content: SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549
    
                                   FORM 8-K
    
                                CURRENT REPORT
    
    
    
        Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
                                  
           Date of Report (Date of earliest event reported): May 30, 1997
                                   
                    TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                    -------------------------------------------
                (Exact Name of  Registrant as Specified in Charter)
    
    
          Delaware                       0-20303                13-2846796
          --------                       -------                ----------
  (State or Other Jurisdiction        (Commission            (I.R.S. Employer
        of Incorporation)              File Number)         Identification No.)
  
  
    P.O. Box 382, Fields Lane, Brewster, New York                  10509
    ---------------------------------------------                  -----
      (Address of Principal Executive Offices)                    Zip Code    
                                  
    
     Registrant's telephone number, including area code:  (914) 277-8100
                                                          --------------
  
  
  
             -----------------------------------------------------------
             Former name or former address, if changed since last report
                                  
  <PAGE>
  
    ITEM 2.          ACQUISITION OR DISPOSITION OF ASSETS.
    
            Acquisition of Assets of Programs for Education,
            ------------------------------------------------
    Inc.    On May 30, 1997, Touchstone Applied Science Associates,
    ----
    Inc. (the "Company"), through its wholly-owned subsidiary,
    Modern Learning Press, Inc. ("MLP"), purchased substantially
    all of the operating assets of Programs for Education, Inc. 
    Such assets include: (i) all accounts receivable,  (ii) cash
    and cash equivalents, (iii) inventory, furniture and fixtures,
    machinery and equipment, (iv) manuscripts, (v) all
    intellectual property and proprietary rights and interests
    (including, without limitation, author/publisher contracts,
    licenses, trademarks, tradenames, copyrights and patents)
    including "Modern Learning Press", "Programs for Education"
    and "Change A Print Frame", and (vi) any and all contracts and
    contract rights (including, without limitation, distribution
    and publishing rights and agreements with Gesell Institute,
    the "Words I Use When I Write", "My Word Book", "Word Power"
    and "Parent Pages" series) (collectively, the "Assets").  The
    purchase price for the Assets was $3,200,000 payable
    $2,200,000 in cash at the closing, and the balance of
    $1,000,000 by a five-year promissory note of MLP, bearing
    interest at a rate equal to the higher of 9.0% per annum or
    the prime rate of the Bank of New York plus 1% per annum, and
    requiring equal quarterly amortization payments.  In addition,
    MLP assumed trade payables and accounts payable related to the
    acquired  business in an approximate amount of $100,000,
    subject to post-closing verification.  The acquisition was
    financed through available cash and short-term borrowings. 
    The portion of the purchase price evidenced by MLP's
    promissory note is secured by a lien on the titles purchased. 
    The Company has guaranteed the obligations of MLP under the
    promissory note and the other agreements referred to below,
    and has secured such guarantee with a pledge of the
    outstanding shares of MLP which are owned by the Company.
    
            In addition, 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
    equal to the greater of either (i) $80,000, or (ii) 8% on all
    net sales of certain of the titles purchased by MLP, for a
    term of seven years following the closing.  Pursuant to the
    Asset Purchase Agreement, MLP has also agreed to pay to Mr.
    Shapiro a deferred bonus in a maximum amount of $293,776,
    payable at the end of the 1997 fiscal year upon the
    achievement of specified milestones by MLP.  The Company's
    guaranty extends to the foregoing obligations of MLP to Mr.
    Shapiro.
    
            Simultaneously with the closing, MLP entered into a
    one-year consulting agreement with Mr. Shapiro.  The
    consulting fee of $200,000, provided for in the consulting
    agreement,  was included as part of the aggregate purchase
    price paid by MLP.  Also, each of the stockholders of Programs
    for Education, Inc. and Programs for Education, Inc. entered
    into non-competition agreements with MLP, the consideration
    for which was included in the aggregate purchase price paid by
    MLP.
    
            Through the acquisition of the assets of Programs
    for Education, the Company expects to expand its core products
    to include publishing of books and other materials used in the
    enhancement of the reading skills of elementary school
    students, as well as books in other subject areas.
    <PAGE>
    
    ITEM 7.      FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
                 AND EXHIBITS.
    
            (a)  FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.  
    
                 Independent Auditor's Report                             F - 1
    
                 Balance Sheets                                           F - 2
       
                 Statements of Operations                                 F - 3
    
                 Statements of Retained Earnings                          F - 4
    
                 Statements of Cash Flows                                 F - 5
    
                 Notes to Financial Statements                            F - 6
    
    
            (b)  PRO FORMA FINANCIAL INFORMATION
    
                 Introduction to Pro Forma Consolidated
                   Financial Statements                                   F - 12
    
                 PRO FORMA Consolidated Balance Sheet                     F - 13
    
                 PRO FORMA Consolidated Statement of Operations
                       for the Six Months Ended                           F - 14
    
                 PRO FORMA Consolidated Statement of Operations
                       for the Year Ended                                 F - 15
    
                 Notes to PRO FORMA Consolidated Financial Statements     F - 16
    
            (c)  EXHIBITS
    
                 1.   Asset Purchase Agreement, dated as of May
                      30, 1997, by and between Programs for
                      Education, Inc., Bernard B. Shapiro,
                      Modern Learning Press, Inc. and Touchstone
                      Applied Science Associates, Inc.
    
                 2.   Secured Promissory Note, dated May 30,
                      1997, of Modern Learning Press, Inc.
    
                 3.   Security Agreement, dated  May 30, 1997,
                      by and between Programs for Education,
                      Inc., Bernard B. Shapiro and Modern
                      Learning Press, Inc.
    
                 4.   Stock Pledge Agreement with Escrow
                      Provisions, dated May 30, 1997, by and
                      among Touchstone Applied Science
                      Associates, Inc., Programs for Education,
                      Inc. and Pluese, Lihotz, Incollingo &
                      Leone.
     
