**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 __________________
 **FORM
        10-QSB**
 
 **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 
 **For
                  the quarter ended**
              **Commission
                  File Number****June 30,
                  2006**
              **0-12969**
 
 **TOUCHSTONE
        SOFTWARE CORPORATION**
 **(Exact
        name of registrant as specified in its charter)**
 
 
 **Delaware**
              **95-3778226****(State
                  or other jurisdiction**
              **(I.R.S.
                  Employer****of
                  incorporation or organization)**
              **Identification
                  No.)****1538
                  Turnpike St., North Andover, Massachusetts**
              **01845****(Address
                  of principal executive offices)**
              **(Zip
                  Code)**
 
 
 **(978)
        686-6468**
 **(Registrant’s
        telephone number, including area code)**
 
 **None**
 **(Former
        name, former address and former**
 **fiscal
        year, if changed since last report)**
 
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 
        o
  The
        number of shares of Common Stock of the Registrant outstanding as of August
        7,
        2006 was 11,940,060
        shares.
 
 
 
  **TOUCHSTONE
          SOFTWARE CORPORATION AND SUBSIDIARY**
  INDEX
 **Page**
                  **Number****PART
                    I.**
                **Financial
                    Information****ITEM
                    1.**
                Financial
                    StatementsConsolidated
                    Balance Sheet3⁄4June 30, 2006
                3Consolidated
                    Income Statements3⁄4Three Months Ended June 30, 2006 andJune
                    30, 2005 and Six Months Ended June 30, 2006 and June 30,
                    2005
                4Consolidated
                    Statements of Cash Flows3⁄4Six Months Ended June 30, 2006and
                    June 30, 2005
                5Notes
                    to Consolidated Financial Statements
                6-7**ITEM
                    2.**
                Management’s
                    Discussion and Analysis of Financial Condition and Results
                    ofOperations
                8-11**ITEM
                    3.**
                Controls
                    and Procedures
                11**PART
                    II.**
                **Other
                    Information****ITEM
                    1.**
                Legal
                    Proceedings
                12**ITEM
                    2.**
                Changes
                    in Securities
                12**ITEM
                    3.**
                Defaults
                    Upon Senior Securities
                12**ITEM
                    4.**
                Submission
                    of Matter To a Vote of Security Holders
                12**ITEM
                    5.**
                Other
                    Information
                12**ITEM
                    6.**
                Exhibits
                    and Reports on Form 8-K
                12Signatures
                
                13Exhibits
                
                14-16
 
  
  2
 **TOUCHSTONE
              SOFTWARE CORPORATION AND SUBSIDIARY**
 **PART
          I - FINANCIAL INFORMATION**
 
 **ITEM
          1. Financial Statements**
 **CONSOLIDATED
          BALANCE SHEET**
 **June
          30, 2006**
 **(unaudited)**
  **Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                474,529Accounts
                    receivable, net
                
                
                7,968Inventories
                
                
                12,971Prepaid
                    expenses and other current assets
                
                
                21,134Total
                    current assets
                
                
                516,602Investments
                
                
                184,527Property
                    and equipment, net
                
                
                476,827$
                1,177,956**Liabilities
                    and Shareholders’ Equity**Current
                    liabilities:Accounts
                    payable
                
                $
                43,873Accrued
                    payroll and related expenses
                
                
                42,301Other
                    accrued expenses
                
                
                57,846Current
                    maturities of long term debt
                
                
                60,245Total
                    current liabilities
                
                
                204,265Long
                    term debt, net of current maturities
                
                
                135,905Total
                    liabilities
                
                
                340,170Shareholders’
                    equity:Preferred
                    stock, $.001 par value, 3,000,000 sharesauthorized,
                    none issued or outstandingCommon
                    stock, $.001 par value, 20,000,000 sharesauthorized;
                    issued and outstanding, 11,940,060 shares
                
                
                11,940Additional
                    paid-in capital
                
                
                21,009,954Accumulated
                    deficit
                
                
                (20,184,108
                )Shareholders’
                    equity, net.
                
