**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, 2005**
            **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  ̈





The
      number of shares of Common Stock of the Registrant outstanding as of August
      15,
      2005 was


11,440,060
      shares.















**TOUCHSTONE
      SOFTWARE CORPORATION AND SUBSIDIARY**





**INDEX**


**Page**
              **Number****PART
              I.**
            **Financial
                Information****ITEM 1.**
            Financial
                StatementsConsolidated
                Balance Sheet3⁄4June 30, 2005
            3Consolidated
                Income Statements3⁄4Three Months Ended June 30, 2005 andJune
                30, 2004 and Six Months Ended June 30, 2005 and June 30, 2004
            4Consolidated
                Statements of Cash Flows3⁄4Six Months Ended June 30, 2005And
                June 30, 2004
            5Notes
                to Consolidated Financial Statements
            6-8**ITEM 2.**
            Management’s
                Discussion and Analysis of Financial Condition and Results
                ofOperations
            9-12**ITEM 3.**
            Controls
                and Procedures
            12**PART II.**
            **Other
                Information****ITEM
              1.**
            Legal
                Proceedings
            13**ITEM 2.**
            Changes
                in Securities
            13**ITEM 3.**
            Defaults
                Upon Senior Securities
            13**ITEM 4.**
            Submission
                of Matter To a Vote of Security Holders
            13**ITEM 5.**
            Other
                Information
            13**ITEM 6.**
            Exhibits
                and Reports on Form 8-K
            13Signatures
            
            14Exhibits
            
            15-17




2





**TOUCHSTONE
        SOFTWARE CORPORATION AND SUBSIDIARY**




**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1. Financial Statements**


**CONSOLIDATED
      BALANCE SHEET**


**June
      30, 2005**


**(unaudited)**







**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            205,809Accounts
                receivable, net
            
            
            22,712Inventories
            
            
            22,464Prepaid
                expenses and other current assets
            
            
            12,550Total
                current assets
            
            
            263,535Note
                receivable, stockholder
            
            
            35,000Note
                receivable, related party
            
            
            58,943Investments,
                other
            
            
            184,527Property,
                and equipment, net
            
            
            296,054$
            838,059**Liabilities
                and Shareholders’ Equity**Current
                liabilities:Accounts
                payable
            
            $
            62,231Accrued
                payroll and related expenses
            
            
            40,045Other
                accrued expenses
            
            
            98,002Current
                maturities of long term debt
            
            
            49,230Total
                current liabilities
            
            
            249,508Long
                term debt, net of current maturities
            
            
            196,150Total
                liabilities
            
            
            445,658Shareholders’
                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, 11,440,060 shares
            
            
            11,440Additional
                paid-in capital
            
            
            20,979,684Accumulated
                deficit
            
            
            (20,598,723
            )Shareholders’
                equity, net.
            
            
            392,401$
            838,059




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****2005**
            
            ******2004**
            
            ******2005**
            
            **2004**Revenues:Product
                sales
            
            $
            362,484
            
            $
            345,450
            
            $
            800,218
            
            $
            823,773Royalty
                income
            
            
            —
            
            
            11,949
            
            
            523
            
            
            25,958Total
                revenues
            
            
            362,484
            
            
            357,399
            
            
            800,741
            
            
            849,731Cost
                of revenues
            
            
            66,851
            
            
            42,274
            
            
            135,842
            
            
            115,728Gross
                profit
            
            
            295,633
            
            
            315,125
            
            
            664,899
            
            
            734,003Operating
                expenses:Sales,
                marketing, general and administrative
            
            
            220,068
            
            
            229,922
            
            
            471,560
            
            
            485,118Research
                and development
            
            
            134,586
            
            
            128,668
            
            
            241,471
            
            
            260,298Total
                operating expenses
            
            
            354,655
            
            
            358,590
            
            
            713,031
            
            
            745,416Income
                (loss) from operations
            
            
            (59,022
            )
            
            (43,465
            )
            
            (48,132
            )
            
            (11,413
            )Other
                income, net
            
            
            1,202
            
            
            2,770
            
            
            1,990
            
            
            5,574Net
                income (loss)
            