                 5.   Guaranty Agreement, dated May 30, 1997, by
                      Touchstone Applied Science Associates,
                      Inc. in favor of Programs for Education,
                      Inc. and Bernard B. Shapiro.
    
                 6.   Royalty Agreement, dated May 30, 1997, by
                      and between Modern Learning Press, Inc.
                      and Bernard B. Shapiro.
  
  <PAGE>           F - 1
  
                         INDEPENDENT AUDITORS' REPORT
                         ----------------------------
  
  
  To The Shareholders
  Programs For Education, Inc.
  Rosemont, New Jersey
  
  
  
  We have audited the accompanying balance sheets of Programs For Education,
  Inc. as of September 30, 1996 and 1995, and the related statements of
  operations, retained earnings and cash flows for the years then ended.
  These financial statements are the responsibility of the management of
  Programs For Education, Inc.  Our responsibility is to express an opinion
  on the financial statements based on our audits.
  
  We conducted our audits in accordance with generally accepted auditing
  standards.  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 financial statements referred to above present fairly,
  in all material respects the financial position of Programs For Education,
  Inc. as of September 30, 1996 and  1995 and the results of their operations
  and their cash flows for the years then ended, in conformity with generally
  accepted accounting principles.
  
  
  
                               /s/  LAZAR, LEVINE & COMPANY LLP
                                    ---------------------------
                                    LAZAR, LEVINE & COMPANY LLP
  
  New York, New York
  May 16, 1997
                               F - 1
  <PAGE>           F - 2
  <TABLE>
  <CAPTION>
                        PROGRAMS FOR EDUCATION, INC.
                        ----------------------------
                               BALANCE SHEETS
                               --------------
                      AS OF SEPTEMBER 30, 1996 AND 1995
                      ---------------------------------
  
                                 - ASSETS -
  
                                                                      1996           1995
                                                                      ----           ----
  <S>                                                          <C>            <C>     
  CURRENT ASSETS:
   Cash (Note 2f)                                                 $  113,441     $  101,208
   Accounts receivable (Notes 2f and 3)                              250,765        236,531
   Inventory (Note 2b)                                               106,290        165,181
   Loan receivable - shareholder (Note 4)                               -            28,371
   Prepaid expenses and other current assets                           1,012         23,400
   Deferred tax asset (Note 2d)                                        3,500           -
                                                                  ----------     ----------
  
  TOTAL CURRENT ASSETS                                               475,008        554,691
                                                                  ----------     ----------
  
  PROPERTY AND EQUIPMENT (Note 2c):
   Leasehold improvements                                              2,292          2,292
   Furniture, fixtures and office equipment                          115,925        113,304
   Vehicles                                                             -            14,150
                                                                  ----------     ----------
                                                                     118,217        129,746
   Less: accumulated depreciation                                   (102,329)      (109,174)
                                                                  ----------     ----------
  
                                                                      15,888         20,572
                                                                  ----------     ----------
  
  OTHER ASSETS:
   Security deposit                                                      800            800
                                                                  ----------      ---------
  
                                                                  $  491,696     $  576,063
                                                                  ==========     ==========
  
                    - LIABILITIES AND STOCKHOLDERS' EQUITY -
  
  CURRENT LIABILITIES:
   Accounts payable                                               $    51,883     $   58,845
   Royalties payable (Note 2h)                                         58,853        45,560
   Payroll taxes payable                                               16,790        41,496
   Income taxes payable (Note 2d)                                       1,527        75,055
   Accrued litigation settlement (Note 8a)                             14,000          -
                                                                  -----------     ---------
  
  TOTAL CURRENT LIABILITIES                                           143,053       220,956
                                                                  -----------     ---------
  
  DEFERRED TAX LIABILITY (Note 2d)                                      5,516         7,416
                                                                  -----------     ---------
  
  COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 8)
  
  STOCKHOLDERS' EQUITY:
   Common stock, no par value, 100 shares issued and outstanding        1,000         1,000
   Retained earnings                                                  342,127       346,691
                                                                  -----------     ---------
  
  TOTAL STOCKHOLDERS' EQUITY                                          343,127       347,691
                                                                  -----------     ---------
  
                                                                  $   491,696    $  576,063
                                                                  ===========    ==========
  <FN>
                See accompanying notes and accountants' report.
  </FN>
  </TABLE>
  
  
                                 F - 2
  <PAGE>           F - 3
  <TABLE>
  <CAPTION>
                         PROGRAMS FOR EDUCATION, INC.
                         ----------------------------
                           STATEMENTS OF OPERATIONS
                           ------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                -----------------------------------------------
  
  
                                                                      1996           1995
                                                                      ----           ----
  <S>                                                          <C>            <C>     
  NET SALES (Note 7)                                              $ 1,709,061   $ 1,420,941
                                                                  -----------     ---------
  
  COST OF SALES:
   Beginning inventory                                                165,181       184,853
   Purchases (Note 7)                                                 248,733       200,872
   Direct costs (Schedule 1)                                          118,086       107,265
                                                                  -----------     ---------
                                                                      532,000       492,990
   Less: Ending inventory                                             106,290       165,181
                                                                  -----------     ---------
  TOTAL COST OF SALES                                                 425,710       327,809
                                                                  -----------     ---------
  
  GROSS PROFIT                                                      1,283,351     1,093,132
  
   Selling, general and administrative expenses (Schedule 2)        1,307,059       956,042
                                                                  -----------     ---------
  
  (LOSS) INCOME FROM OPERATIONS                                       (23,708)      137,090
                                                                  -----------     ---------
  