                
                837,786$
                1,177,956
 
 
 
 
 
 
 
 
 
 
 
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  3
 
 **TOUCHSTONE
            SOFTWARE CORPORATION AND SUBSIDIARY**
  **CONSOLIDATED
          INCOME STATEMENTS**
 ( **unaudited)**
 
 **Three
                    Months Ended**
                  **June
                    30,**
                
                **Six
                    Months Ended**
                  **June
                    30,****2006**
                
                **2005**
                
                ******2006**
                
                **2005**Revenues:Product
                    sales
                
                $
                722,020
                
                $
                362,484
                
                $
                1,489,317
                
                $
                800,218Royalty
                    income
                
                
                —
                
                
                —
                
                
                —
                
                
                523Website
                    income
                
                
                14,237
                
                
                —
                
                
                35,897
                
                
                —Total
                    revenues
                
                
                736,257
                
                
                362,484
                
                
                1,525,214
                
                
                800,741Cost
                    of revenues
                
                
                49,101
                
                
                66,851
                
                
                167,125
                
                
                135,842Gross
                    profit
                
                
                687,156
                
                
                295,633
                
                
                1,358,089
                
                
                664,899Operating
                    expenses:Sales,
                    marketing, general and administrative
                
                
                342,929
                
                
                220,068
                
                
                673,714
                
                
                471,560Research
                    and development
                
                
                161,069
                
                
                134,587
                
                
                287,247
                
                
                241,471Total
                    operating expenses
                
                
                503,998
                
                
                354,655
                
                
                960,961
                
                
                713,031Income
                    (loss) from operations
                
                
                183,158
                
                
                (59,022
                )
                
                397,128
                
                
                (48,132
                )Interest
                    income (expense), net
                
                
                (1,132
                )
                
                1,220
                
                
                (8,947
                )
                
                1,990Net
                    Income (loss)
                
                $
                182,026
                
                $
                (57,820
                )
                $
                388,181
                
                $
                (46,142
                )Basic
                    earnings (loss) per share
                
                $
                0.01
                
                $
                (0.00
                )
                $
                0.03
                
                $
                (0.00
                )Basic
                    weighted average shares outstanding
                
                
                11,940,060
                
                
                11,440,060
                
                
                11,940,060
                
                
                11,440,060Diluted
                    earnings (loss) per share
                
                $
                0.01
                
                $
                (0.00
                )
                $
                0.03
                
                $
                (0.00
                )Diluted
                    weighted average shares outstanding
                
                
                12,740,086
                
                
                11,986,710
                
                
                12,664,308
                
                
                11,986,710
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  4
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(unaudited)**
 
 **Six
                    months ended**
                  **June
                    30,****2006**
                
                **2005**Cash
                    flows from operating activities:Net
                    income (loss)
                
                $
                388,181
                
                $
                (46,142
                )Adjustments
                    to reconcile net income (loss) to net cash provided by (used
                    in) operating
                    activities:Depreciation
                
                
                45,502
                
                
                1,734Stock
                    option compensation
                
                
                5,770Changes
                    in assets and liabilities:Accounts
                    receivable
                
                
                8,273
                
                
                2,512Inventories
                
                
                17,665
                
                
                2,134Prepaid
                    expenses and other current assets
                
                
                (12,967
                )
                
                2,514Accounts
                    payable
                
                
                (34,182
                )
                
                (10,164
                )Accrued
                    liabilities
                
                
                (23,077
                )
                
                (22,222
                )Net
                    cash provided by (used in) operating activities
                
                
                395,165
                
                
                (69,634
                )Cash
                    flows from investing activities:Collection
                    of notes receivable - related party
                
                
                8,427
                
                
                8,084Additions
                    to Property and Equipment
                
                
                (114,914
                )
                
                (22,500
                )Net
                    cash (used in) investing activities
                
                
                (106,487
                )
                
                (14,416
                )Cash
                    flows from financing activities:Payments
                    on long term debt
                
                
                (35,575
                )
                
                —Net
                    cash (used in) financing activities
                
                
                (35,575
                )
                
                —Net
                    increase (decrease) in cash and cash equivalents
                
                
                253,103
                
                
                (84,050
                )Cash
                    and cash equivalents, beginning of period
                
                
                221,426
                
                
                289,859Cash
                    and cash equivalents, end of period.
                