            $
            (57,820
            )
            $
            (40,695
            )
            $
            (46,142
            )
            $
            (5,839
            )Basic
                earnings (loss) per share
            
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.00
            )Basic
                weighted average shares outstanding
            
            
            11,440,060
            
            
            11,440,060
            
            
            11,440,060
            
            
            11,440,060Diluted
                earnings (loss) per share
            
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.00
            )Diluted
                weighted average shares outstanding
            
            
            11,986,710
            
            
            12,201,010
            
            
            11,986,710
            
            
            12,201,010














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,****2005**
            
            **2004**Cash
                flows from operating activities:Net
                (loss)
            
            $
            (46,142
            )
            $
            (5,839
            )Adjustments
                to reconcile net (loss) to net cash used in operating
                activities:Depreciation
            
            
            1,734
            
            
            3,411Changes
                in assets and liabilities:Accounts
                receivable
            
            
            2,512
            
            
            (2,517
            )Inventories
            
            
            2,134
            
            
            (2,447
            )Prepaid
                expenses and other current assets
            
            
            2,514
            
            
            (2,700
            )Accounts
                payable
            
            
            (10,164
            )
            
            (13,221
            )Accrued
                liabilities
            
            
            (22,222
            )
            
            12,219Net
                cash used in provided by operating activities
            
            
            (69,634
            )
            
            (11,094
            )Cash
                flows from investing activities:Collection
                of notes receivable - related party Narath
            
            
            900Collection
                of notes receivable - related party-Metro
            
            
            7,184
            
            
            32Additions
                to Property and Equipment
            
            
            (22,500
            )
            
            32Net
                cash (used in) investing activities
            
            
            (14,416
            )
            
            32Cash
                flows from financing activities:Payment
                on long-term debt
            
            
            —
            
            
            (10,660
            )Net
                cash used in financing activities
            
            
            —
            
            
            (10,660
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            (84,050
            )
            
            (21,722
            )Cash
                and cash equivalents, beginning of period
            
            
            289,859
            
            
            356,333Cash
                and cash equivalents, end of period.
            
            $
            205,809
            
            $
            334,611Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            503
            
            $
            209Income
                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, 2004. 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, 2005 are not
      necessarily indicative of the results to be expected for the full
      year.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern, which contemplates the realization
      of assets and the satisfaction of liabilities in the normal course of business.
      The Company previously has suffered recurring operating losses and operating
      cash flow deficits, has an accumulated deficit of $20,598,723 at June 30, 2005,
      and is dependent on its investment portfolio and cash balance to fund future
      operations. In addition, the Company is subject to a number of risks.
      Principally among these risks are marketing of its products and services, which
      are susceptible to increased competition from other companies and obsolescence
      of its products and services. Also among these risks are the decreased sales
      leads the Company has faced with the changes to Phoenix Technology's website.
      The Company is still working with Phoenix Technologies on a solution to the
      website change that occurred in February 2003. Phoenix has moved the Company's
      link to a more acceptable location on their website. These factors, among
      others, raise substantial doubt about the Company's ability to continue as
      a
      going concern at June 30, 2005. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





Management's
      ongoing reorganization plan of providing for significant staff reductions in
      non-core operating and support functions, limitations on corporate travel and
      a
      realignment of senior management responsibilities has been fully executed.
      In
      order to meet its cash requirements over the next twelve months, management
      expects to supplement cash flow benefits expected from these initiatives with
      current cash reserves. Other additional sources of financing, including
      additional private debt or equity capital, are being explored, along with
      seeking merger candidates with whom the Company has synergies.
















6





**TOUCHSTONE
        SOFTWARE CORPORATION AND SUBSIDIARY**


**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, 2005 and 2004. At June 30, 2005 and 2004, the number of outstanding stock
      options and warrants were 546,650 and 760,950, respectively.