  OTHER INCOME (EXPENSE):
   Interest income                                                     12,370         6,287
   Interest expense                                                    (5,004)         -      
   Other income (expense)                                               4,885        (5,133)
                                                                  -----------     ---------
  TOTAL OTHER INCOME                                                   12,251         1,154
                                                                  -----------     ---------
  
  (LOSS) INCOME BEFORE PROVISION (CREDIT) FOR 
   INCOME TAXES                                                       (11,457)      138,244
  
   Provision (credit) for income taxes (Note 2d)                       (6,893)       48,026
                                                                  -----------     ---------
  
  (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
   ACCOUNTING CHANGE                                                   (4,564)       90,218
  
   Cumulative effect of accounting change (net of income
   tax of $7,866)   (Note 2c)                                            -           11,800
                                                                  -----------     ---------
  
  NET (LOSS) INCOME                                               $    (4,564)  $   102,018
                                                                  ===========   ===========
  
  
  
  
  
  <FN>
                See accompanying notes and accountants' report.
  </FN>
  </TABLE>
  
  
  
  
  
                               F - 3
  <PAGE>           F - 4
  <TABLE>
  <CAPTION>
  
                         PROGRAMS FOR EDUCATION, INC.
                         ----------------------------
                        STATEMENTS OF RETAINED EARNINGS
                        -------------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                -----------------------------------------------
  
  
  
                                                                      1996           1995
                                                                      ----           ----
  <S>                                                          <C>            <C>     
  RETAINED EARNINGS, BEGINNING OF YEAR                            $   346,691     $ 244,673
  
   Net (loss) income                                                   (4,564)      102,018
                                                                  -----------     ---------
  
  RETAINED EARNINGS, END OF YEAR                                  $   342,127     $ 346,691
                                                                  ===========     =========
  
  
  <FN>
                See accompanying notes and accountants' report.
  </FN>
  </TABLE>
  
  
  
  
  
                             F - 4
  <PAGE>           F - 5
  <TABLE>
  <CAPTION>
  
                         PROGRAMS FOR EDUCATION, INC.
                         ----------------------------
                           STATEMENTS OF CASH FLOWS
                           ------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                -----------------------------------------------
  
                                                                      1996           1995
                                                                      ----           ----
  <S>                                                          <C>            <C>     
  INCREASE IN CASH AND CASH EQUIVALENTS:
  
  RECONCILIATION OF NET INCOME TO NET CASH (USED)
   PROVIDED BY OPERATING ACTIVITIES:
   Net (loss) income                                              $    (4,564)    $ 102,018
   Adjustments to reconcile net (loss) income to net cash
    (used) provided by operating activities:
       Depreciation                                                     7,306         6,630
       Write-off of bad debts                                              73           377
       Deferred tax benefit                                            (5,400)         (450)
       Cumulative effect of accounting change (Note 2c)                  -          (11,800)
   Changes in assets and liabilities:
     (Increase) in employee advances                                   (1,012)         -      
     (Increase) decrease in tax refund receivable                     (22,892)          973
     (Increase) in accounts receivable                                (14,308)      (99,037)
     Decrease in inventory                                             58,891        19,672
     Decrease (increase) in prepaid expenses                           23,400       (16,000)
     (Decrease) in accounts payable                                    (6,962)       (1,036)
     Increase in accrued royalties                                     13,293        13,654
     Increase in accrued litigation costs                              14,000          -      
     (Decrease) increase in accrued payroll taxes                     (28,243)       40,326
     (Decrease) increase in accrued income taxes                      (47,099)       34,191
     (Decrease) in accrued pension plan contribution                     -           (5,668)
                                                                  -----------     ---------
     Net cash (used) provided by operating activities                 (13,517)       83,850
                                                                  -----------     ---------
  
  CASH FLOWS FROM INVESTING ACTIVITIES:
   Payment of loan to shareholder                                      28,371          -      
   Acquisition of fixed assets                                         (2,621)       (5,502)
                                                                  -----------     ---------
   Net cash provided (used) by investing activities                    25,750        (5,502)
                                                                  -----------     ---------
  
  NET INCREASE IN CASH                                                 12,233        78,348
  
   Cash, at beginning of year                                         101,208        22,860
                                                                  -----------     ---------
  
  CASH, AT END OF YEAR                                            $   113,441     $ 101,208
                                                                  ===========     =========
  
  
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid                                                  $     5,004     $    -      
   Income taxes paid                                                   72,084        14,000
  
  <FN>
                See accompanying notes and accountants' report.
  </FN>
  </TABLE>
  
  
  
  
                               F - 5
  <PAGE>           F - 6
  
                          PROGRAMS FOR EDUCATION, INC.
                          ----------------------------
                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------
                          SEPTEMBER 30, 1996 AND 1995
                          ---------------------------
          
  
  
  NOTE   1   -   NATURE OF BUSINESS:
  
            Programs For Education, Inc. (the "Company") was formed
            in 1964 and incorporated in 1979 in the State of New
            Jersey.  The Company is a publisher of materials for
            educators and parents of young children.  Publications
            are provided to schools, educators, and parents
            nationwide.  The Company uses the trade name of Modern
            Learning Press in its operations.
  
  
  NOTE   2   -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
  
       (A)  CASH EQUIVALENTS:
  
            Securities with maturities of three months or less when
            purchased are treated as cash equivalents in presenting
            the statement of cash flows.
  
       (B)  INVENTORY:
  
            The Company's inventory is valued at the lower of cost
            (first-in, first-out method) or market.   Inventories 
            consist almost entirely of finished products.
  
       (C)  FIXED ASSETS, DEPRECIATION AND ACCOUNTING CHANGE:
  
            Fixed assets are reflected at cost.  Depreciation is
            provided using the straight-line method over the
            following useful lives:
  
                     Office equipment          5 years
                     Furniture and fixtures    7 years
                     Vehicles                  3 years
  
                Leasehold improvements are amortized over the estimated
                useful lives of the improvements.
  