                $
                474,529
                
                $
                205,809Supplemental
                    disclosure of cash flow information:Cash
                    paid during the period for:Interest
                
                $
                9,571
                
                $
                503Income
                    taxes
                
                $
                —
                
                $
                —
  The
          Company has the following non-cash investing and financing activitites
          for the
          six months ended June 30, 2005. The Company received investments with a
          value of
          $36,800 in partial payment of the note receivable, related party.
 
 In
          addition, the Company financed additions to property and equipment of
          $245,380.
  
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  5
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
 
 **Notes
          to Consolidated Financial Statements**
 
 **1.**
                **Summary
                    of Significant Accounting
                    Policies**
 
 **Nature
          of Operations** **.** TouchStone Software Corporation and its subsidiary (“TouchStone”
          or the “Company”)
          markets, and supports a line of computer prob-lem-solving utility software
          and
          supporting products and engineering services which sim-plify personal computer
          installation, support, and mainte-nance. TouchStone operates from one location
          in the United States. The Company markets its products, domestically and
          internationally, directly to original equipment manufacturers and end
          users.
 
 **Principles
          of Consolidation** .
          The
          consolidated financial statements of the Company include the financial
          statements of the Company’s wholly-owned subsidiary; eSupport.com, Inc.. All
          inter-company transactions and balances have been eliminated.
 
 **Basis
          of Presentation.** The
          accompanying unaudited consolidated financial statements have been prepared
          by
          the Company pursuant to the rules and regulations of the Securities and
          Exchange
          Commission regarding interim financial reporting. Accordingly, they do
          not
          include all of the information and footnotes in accordance with generally
          accepted accounting principles for complete financial statements and should
          be
          read in conjuction with the audited financial statements included in the
          Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005. In
          the opinion of management, the accompanying unaudited financial statements
          contain all adjustments necessary for fair presentation of the Company’s
          financial position, results of operations and cash flows at the dates and
          for
          the periods presented. Such adjustments consisted only of normal recurring
          items.
 
 The
          operating results for the three and six months ended June 30, 2006 are
          not
          necessarily indicative of the results to be expected for the full
          year.
 
 **2.**
                **Earnings
                    Per Share**
 
 Pursuant
          to Statement of Financial Accounting Standards No. 128, “ *Earnings
          Per Share”* (SFAS
          128), the Company provides dual presentation of “Basic” and “Diluted” Earnings
          Per Share (EPS). Basic EPS excludes dilution from common stock equivalents
          and
          is computed by dividing income available to common stockholders by the
          weighted
          average number of common shares outstanding for the period. Diluted EPS
          reflects
          the potential dilution from common stock equivalents. Common stock equivalents
          consisted of outstanding stock options and warrants for the periods ended
          June
          30, 2006 and 2005. At June 30, 2006 and 2005, the number of outstanding
          stock
          options and warrants were 896,900 and 546,650, respectively.
 
 **3.**
                **Investments**
 
 Investments
          at June 30, 2006, include equity instruments of privately held internet
          and
          technology companies. These investments are accounted for under the cost
          method
          as the Company’s ownership
          represents less than 20% of each investee. The Company’s carrying value of these
          investments approximates fair value at June 30, 2006.
 
 The
          Company regularly reviews the assumptions underlying the operating performance
          and cash flow forecasts in assessing carrying value and or impairment of
          its
          investments. At June 30, 2006, the Company has concluded there has been
          no
          further decline in the value of these investments, therefore no adjustment
          has
          been made to these investments during the quarter.
 
 
 6
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
  **4.**
                **Income
                    Taxes**
 
 No
          provision for income taxes is shown in the accompanying consolidated income
          statements as the Company has sufficient net operating loss carryforwards
          available to offset current taxable income levels at
 June
          30,
          2006 and 2005, respectively.
 
