employees, as defined, and provides for annual
contributions of five percent (5%) of each eligible employee's
compensation.

Net assets for the Money Purchase Pension Plan, as estimated by
the Massachusetts Mutual Life Insurance Company, which maintains
the plan's records, were $1,231,078 and $1,191,537 at October
31, 2004 and 2003, respectively.

For the fiscal years ended October 31, 2004, 2003, and 2002,
retirement plan costs aggregated approximately $238,000,
$198,000, and $142,000, respectively.



                                  F - 23


<PAGE>          F-24

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - 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.  At October 31, 2004, there were no preferred
shares outstanding.

Warrants Issued for Services
----------------------------

In September 2004, the Company issued warrants to purchase 20,000
shares of the Company's common stock in exchange for certain
financial advisory services.  The warrants are exercisable through
September 24, 2009 at a price of $2.96 per share.  The warrants
were valued at $42,700.

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.

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, 2002      470,788    $1.668 - $11.00
  Granted                                        --          --
  Cancelled                                 (57,000)   $1.668 - $11.00
  Exercised                                      --          --
                                            -------


Options outstanding - October 31, 2003      413,788    $1.668 - $10.50
  Granted                                        --          --
  Canceled                                       --          --
  Exercised                                    (750)   $1.668
                                            -------


Options outstanding - October 31, 2004      413,038    $1.668 - $10.50
                                            =======


Options exercisable - October 31, 2004      413,038    $1.668 - 10.50
                                            =======




                                  F - 24



<PAGE>          F-25

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - 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.

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


Options outstanding - November 1, 2002       79,800        $0.46
  Granted                                    39,500        $0.65
  Canceled                                     (500)       $0.46
  Exercised                                  (9,000)       $0.46
                                            -------


Options outstanding - October 31, 2003      109,800    $0.46 - $0.65
  Granted                                    73,000        $2.10
  Canceled                                       --         --
  Exercised                                 (18,500)   $0.46 - $0.65
                                            -------


Options outstanding - October 31, 2004      164,300    $0.46 - $2.10
                                            =======


Options exercisable - October 31, 2004       91,300    $0.46 - $0.65
                                            =======

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 - 25


<PAGE>          F-26

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - 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, 2002       46,875    $0.62 - $7.85
  Granted                                    10,000        $0.70
  Canceled                                       --         --
  Exercised                                      --         --
                                            -------


Options outstanding - October 31, 2003       56,875    $0.62 - $7.85
  Granted                                    15,000        $3.50
  Canceled                                       --         --
  Exercised                                 ( 5,000)   $0.6875 - $1.00
                                            -------


Options outstanding - October 31, 2004       66,875    $0.62 - $7.85
                                            =======


Options exercisable - October 31, 2004       51,875    $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 - 26


<PAGE>          F-27

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Consultants Stock Incentive Plan (continued)
--------------------------------


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

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


Options outstanding - October 31, 2004,
 2003 and 2002                                7,500       $.90
                                              =====

Options exercisable - October 31, 2004        7,500       $.90
                                              =====



NOTE 12 - 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 4          2 0 0 3
                                                    -------          -------
                                                 (As Restated)    (As Restated)
     Deferred tax assets:


         Goodwill                                  $     --       $    1,368
         Net operating loss                         806,436        1,321,138
         Sale/leaseback of building                 445,724          497,154
         Salaries                                    84,404           63,327
         Rent                                        24,697            8,597
         Bad debt allowance                           1,767            2,788
         Other                                        5,393            4,214
                                                   --------       ----------

         Gross deferred tax assets                1,368,421        1,898,586
                                                  --------        ----------

     Deferred tax liability:
         Goodwill                                    (8,607)              --
         Test passage bank and test development     (15,702)         (37,558)
                                                   --------       ----------

         Gross deferred tax liability               (24,309)         (37,558)
                                                   --------       ----------