                Prior to September 30, 1995, the Company recorded
                depreciation for financial statement purposes using tax
                depreciation methods which are not in accordance with
                generally accepted accounting principles.  Effective
                October 1, 1994, the Company began depreciating its fixed
                assets over the estimated useful lives on a straight-line
                basis.  The cumulative effect of the change in prior years
                of $11,800, (net of income taxes), which is reflected on
                the September 30, 1995 statement of operations, is a one
                time credit to income.
  
       (D)      INCOME TAXES:
  
                The Company has adopted Statement No. 109, "Accounting for
                Income Taxes" ("SFAS No. 109").  SFAS 109 requires use of
                the asset and liability approach of providing for income
                taxes.  The implementation of this standard had no
                material effect on the financial statements of the
                Company.
  
  
  
  
                                  F - 7
  <PAGE>           F - 8
  
                     PROGRAMS FOR EDUCATION, INC.
                     ----------------------------
                    NOTES TO FINANCIAL STATEMENTS
                    -----------------------------
                     SEPTEMBER 30, 1996 AND 1995
                     ---------------------------
  
  
  
  NOTE   2   -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
  
       (D)      INCOME TAXES (CONTINUED):
  
                Deferred income taxes are provided for temporary
                differences in reporting income and expenses for financial
                statement purposes versus tax reporting purposes.  The
                differences exist because different depreciation methods
                are utilized for financial reporting purposes and for tax
                purposes, and accrued litigation settlement costs are
                expensed for tax purposes only when paid.  Deferred income
                taxes are classified as current or non-current depending
                on the classification of the assets and liabilities to
                which they relate.
  
                The deferred tax asset and liability are comprised of the
                following at September 30:
  
                                                        1996           1995
                                                        ----           ----
  
                     Deferred tax asset:
                     Litigation settlement costs       $3,500         $  -
                                                       ======         ======
  
                 Deferred tax liability:
                     Depreciation                      $5,516         $7,416
                                                       ======         ======
  
       (E)      RECLASSIFICATIONS:
  
                Certain reclassifications have been made to the 1995
                financial statements to conform to the presentation used
                in 1996.
  
       (F)      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, from time to time, maintains cash balances
                which exceed the federal depository insurance coverage
                limit.  Management attempts to monitor the soundness of
                its financial institution and feels the Company's risk is
                negligible.
  
                The Company believes that concentration with regards to
                accounts receivable is limited due to its large customer
                base.
  
       (G)      USE OF ESTIMATES:
  
                In preparing financial statements in accordance with
                generally accepted accounting principles, management makes
                certain estimates and assumptions, where applicable, that
                effect the reported amounts of assets and liabilities and
                disclosures of contingent assets and liabilities at the
                date of the financial statements, as well as the reported
                amounts of revenues and expenses during the reporting
                period.  While actual results could differ from those
                estimates, management does not expect such variances, if
                any, to have a material effect on the financial
                statements.
  
  
  
                                 F - 8
  <PAGE>           F - 9
  
                     PROGRAMS FOR EDUCATION, INC.
                     ----------------------------
                    NOTES TO FINANCIAL STATEMENTS
                    -----------------------------
                     SEPTEMBER 30, 1996 AND 1995
                     ---------------------------
  
  
  
  NOTE   2   -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
  
        (H)     ROYALTIES PAYABLE:
  
                The Company pays, as part of its operations, royalties
                attributable to the sales of various products.  Those
                costs are payable primarily to third party authors of the
                related products.
  
  
  NOTE   3   -  ACCOUNTS RECEIVABLE:
  
                The Company does not provide for an allowance for doubtful
                accounts.  Based upon the past collection history of
                accounts receivable, management of the Company feels that
                an allowance for doubtful accounts is not necessary.
  
  
  NOTE   4   -  RELATED PARTY TRANSACTIONS:
  
                An outstanding loan to an officer and majority shareholder
                of the Company in the principal amount of $28,371 at
                September 30, 1995, was paid in full during the fiscal
                year ended September 30, 1996.  Interest received on the
                loan was $1,833 and $1,875 for the fiscal years ended
                September 30, 1996 and 1995, respectively.
  
  
  NOTE   5   -  COMMITMENTS:
  
                The Company rents its office and warehouse in Rosemont,
                New Jersey on a month-to-month basis.  Rent expense for
                the years ended September 30, 1996 and 1995 aggregated
                $12,420 and $13,148, respectively.
  
  
  NOTE   6   -  PENSION PLAN TERMINATION:
  
                The Company's pension plan was terminated effective April
                1, 1995 and all pension trust assets were distributed to
                vested participants.  A favorable determination letter was
                issued by the Internal Revenue Service.
  
  
  NOTE   7   -  ECONOMIC DEPENDENCY:
  
                For the year ended September 30, 1996 purchases from two
                vendors aggregated approximately 37% and 17% of total
                purchases for the year.  There were no amounts due to
                these two vendors at September 30, 1996.
  
  
  
  
  
                                 F - 9
  <PAGE>           F - 10
  
                     PROGRAMS FOR EDUCATION, INC.
                     ----------------------------
                    NOTES TO FINANCIAL STATEMENTS
                    -----------------------------
                     SEPTEMBER 30, 1996 AND 1995
                     ---------------------------
  
  
  NOTE   7   -  ECONOMIC DEPENDENCY (Continued):
  
                For the year ended September 30, 1995 purchases from one
                vendor aggregated approximately 68% of total purchases for
                the year.  There was no amount due to this vendor at
                September 30, 1995.
  
                Approximately 80% of the Company's sales are from its
                "Words I Use" series of books, for each of the years ended
                September 30, 1996 and 1995.
  