 **5.**
                **Stock
                    Options**
 
 Prior
          to
          January 1, 2006, the Company accounted for its stock-based employee compensation
          plan under the recognition and measurement principles of APB Opinion No.
          25, *Accounting
          for Stock Issued to Employees,* and
          related Interpretations. No stock-based employee compensation cost is reflected
          in income, as all options granted under those plans prior to January 1,
          2006 had
          an exercise price equal to the market value of the underlying common stock
          on
          the date of grant. The following table illustrates the effect on net income
          (loss) and earnings per share as if the Company had applied the fair value
          recognition provisions of FASB Statement No. 123(R) , *Accounting
          for Stock-Based Compensation,* to
          stock-based employee compensation.
 
 
 **Three
                    Months Ended**
                  **June
                    30,**
                **Six
                    Months ended**
                  **June
                    30,****2006**
                **2005**
                **2006**
                **2005**Net
                    income (loss)
                  as
                    reported
                $182,026
                $(57,820)
                $388,181
                $(46,142)Pro
                    forma impact of
                  expensing
                    options
                1,806
                30
                3,592
                60Pro
                    forma net
                  Income
                    (loss)
                $180,220
                $(57,850)
                $384,589
                $(46,202)Earnings
                    per share:Basic-as
                    reported
                $0.01
                $0.00
                $0.03
                $0.00Basic-pro
                    forma
                $0.01
                $0.00
                $0.03
                $0.00Diluted-as
                    reported
                $0.01
                $0.00
                $0.03
                $0.00Diluted-pro
                    forma
                $0.01
                $0.00
                $0.03
                $0.00
 
 
 
 Effective
          January 1, 2006, the Company adopted the fair value method, which is considered
          the preferable accounting method, of recording stock-based employee compensation
          as contained in (SFAS) No. 123 (Revised December 2004). As prescribed is
          SFAS
          No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”,
          the Company elected to use the “prospective method.” The prospective method
          requires expense to be recognized for all awards granted, modified or settled
          beginning in the year of adoption. Historically, the Company applied the
          intrinsic method as provided in Accounting Principles Board Opinion No.
          25,
“Accounting for Stock Issued to Employees” and related interpretations and
          accordingly, no compensation cost had been recognized for stock options
          in prior
          periods. As a result of adopting the fair value method for stock compensation,
          all future awards will be expensed over the stock options’ vesting
          period.
 
 On
          May 5,
          2006, the Board of Directors of the Company voted to issue options to acquire
          250,000 shares of common stock for the exercise price of $.34. In accordance
          with SFAS 123(R), the Company recorded compensation expense of $5,770 during
          the
          quarter ended June 30, 2006.
 
 
 7
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
  **ITEM
                  2.**
                **Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations**
  **Overview**
 
 TouchStone
          Software Corporation, Inc. and its consolidated subsidiary, (“TouchStone” or
“the Company”) is a provider of system management software, which includes basic
          input/output (“BIOS”) software upgrades, personal computer (“PC”) diagnostics
          for personal computers and embedded systems. System management software
          is one
          of the fundamental layers in any microprocessor-based system (including
          PCs)
          architecture and provides an essential interface between the systems’s operating
          software and hardware. Organized in 1982 as a California corporation, the
          Company reincorporated in Delaware in January 1997. The Company’s executive
          offices are located at 1538 Turnpike Street, North Andover, Massachusetts
          01845,
          and its telephone number is (978) 686-6468.
 
 In
          January 2000, the Company formed eSupport.com, Inc. (a New Hampshire
          Corporation), a wholly-owned subsidiary, which currently conducts the day
          to day
          operations. The Company’s core product is BIOS, which is the software initially
          executed after the system is turned on, tests and initializes hardware
          components, initiates the operating system and then provides advanced interface
          functions. BIOS software upgrades allow end-users of desktop PCs to extend
          the
          life of their systems and reduce the overall ownership cost of a PC. During
          the
          past several years, eSupport has grown into a full-service engineering
          company
          supplying not only BIOS software upgrades, but also PC diagnostics software
          and
          NRE (non-recurring engineering) services to both end-users and OEM customers.
          As
          the evolution of software and hardware has become more complex, the need
          for
          compatibility has increased in importance. The Company believes that its
          experience and customer focus allow it to quickly identify solutions and
          market
          products compatible with the array of operating systems, application programs,
          utilities and hardware products available.
 
 eSupport’s
          customers include primarily end-users, enterprises such as Fortune 500
          corporations, government agencies, major educational and financial institutions,
          designers and manufacturers of motherboards, PC systems and other
          microprocessor-based or embedded devices. eSupport markets and licenses
          its
          products and services worldwide.
 