**3.**
            **Acquisition
                of Software**





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%, is
      $292,880 payable to the seller as follows: $22,500 paid at closing, $22,500
      payable at delivery (anticipated in October 2005) and varying semi-annual
      payment thereafter through April 2009, and 500,000 shares of the Company’s
      unregistered common stock valued at $25,000.





The
      500,000 shares of common stock shall be 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.




**4.**
            **Note
                Receivable - Stockholder**





In
      January 2000, the Company advanced under a promissory note, $408,000 to Pierre
      Narath, the Company’s Chairman
      of the
      Board. The note bore interest at the prime rate adjusted annually at the
      note’s
      anniversary date and originally matured February 2005. Mr. Narath had foregone
      payment of his 1999 and 2000 bonuses, which aggregated $281,000 and the Company
      applied this amount against the outstanding loan balance. At December 31, 2000,
      the remaining balance of $127,000 was reclassified as deferred compensation
      with
      the shareholder’s equity section of the balance sheet, to be applied against Mr.
      Narath’s future compensation. During 2001, approximately $85,000 of Mr. Narath’s
      2001 compensation was applied against the remaining balance. No compensation
      was
      applied against the balance during 2004 and 2003. On March 29, 2005, the balance
      remaining was transferred to an unsecured note receivable from Mr. Narath.
      The
      balance due under the note is due and payable March 2010. Interest on this
      note
      will accrue monthly at 5% per annum and will be paid on or before the note’s due
      date. Mr. Narath paid $7,184 on June 30, 2005 reducing the balance due on that
      date to $35,000.




**5.**
            **Note
                Receivable - Related Party**





Note
      recei vable
      -
      related party of $58,943 at June 30, 2005, represents the remaining balance
      due
      from Metro Investments, LLC (“Metro”) under an amended note dated January 2001.
      Metro is owned by Pierre Narath, the Company’s Chairman of the Board and Jason
      Raza, the Company’s President and Chief Executive Officer. The amended note was
      due December 31, 2004. On March 29, 2005, the note was extended under the
      following terms: Metro will transfer investment securities with a value of
      $36,800 to be applied against the outstanding principal balance; the remaining
      balance will be payable in monthly installments of $450 plus interest at 5.75%;
      and any remaining principal and unpaid interest outstanding will be due on
      April
      2010. Payments began May 1, 2005














7





**TOUCHSTONE
        SOFTWARE CORPORATION AND SUBSIDIARY**


**6.**
            **Investments**





Investments,
      other at June 30, 2005, 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, 2005.





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, 2005, 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.




**7.**
            **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, 2005 and 2004,
      respectively.




**8.**
            **Stock
                Options**





The
      Company accounts 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 net income, as all options granted under those plans 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 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,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                income (loss)
              as
                reported
            
            $
            (57,820
            )
            $
            (40,695
            )
            $
            (46,142
            )
            $
            (5,839
            )Pro
                forma impact of
              expensing
                options
            
            
            30
            
            
            81
            
            
            60
            
            
            162Pro
                forma net
              Income
                (loss)
            
            $
            (57,850
            )
            $
            (40,776
            )
            $
            (46,202
            )
            $
            (6,001
            )Earnings
                (loss) per share:Basic-as
                reported
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Basic-pro
                forma
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Diluted-as
                reported
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Diluted-pro
                forma
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00














8




**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.





***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.











































9





**TOUCHSTONE
        SOFTWARE CORPORATION AND SUBSIDIARY**




**Results
      of Operations**




The
      following is a discussion of the financial condition and results of operations
      of the Company as of June 30, 2005 and 2004 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, 2004, 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
                30,**
            **June
                30,**
            **June
                30,****2005**
            **2004**
            **2005**
            **2004**Revenues:Product
                sales
            100%
            97%
            100%
            97%Royalty
                income
            —
            3
            0
            3Total
                revenues
            100
            100
            100
            100Cost
                of revenues
            18
            12
            17
            14Gross
                profit
            82
            88
            83
            86Operating
                expenses:Sales,
                marketing, general andadministrative
            61
            62
            59
            56Research
                and development
            37
            37
            30
            31Total
                operating expenses
            98
            99
            89
            87Income
                (loss) from operations
            (16)
            (11)
            (6)
            (1)Other
                income, net
            —
            1
            —
            1Net
                income (loss)
            (16)%
            (10)%
            (6)%
            0%