  
  NOTE   8   -  SUBSEQUENT EVENTS:
  
        (A)     LITIGATION SETTLEMENT:
  
                During May 1997, subsequent to the balance sheet date, the
                Company settled a lawsuit with a former employee.  The
                Company denied any wrongdoing but agreed to an out of
                court settlement rather than incurring the expense of
                vigorously contesting this case.  The amount of the out of
                court settlement was $14,000.  This settlement cost was
                accrued at September 30, 1996.
  
        (B)     LETTER OF INTENT:
  
                On March 27, 1997, the Company entered into a letter of
                intent agreement to sell substantially all of its assets
                subject to its liabilities, to a newly formed subsidiary
                of Touchstone Applied Science Associates, Inc., for a
                purchase price of $3,200,000.
  
  
  
  
                                   F - 10
  <PAGE>           F - 11
  
  
  
          INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
          --------------------------------------------------------
  
  
  
  To The Shareholders'
  Programs For Education, Inc.
  Rosemont, New Jersey
  
  
  
  Our report on our audits of Programs For Education, Inc. for the years ended
  September 30, 1996 and 1995, appears on page 1.   The audits were made for
  the purpose of forming an opinion on the basic financial statements taken as
  a whole.  The schedules supporting the statements of operations, presented
  hereinafter, are presented for purposes of additional analysis and are not
  a required part of the basic financial statements.  Such information has not
  been subjected to the auditing procedures applied in the audit of the basic
  financial statements, and accordingly, we express no opinion on it.
  
  
  
  
  
                              /s/ LAZAR, LEVINE & COMPANY LLP
                                  ---------------------------
                                  LAZAR, LEVINE & COMPANY LLP
  
  
  
  
  New York, New York
  May 16, 1997
  
  
  
  
  
  
  
                                F - 10
  <PAGE>           F - 11
  <TABLE>
  <CAPTION>
  
                        PROGRAMS FOR EDUCATION, INC.
                        ----------------------------
                SCHEDULES SUPPORTING STATEMENTS OF OPERATIONS
                ---------------------------------------------
               FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
               -----------------------------------------------
       (See Independent Auditors' Report on Supplemental Information)
  
  
                                                                      1996           1995
                                                                      ----           ----
  <S>                                                          <C>            <C>     
  DIRECT COSTS (Schedule 1):
   Assembly costs                                                 $     -         $   1,259
   Editing, printing, art and design                                    4,220        10,939
   Royalties                                                          110,360        85,838
   Spoilage and obsolescence                                            -             2,724
   Freight-in                                                           3,506         6,505
                                                                  -----------     ---------
  TOTAL DIRECT COSTS                                              $   118,086     $ 107,265
                                                                  ===========     =========
  
  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Schedule 2):
   Officer's salary                                               $   590,000     $ 276,500
   Office salaries                                                    104,443        85,182
   Payroll taxes                                                       29,377        15,714
   Pension expense (Note 6)                                             -            46,572
   Advertising and promotion                                          184,033       162,121
   Freight-out and shipping supplies                                  107,256       107,903
   Consultant fees                                                     98,988        99,595
   Credit card fees                                                     5,362         4,159
   Professional fees                                                   76,613        36,525
   Rent (Note 5)                                                       12,420        13,148
   Telephone                                                           15,558        16,775
   Travel and entertainment                                            16,596        20,228
   Auto expenses                                                        4,938         7,582
   Utilities                                                            3,001         3,634
   Insurance                                                            7,738         6,783
   Postage                                                             14,507        13,969
   Office supplies and expenses                                         5,651         5,803
   Conventions and conferences                                          1,529         4,372
   Subcontractors                                                       1,405         5,900
   Contributions                                                        4,398         4,702
   Depreciation                                                         7,306         6,630
   Bad debts                                                               73           377
   Litigation settlement costs                                         14,000           -      
   Miscellaneous                                                        1,867        11,868
                                                                   ----------     ---------
  TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES               $1,307,059     $ 956,042
                                                                   ==========     =========
  
  
  
  
  <FN>
               See accompanying notes and accountants' report.
  </FN>
  </TABLE>
  
  
  
                                    F - 11
  
  <PAGE>           F - 12
  
  
      TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
      ------------------------------------------------------------
      INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
      -----------------------------------------------------------
                              (Unaudited)
  
  
  
  The following unaudited pro forma financial consolidated statements
  have been prepared based upon certain pro forma adjustments to the
  historical financial statements of Touchstone Applied Science
  Associates, Inc. and Subsidiaries (collectively called the Company),
  set forth elsewhere in this report.  The pro forma financial
  statements should be read in conjunction with the notes thereto and
  the historical financial statements of the Company.
  
  The accompanying pro forma consolidated balance sheet has been
  presented as if the combination described below occurred at the
  Company's balance sheet date.   The accompanying pro forma
  consolidated statements of operations have been prepared as if the
  combinations occurred at the beginning of each period presented.  
  These pro forma consolidated financial statements do not purport to be
  indicative of future results or of the results which would actually
  have been obtained had the pro forma transactions been completed as of
  the beginning of the periods indicated.
  
  The pro forma transaction is as follows:
  
         The purchase of the net assets of Programs For Education, Inc.
         for $3,200,000, consisting of cash and notes, on May 31, 1997
         (see notes to pro forma financial statements).
  