 In
          December 2005 the Company introduced its newest product, Driver Agent.
          The
          Driver Agent technology is based on TouchStone’s UpdateFX scan, analyze, search
          and update architecture, which was purchased during 2005. Driver Agent’s
          comprehensive technology enables users to easily and safely determine if
          and
          when critical updates are available for their PC’s. Through an ActiveX control,
          Driver Agent will safely scan a user’s PC, provide a detailed hardware report
          and then allow the user to view complete device driver history of installed
          devices on their system. Driver Agent cross references the user’s hardware and
          driver report to a comprehensive proprietary database compiled of greater
          than
          90,000 updated device drivers. Subscribers to the Driver Agent service
          can then
          quickly and safely download the latest device drivers for their PC.
 
 The
          Company acquired two strategic web properties in 2005, www.totallydrivers.com
          and www.driversdb.com. The addition of these properties, along with the
          existing
          properties of www.esupport.com and www.award-bios.com, supply the Company
          with a
          strategic edge to aggregate customer Internet traffic. The increase in
          customer
          Internet traffic enhances the Company’s ability to market its products
          effectively as these properties propagate throughout the Internet, helping
          the
          Company to become a premier destination for critical system updates. The
          increase in traffic from these properties reduces the need for other costly
          avenues of marketing. The newly acquired properties also generate advertising
          revenue through various sources.
 
 The
          Company acquired another strategic web property during May 2006.
          www.driverzone.com is yet another tool for the Company to aggregate customer
          Internet traffic for the Company’s products. This particular web property has
          propagated on the various search agents over time and carries a high ranking
          on
          these agents’ lists. The increase in traffic from this property continues to
          reduce the need for other costly avenues of marketing. The newly acquired
          properties also generate advertising revenue through various sources.
 
 8
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
 
 ***Industry
          Overview***
 
 During
          the last decade, the personal computer industry has grown rapidly - fueled
          most
          recently by the Internet. The Company believes that the market will continue
          to
          expand in the future as technological advances and increased functionality,
          combined with lower pricing, will increasingly make personal computers
          common
          for use in both homes and businesses. Future changes in the operating systems
          that run personal computers may contain some of the functionality of certain
          utility software of the kind marketed by the Company. The software industry,
          including the utility market, is increasingly being dominated by a few
          very
          large competitors. However, the Company believes that the complexities
          created
          by the Internet, multimedia and connectivity utilizing enhanced video,
          stor-age,
          animation, and audio capabilities will continue to drive the demand for
          new,
          sophisticated, separately installed utility soft-ware and BIOS
          upgrades
  **Results
          of Operations**
  The
          following is a discussion of the financial condition and results of operations
          of the Company as of June 30, 2006 and 2005 and should be read in conjunction
          with the accompanying consolidated financial statements and notes thereto
          and
          the Company’s audited consolidated financial statements and notes thereto for
          the year ended December 31, 2005, included in the Company’s Annual Report on
          Form 10-KSB and is qualified in its entirety by reference thereto.
 
 The
          following table sets forth, for the periods indicated, certain consolidated
          statement of operations information as a percentage of the Company’s total
          revenues represented by each item. The Company’s historical results are not
          necessarily indicative of results in any future period.
 