**Comparison
      of Six Month Periods Ended June 30, 2005 and 2004**





***Revenues*** **.** The
      Company’s revenues consist of product sales, royalties and engineering services
      revenues. Product revenues are recorded at the time products are shipped.
      Royalty income is recognized upon receipt of a royalty report and payment from
      the licensor. Engineering services revenue generally consists of amounts charged
      for customization of the software prior to delivery and are generally recognized
      as the services are performed. For the six months ended June 30, 2005, the
      Company experienced an overall decrease in revenues of 6% as compared to the
      same period a year ago. The decrease in revenue is due to a decrease in some
      third party products which have been phased out. Royalty revenue is now obsolete
      with all contracts for Royalties cancelled.





***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 revenues. Cost of revenues as a percentage of revenue
      increased to 17% of revenues for the six month period ended June 30, 2005 from
      14% for the same period a year ago. This is due mainly to an increase in costs
      associated with new third party products the Company has introduced on a test
      basis and the increase of shipping costs and materials.





***Sales,
      Marketing, General and Administrative*** **.** Sales,
      marketing, general and administrative expenses consist primarily of salaries
      & commissions, professional services and facilities costs. Sales, marketing,
      general and administrative expenses decreased by 3%, for the six month period
      ended June 30, 2005, from the same period one year ago.




10




**TOUCHSTONE
      SOFTWARE CORPORATION AND SUBSIDIARY**





***Research
      and Development*** **.** Research
      and development expenses consist primarily of engineering personnel and related
      expenses. Research and development expenses decreased approximately 7% for
      the
      six month period ended June 30, 2005 from the same period one year ago. This
      is
      due to payroll decreasing slightly from a payroll classification, which
      decreased the percentage allocation of the total operating expenses to each
      department.





***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 associated with the Company credit card. Other
      income decreased by approximately $3,500 for the six month period ended June
      30,
      2005 as compared to the same period one year ago. The decrease is due to the
      interest of the related party note having lower interest income due to a
      re-organization of the terms of that note. The decrease is also due to the
      interest from the money market accounts being lower due to a lower cash balance
      in one of these accounts.





**Liquidity
      and Capital Resources**





During
      the six months ended June 30, 2005, the Company had a decrease in cash from
      operating activities of approximately $70,000 as compared to a decrease in
      cash
      from operating activities of approximately $11,000 during the same six month
      period a year ago. The main factor of this decrease in cash flow is the net
      operating loss the Company has had through the first six months of
      2005.





The
      Company’s cash balance at June 30, 2005 was approximately $206,000 as compared
      to approximately $335,000 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%, is
      $292,880 payable to the seller as follows: $22,500 paid at closing, $22,500
      payable at delivery (anticipated in October 2005) and varying semi-annual
      payment thereafter through April 2009, and 500,000 shares on the Company’s
      unregistered common stock valued at $25,000.





The
      500,000 shares of common stock shall be 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 2005 has had no material impact on our business
      and
      financial results.




***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.





11




TOUCHSTONE
      SOFTWARE CORPORATION AND SUBSIDIARY


**ITEM
      3. Controls and
      Procedures**





As
      of
      June 30, 2005, 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, 2005.
      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, 2005.









































































































12





**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
      10.15 Software Purchase Agreement


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
      June
      29, 2005, the Company filed a current report on Form 8-K to announce the
      acquisition of technolgy
      fron 62NDS Solutions, Ltd.







13





**TOUCHSTONE
      SOFTWARE CORPORATION AND SUBSIDIARY**











**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)Date: August
                15, 2005
              By:
              /s/ ***Jason
                K. Raza***Name:
                Jason K. RazaTitle:
                Chief Executive Officer and President
  Date: August
                  15, 2005
                By:
                /s/ ***Michelle
                  L. Carrozzella***Name:
                  Michelle L. CarrozzellaTitle:
                  Accounting Manager





14