                              F - 12
  <PAGE>           F - 13
  <TABLE>
  <CAPTION>
  
         TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
         ------------------------------------------------------------
                     PRO FORMA CONSOLIDATED BALANCE SHEET
                     ------------------------------------
                                 (Unaudited)
  
                                  - ASSETS -
  
                                         - Historical -   
                                           Touchstone   
                                            Applied         - Historical  -
                                      Science Associates     Programs For           Pro Forma       
                                       and Subsidiaries     Education, Inc.        Adjustments              Pro Forma
                                                                               -------------------
                                        April 30, 1997     March 31, 1997      Debit          Credit      Consolidated
                                        --------------     --------------      -----          ------      ------------
  <S>                                     <C>              <C>           <C>          <C>             <C>
  CURRENT ASSETS:
   Cash and cash equivalents                $2,909,221       $260,625                   $2,200,000(a)   $   969,846
   Accounts receivable                         351,066         90,132                                       441,198
   Inventories                                 216,255        117,370                                       333,625
   Loan receivable                             400,000                                                      400,000
   Prepaid expenses and other
     current assets                            259,363         29,299     $  200,000(b)                     488,662
                                            ----------       --------                                    ----------
  
  TOTAL CURRENT ASSETS                       4,135,905        497,426                                     2,633,331
  
  INVESTMENT IN SUBSIDIARY                       -              -          3,200,000(a)  3,200,000(b)         -      
  
  FIXED ASSETS - NET                         1,762,698         12,104                                     1,774,802
  
  OTHER ASSETS:
   Test passage bank - net                   2,667,456          -                                         2,667,456
   Software development costs - net            231,220          -                                           231,220
   Other assets                                 50,856          2,800                                        53,656
   Costs in excess of net assets
     acquired - net                            353,287          -          2,111,967(b)                   2,465,254
   Covenant not to compete                       -              -            500,000(b)                     500,000
                                            ----------       --------                                   -----------
  
                                            $9,201,422       $512,330                                   $10,325,719
                                            ==========       ========                                   ===========
  
                   - LIABILITIES AND SHAREHOLDERS' EQUITY -
  
  CURRENT LIABILITIES:
   Accounts payable and accrued expenses    $  144,520       $119,781                                   $   264,301
   Current portion of long-term debt           158,623          -                        $ 165,187(a)       323,810
                                            ----------       --------                                   -----------
  
  
  TOTAL CURRENT LIABILITIES                    303,143        119,781                                       588,111
                                            ----------       --------                                   -----------
  
  NON-CURRENT LIABILITIES:
   Deferred income taxes                       473,842          4,516                                       478,358
   Long-term debt                              755,675          -                          834,813(a)     1,590,488
                                            ----------       --------                                   -----------
                                             1,229,517          4,516                                     2,068,846
                                            ----------       --------                                   -----------
  
  SHAREHOLDERS' EQUITY:
   Preferred stock                                -             -                                             -      
   Common stock                                    814          1,000         $1,000(b)                         814
   Additional paid-in capital                4,251,299          -                                         4,251,299
   Stock subscription receivable               (14,350)         -                                           (14,350)
   Unrealized holding loss                         377          -                                               377
   Retained earnings                         3,430,622        387,033        387,033(b)                   3,430,622
                                            ----------       --------                                   -----------
  
                                             7,668,762        388,033                                     7,668,762
                                             ---------       --------                                   -----------
  
                                            $9,201,422       $512,330                                   $10,325,719
                                            ==========       ========                                   ===========
  
  <FN>
  
          See notes to pro forma consolidated financial statements.
  </FN>
  </TABLE>
  
  
  
  
                                 F - 13
  <PAGE>           F - 14
  <TABLE>
  <CAPTION>
  
         TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
         ------------------------------------------------------------
                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                ----------------------------------------------
                           FOR THE SIX MONTHS ENDED
                           ------------------------
                                (Unaudited)   
  
  
                                       - Historical -   
                                         Touchstone    
                                          Applied         - Historical -
                                     Science Associates    Programs For         Pro Forma       
                                      and Subsidiaries    Education, Inc.      Adjustments        Pro Forma
                                                                           -------------------
                                       April 30, 1997     March 31, 1997   Debit        Credit   Consolidated
                                       --------------     --------------   -----        ------   ------------
  <S>                                 <C>              <C>              <C>            <C>     <C>
  NET REVENUE                            $1,592,167          $511,038                             $ 2,103,205
  
  COST OF GOODS SOLD                        564,236           130,535     $ 26,960(c)                 721,731
                                         ----------          --------                             -----------
  
  GROSS PROFIT                            1,027,931           380,503                               1,381,474
  
  OPERATING EXPENSES                        946,727           330,865       70,399(d)               1,630,593
                                         ----------          --------                               -----------
                                                                            35,714(e)
                                                                           100,000(f)
                                                                           146,888(g)
  INCOME (LOSS) FROM
   OPERATIONS                                81,204            49,638                                (249,119)
  
  OTHER EXPENSES (INCOME)                   (23,493)           (5,558)      45,328(h)                  16,277
                                         ----------          --------                               -----------
  
  INCOME (LOSS) BEFORE INCOME
   TAXES                                    104,697            55,196                                (265,396)
  
  INCOME TAXES                               13,520            10,290                   $23,810(i)      -
                                         ----------          --------                               -----------
  
  NET INCOME (LOSS)                    $     91,177          $ 44,906                             $  (265,396)
                                       ============          ========                             ===========
                                                                         
  EARNINGS (LOSS) PER SHARE                                                                       $      (.03)
                                                                                                  ===========
  
  WEIGHTED AVERAGE SHARES
    OUTSTANDING                                                                                     8,072,618
                                                                                                  ===========
  
  <FN>
          See notes to pro forma consolidated financial statements.
  </FN>
  </TABLE>
  
  
  
  
  
                                       F - 14
  <PAGE>           F - 15
  <TABLE>
  <CAPTION>
  
  
         TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
         ------------------------------------------------------------
                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                ----------------------------------------------
                              FOR THE YEAR ENDED
                              ------------------
                                 (Unaudited)
  