 
 **Three
                    Months**
                  **ended**
                **Three
                    Months**
                  **ended**
                **Six
                    Months**
                  **ended**
                **Six
                    Months**
                  **ended****June
                    30,**
                **June
                    31,**
                **June
                    30,**
                **June
                    30,****2006**
                **2005**
                **2006**
                **2005**Revenues:Product
                    sales
                98%
                100%
                98%
                100%Website
                    income
                2
                —
                2
                —Total
                    revenues
                100
                100
                100
                100Cost
                    of revenues
                7
                18
                11
                17Gross
                    profit
                93
                82
                89
                83Operating
                    expenses:Sales,
                    marketing, general and administrative
                46
                61
                44
                59Research
                    and development
                22
                37
                19
                30Total
                    operating expenses
                68
                98
                63
                89Income
                    from operations
                25
                (16)
                26
                (6)Interest
                    income (expense), net
                —
                —
                (1)
                —Net
                    income
                25%
                (16)%
                25%
                (6)%
 
 
 
 9
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
  **Comparison
          of Six Month Periods Ended June 30, 2006 and 2005**
 
 ***Revenues*** **.** The
          Company’s revenues consist of product sales, web advertising income and
          engineering services revenues. Product revenues are recorded at the time
          products are shipped. Web advertising income is recognized upon receipt
          of a
          usage report from the advertiser. For the six months ended June 30, 2006,
          the
          Company experienced an overall increase in product sales of approximately
          86% as
          compared to the same period a year ago. The increase in revenue is due
          to the
          full integration of Driver Agent. Web advertising income increased 100%
          and is
          derived from various clients who pay for advertising space on the websites
          the
          Company owns. That income is earned monthly.
 
 ***Cost
          of Revenues.*** Cost of
          revenues consists of the cost of materials, freight expenses, royalties
          paid to
          other software development companies and direct costs associated with
          engineering services. Cost of revenues as a percentage of revenue decreased
          to
          11% of revenues for the six month period ended June 30, 2006 from 17% for
          the
          same period a year ago. This is due mainly to a decrease in physical products
          being shipped to customers and a decrease in sales of third party
          products.
 
 ***Sales,
          Marketing, General and Administrative*** **.** Sales,
          marketing, general and administrative expenses consist primarily of salaries
          & commissions, professional services, advertising costs and facilities
          costs. Sales, marketing, general and administrative expenses increased
          approximately 43%, for the six month period ended June 30, 2006, from the
          same
          period one year ago. This is due to increase in advetising expenses related
          to
          the payments made to our strategic vendors.
  ***Research
          and Development*** **.** Research
          and development expenses consist primarily of engineering personnel and
          related
          expenses. Research and development expenses increased approximately 19%
          for the
          six month period ended June 30, 2006 from the same period one year ago.
          This is
          due to payroll increasing slightly from a payroll classification.
 
 ***Other
          Income, Net*** **.** Other
          income, net consists of interest income associated with the related party
          note,
          interest income from the Company’s money market accounts, and interest expense.
          Other income decreased by approximately $10,900 for the six month period
          ended
          June 30, 2006 as compared to the same period one year ago. The decrease
          is due
          to the interest accrued on the long term debt.
 
 **Liquidity
          and Capital Resources**
 
 During
          the six months ended June 30, 2006, the Company had cash provided by operating
          activities of approximately $395,000 as compared to cash used in operating
          activities of approximately $69,600 during the same six month period a
          year ago.
          The main factor of this increase in cash flow is the net operating income
          the
          Company has had through the first six months of 2006.
 
 The
          Company’s cash balance at June 30, 2006 was approximately $475,000 as compared
          to approximately $206,000 a year ago.
 
 On
          May 5,
          2005, the Company entered into a software purchase agreement with 62NDS
          Solutions Ltd. (the seller) to acquire certain software technology to support
          scanning, analysis, search and updating of system software in remote devices
          named UpdateFX (the Software). The purchase price, with interest imputed
          at 8%,
          was $292,880 payable to the seller as follows: $22,500 paid at closing,
          $22,500
          payable at delivery and varying semi-annual payment thereafter through
          April
          2009, and 500,000 shares of the Company’s unregistered common stock valued at
          $25,000. Payments of $45,000, including interest of $9,425, were made during
          the
          six months ended June 30, 2006. Interest is accrued monthly.
  The
          500,000 shares of common stock was issued after closing and maintained
          in an
          escrow account and shall be released from escrow on each payment date,
          in equal
          installments of 50,000 shares with the final release six months after the
          final
          payment date. The shares are subject to a lock-up agreement whereby the
          seller
          may not sell or transfer the shares for a period of six-months after receipt.
  The
          impact of inflation during 2006 has had no material impact on our business
          and
          financial results.
 