     Net deferred tax assets                     $1,344,112       $1,861,028
                                                 ==========       ==========



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 - 28


<PAGE>          F-28

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 12 - INCOME TAXES (Continued)
----------------------

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



<TABLE>
<CAPTION>
                                                 Fiscal Year Ended October 31,
                                          ----------------------------------------
                                           2 0 0 4        2 0 0 3         2 0 0 2
                                           -------        -------         -------
                                        (As Restated)  (As Restated)
<S>                                   <C>           <C>             <C>
  Current:
   Federal                               $      --     $       --      $       --
   State                                    75,531         73,781           4,563
                                         ---------     ----------      ----------

                                            75,531         73,781           4,563
                                         ---------     ----------      ----------

  Deferred:
   Federal                                 400,611        195,888          63,797
   State                                   116,306         56,871          18,522
                                         ---------     ----------      ----------

                                           516,917        252,759          82,319
                                         ---------     ----------      ----------

Provision for income taxes               $ 592,448     $  326,540      $   86,882
                                         =========     ==========      ==========
</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>
<CAPTION>
                                                 Fiscal Year Ended October 31,
                                           2 0 0 4        2 0 0 3         2 0 0 2
                                           -------        -------         -------
                                        (As Restated)  (As Restated)
<S>                                     <C>           <C>             <C>

U.S. Federal income tax statutory rate       34%            34%             34%

State income tax, net of Federal income
tax benefit                                   5              7               7

Other - including tax free income,
goodwill and net operating losses             3              3              --
                                            ---            ---             ---

Effective tax rate                           42%            44%             41%
                                            ===            ===             ===
</TABLE>




                                  F - 28



<PAGE>          F-29

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 13 - 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
and incentive bonuses which are payable based upon the attainment
of certain profitability goals.  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,
2004, excluding bonuses and benefits, is as follows:

Fiscal year ending October 31,

     2005            $868,926
     2006             528,126
     2007             534,059
     2008             152,378


NOTE 14 - RELATED PARTY TRANSACTIONS
------------------------------------

One of the directors is a shareholder in the law firm which serves
as the Company's special securities counsel.  The Company incurred
$59,351 and $83,082 in fees to this firm in the fiscal years ended
October 31, 2004 and 2003, respectively.

One of the directors is the principal and owner of a firm which
provided consulting fees to the Company.  The Company incurred
$45,000 in fees to this firm in the year ended October 31, 2004.

NOTE 15 - ACQUISITION OF ASSESSMENT AND EVALUATION CONCEPTS INC.
----------------------------------------------------------------

In January 2005, subsequent to the balance sheet date, the Company
acquired all of the outstanding stock of Assessment and Evaluation
Concepts Inc. in exchange for $83,000 and 12,000 shares of the
Company's common stock.  In addition, options to purchase 50,000
shares of the Company's common stock were granted pursuant to the
2000 Plan on the date of the closing exercisable at $3.06 per
share, the fair market value on that date.  The options are
exercisable commencing one year from the closing, through January 2015.

                                  F - 28

<PAGE>

                              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.

August 8, 2005                 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       August 8, 2005
-------------------------
    Andrew L. Simon                of the Board

/s/ MICHAEL D. BECK                  Director              August 8, 2005
-------------------------
    Michael D. Beck

/s/ STEVEN R. BERGER                 Director              August 8, 2005
-------------------------
    Steven R. Berger

/s/ DONALD W. HUGHES                 Director              August 8, 2005
-------------------------
    Donald W. Hughes

                                     Director
-------------------------
    Chris L. Nguyen

/s/ LINDA G. STRALEY                 Director              August 8, 2005
-------------------------
    Linda G. Straley

/s/THOMAS STRUZZIERI                 Director              August 8, 2005
-------------------------
   Thomas Struzzieri

/s/ DAVID L. WARNOCK                 Director              August 8, 2005
-------------------------
    David L. Warnock