  
                                       - Historical -  
                                         Touchstone   
                                          Applied          - Historical -     
                                     Science Associates     Programs For            Pro Forma       
                                      and Subsidiaries     Education, Inc.         Adjustments            Pro Forma
                                                                               -------------------
                                      October 31, 1996   September 30, 1996    Debit        Credit      Consolidated
                                      ----------------     ------------------  -----        ------      ------------
  <S>                                <C>               <C>                 <C>            <C>           <C>
  NET REVENUE                            $2,519,908        $1,709,061                                     $ 4,228,969
  
  COST OF GOODS SOLD                        711,564           425,710        $  91,150(c)                   1,228,424
                                         ----------        ----------                                     -----------
                                                                                                                       
  GROSS PROFIT                            1,808,344         1,283,351                                       3,000,545
  
  OPERATING EXPENSES                      1,699,914         1,307,059          140,798(d)                   3,419,199
                                         ----------        ----------                                     -----------
                                                                                71,428(e)
                                                                               200,000(f)
                                                              
  INCOME (LOSS)  FROM 
   OPERATIONS                               108,430           (23,708)                                       (418,654)
                                                               
  OTHER EXPENSES (INCOME)                  (102,827)          (12,251)          86,879(h)                     (28,199)
                                         ----------        ----------                                     -----------
  
  INCOME (LOSS) BEFORE INCOME
   TAXES                                    211,257           (11,457)                                       (390,455)
  
  INCOME TAXES (BENEFIT)                     19,209            (6,893)                      $12,316(i)          -
                                         ----------        ----------                                     -----------
  
  NET INCOME (LOSS)                      $  192,048        $   (4,564)                                    $  (390,455)
                                         ==========        ==========                                     ===========
  
  
  EARNINGS (LOSS) PER SHARE                                                                               $      (.05)
                                                                                                          ===========
  
  WEIGHTED AVERAGE SHARES
   OUTSTANDING                                                                                              7,640,867
                                                                                                          ===========
  
  
  
  <FN>
          See notes to pro forma consolidated financial statements.
  </FN>
  </TABLE>
  
  
                              F - 15
  <PAGE>           F - 16
  
      TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
      ------------------------------------------------------------
          NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
          ----------------------------------------------------
                              (Unaudited)
  
  
  
  NOTE (A)    Reflects  the acquisition of the net assets of Programs For
              Education, Inc. for a purchase price of $3,200,000, of which
              $2,200,000 was paid in cash with the balance in the form of  a
              $1,000,000 note payable in equal quarterly installments of
              principal and interest, at the higher of 9% or prime plus one
              percent per annum, over a five year period.
  
  NOTE (B)    The acquisition price of $3,200,000 was allocated as follows:
  
              (1) $2,111,967 to goodwill
              (2)   $500,000 to covenant not to compete
              (3)   $200,000 to prepaid consulting fees
              (4)   $388,033 to net assets
  
  NOTE (C)    Reflects an 8% royalty payable to the shareholder of Programs
              For Education, Inc. based upon the sales of a particular
              group of products for the periods indicated.
  
  NOTE (D)    Reflects the straight-line amortization of goodwill arising
              from the acquisition based upon a fifteen-year period.
  
  NOTE (E)    Reflects the straight-line amortization of non-compete
              agreements arising from the acquisition based upon a seven-year
              period.
  
  NOTE (F)    Reflects the recognition of the expense associated with the
              $200,000 paid at closing for prepaid consulting fees.  The
              consulting agreement is for a one-year period.
  
  NOTE (G)    Reflects a deferred salary bonus of $293,776 due to a
              shareholder of Programs For Education, Inc. based upon sales,
              pro rated for the six month period ended March 31, 1997.  The
              twelve month period ended September 30, 1996 already reflects
              the officer salary in full.
  
  NOTE (H)    Reflects the interest expense on the $1,000,000 note payable
              which arose from the acquisition.
  
  NOTE (I)    Results of pro forma entries (C) - (H) above result in a
              consolidated loss, accordingly, the prior net tax provisions
              have been eliminated.
  
  
  
  
  
                               F - 16
  
  <PAGE>
                             SIGNATURE
    
    
            Pursuant to the requirements of the Securities
    Exchange Act of 1934, the registrant has duly caused this
    report to be signed on its behalf by the undersigned,
    thereunto duly authorized.
    
    
                    TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. 
    
    
    
    
                      By:  /s/ LINDA G. STRALEY
                         --------------------------------------
                                                   
                          Linda G. Straley
                          Vice President and Secretary
    
    
    Date: June 16, 1997
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "FORM 8-K - MAY 30, 1997", "secsgml_size_bytes": 56747}]
metadata_filer: {"company-data": {"conformed-name": "TOUCHSTONE APPLIED SCIENCE ASSOCIATES INC /NY/", "cik": "0000726603", "assigned-sic": "8200", "irs-number": "132846796", "state-of-incorporation": "DE", "fiscal-year-end": "1031"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-20303", "film-number": "97624719"}, "business-address": {"street1": "FIELDS LANE", "street2": "P O BOX 382", "city": "BREWSTER", "state": "NY", "zip": "10509", "phone": "9142778100"}}
text: SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549
    
                                   FORM 8-K
    
                                CURRENT REPORT
    
    
    
        Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
                                  
           Date of Report (Date of earliest event reported): May 30, 1997
                                   
                    TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                    -------------------------------------------
                (Exact Name of  Registrant as Specified in Charter)
    
    
          Delaware                       0-20303                13-2846796
          --------                       -------                ----------
  (State or Other Jurisdiction        (Commission            (I.R.S. Employer
        of Incorporation)              File Number)         Identification No.)
  