 10
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
 
 ***SPECIAL
          NOTE REGARDING FORWARD-LOOKING STATEMENTS***
 
 The
          report, other than historical financial information, includes forward-looking
          statements that involve known and unknown risks and uncertainties, including
          quarterly flucutations in results. Such statements are made pusuant to
          the “safe
          harbor” provisions established by recent securities legislations, and are based
          on the assumptions and expectations of the Company’s management at the time such
          statements are made. Important factors that could cause actual results
          to differ
          include the timely availability and acceptance of new products, general
          market
          conditions governing supply and demand, the impact of competitive products
          and
          pricing and other risks detailed in the Company’s filings with the Securities
          and Exchange Commission. Actual results may vary materially. Accordingly
          you
          should not place undue reliance on any forward-looking statements. Unless
          otherwise required by law, the Company disclaims any obligations to revise
          or
          update such forward-looking statements in order to reflect future events
          or
          developments.
 
 
 **ITEM
                  3.**
                **Controls
                    and Procedures**
 
 As
          of
          June 30, 2006, an evaluation was performed under the supervision and with
          the
          participation of the Company’s management, including the Chief Executive Officer
          and the Accounting Manager, of the effectiveness of the design and operation
          of
          the Company’s disclosure controls and procedures. Based on that evaluation, the
          Company’s management, including the Chief Executive Officer and the Accounting
          Manager, concluded that the Company’s disclosure controls and procedures were
          effective as of June 30, 2006. There have been no significant changes in
          the
          Company’s internal controls or in other factors that could significantly affect
          internal controls subsequent to June 30, 2006.
 
  
  
  
  
  
  
  
  
  
  
 11
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
   **PART
          II** **3⁄4** **OTHER
          INFORMATION**
  **ITEM
                  1.**
                **Legal
                    Proceedings**
 None
 
 **ITEM
                  2.**
                **Changes
                    in Securities**
 None
 
 **ITEM
                  3.**
                **Defaults
                    Upon Senior Securities**
 None
 
 **ITEM
                  4.**
                **Submission
                    of Matters To a Vote of Security
                    Holders**
 None
 
 **ITEM
                  5.**
                **Other
                    Information**
 None
 
 **ITEM
                  6.**
                **Exhibits
                    and Reports on Form 8-K**
 
 (a)  
          Exhibits
 
 Exhibit
          31.1 Certification Pursuant to Rule 13a-14 of the Securities Exchange Act
          of
          1934
 Exhibit
          31.2 Certification Pursuant to Rule 13a-14 of the Securities Exchange Act
          of
          1934
 Exhibit
          32 Certifications Pursuant to Rule 13a-14(b) of the Securities Exchange
          Act of
          1934
  (b)  
          Reports on Form 8-K
 
 On
          May
          24, 2006, the Company filed a current report on Form 8-K to announce the
          purchase of a new website,
          Driverzone.com
 
 On
          May
          11, 2006, the Company filed a current report on Form 8-K to disclose results
          of operations
          and financial conditions for the first quarter 2006
   
 
 
 
 
 12
 **TOUCHSTONE
                SOFTWARE CORPORATION AND SUBSIDIARY**
 
 **SIGNATURES**
 
 **In
          accordance with the requirements of the Exchange Act, the registrant caused
          this
          report to be signed on its behalf by the undersigned, thereunto duly
          authorized.**
  **TouchStone
                    Software Corporation**
                  (Registrant)
 **Name**
                **Title**
                **Date**/s/
                    Jason K. Raza
                  **Jason
                    K. Raza**
                Chief
                    Executive Officer and President
                August
                    7, 2006/s/
                    Michelle L. Carrozzella
                  **Michelle
                    L. Carrozzella**
                Accounting
                    Manager
                August
                  7, 2006
  
 ****  ****
 13