    P.O. Box 382, Fields Lane, Brewster, New York                  10509
    ---------------------------------------------                  -----
      (Address of Principal Executive Offices)                    Zip Code    
                                  
    
     Registrant's telephone number, including area code:  (914) 277-8100
                                                          --------------
  
             -----------------------------------------------------------
             Former name or former address, if changed since last report
  ITEM 2.          ACQUISITION OR DISPOSITION OF ASSETS.
    
            Acquisition of Assets of Programs for Education,
            ------------------------------------------------
    Inc.    On May 30, 1997, Touchstone Applied Science Associates,
    ----
    Inc. (the "Company"), through its wholly-owned subsidiary,
    Modern Learning Press, Inc. ("MLP"), purchased substantially
    all of the operating assets of Programs for Education, Inc. 
    Such assets include: (i) all accounts receivable,  (ii) cash
    and cash equivalents, (iii) inventory, furniture and fixtures,
    machinery and equipment, (iv) manuscripts, (v) all
    intellectual property and proprietary rights and interests
    (including, without limitation, author/publisher contracts,
    licenses, trademarks, tradenames, copyrights and patents)
    including "Modern Learning Press", "Programs for Education"
    and "Change A Print Frame", and (vi) any and all contracts and
    contract rights (including, without limitation, distribution
    and publishing rights and agreements with Gesell Institute,
    the "Words I Use When I Write", "My Word Book", "Word Power"
    and "Parent Pages" series) (collectively, the "Assets").  The
    purchase price for the Assets was $3,200,000 payable
    $2,200,000 in cash at the closing, and the balance of
    $1,000,000 by a five-year promissory note of MLP, bearing
    interest at a rate equal to the higher of 9.0% per annum or
    the prime rate of the Bank of New York plus 1% per annum, and
    requiring equal quarterly amortization payments.  In addition,
    MLP assumed trade payables and accounts payable related to the
    acquired  business in an approximate amount of $100,000,
    subject to post-closing verification.  The acquisition was
    financed through available cash and short-term borrowings. 
    The portion of the purchase price evidenced by MLP's
    promissory note is secured by a lien on the titles purchased. 
    The Company has guaranteed the obligations of MLP under the
    promissory note and the other agreements referred to below,
    and has secured such guarantee with a pledge of the
    outstanding shares of MLP which are owned by the Company.
    
            In addition, 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
    equal to the greater of either (i) $80,000, or (ii) 8% on all
    net sales of certain of the titles purchased by MLP, for a
    term of seven years following the closing.  Pursuant to the
    Asset Purchase Agreement, MLP has also agreed to pay to Mr.
    Shapiro a deferred bonus in a maximum amount of $293,776,
    payable at the end of the 1997 fiscal year upon the
    achievement of specified milestones by MLP.  The Company's
    guaranty extends to the foregoing obligations of MLP to Mr.
    Shapiro.
    
            Simultaneously with the closing, MLP entered into a
    one-year consulting agreement with Mr. Shapiro.  The
    consulting fee of $200,000, provided for in the consulting
    agreement,  was included as part of the aggregate purchase
    price paid by MLP.  Also, each of the stockholders of Programs
    for Education, Inc. and Programs for Education, Inc. entered
    into non-competition agreements with MLP, the consideration
    for which was included in the aggregate purchase price paid by
    MLP.
    
            Through the acquisition of the assets of Programs
    for Education, the Company expects to expand its core products
    to include publishing of books and other materials used in the
    enhancement of the reading skills of elementary school
    students, as well as books in other subject areas.
  ITEM 7.      FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
                 AND EXHIBITS.
    
            (a)  FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.  
    
                 Independent Auditor's Report                             F - 1
    
                 Balance Sheets                                           F - 2
       
                 Statements of Operations                                 F - 3
    
                 Statements of Retained Earnings                          F - 4
    
                 Statements of Cash Flows                                 F - 5
    
                 Notes to Financial Statements                            F - 6
    
    
            (b)  PRO FORMA FINANCIAL INFORMATION
    
                 Introduction to Pro Forma Consolidated
                   Financial Statements                                   F - 12
    
                 PRO FORMA Consolidated Balance Sheet                     F - 13
    
                 PRO FORMA Consolidated Statement of Operations
                       for the Six Months Ended                           F - 14
    
                 PRO FORMA Consolidated Statement of Operations
                       for the Year Ended                                 F - 15
    
                 Notes to PRO FORMA Consolidated Financial Statements     F - 16
    
            (c)  EXHIBITS
    
                 1.   Asset Purchase Agreement, dated as of May
                      30, 1997, by and between Programs for
                      Education, Inc., Bernard B. Shapiro,
                      Modern Learning Press, Inc. and Touchstone
                      Applied Science Associates, Inc.
    
                 2.   Secured Promissory Note, dated May 30,
                      1997, of Modern Learning Press, Inc.
    
                 3.   Security Agreement, dated  May 30, 1997,
                      by and between Programs for Education,
                      Inc., Bernard B. Shapiro and Modern
                      Learning Press, Inc.
    
                 4.   Stock Pledge Agreement with Escrow
                      Provisions, dated May 30, 1997, by and
                      among Touchstone Applied Science
                      Associates, Inc., Programs for Education,
                      Inc. and Pluese, Lihotz, Incollingo &
                      Leone.
     
                 5.   Guaranty Agreement, dated May 30, 1997, by
                      Touchstone Applied Science Associates,
                      Inc. in favor of Programs for Education,
                      Inc. and Bernard B. Shapiro.
    
                 6.   Royalty Agreement, dated May 30, 1997, by
                      and between Modern Learning Press, Inc.
                      and Bernard B. Shapiro.
  F - 1
  
                         INDEPENDENT AUDITORS' REPORT
                         ----------------------------
  
  To The Shareholders
  Programs For Education, Inc.
  Rosemont, New Jersey
  
  We have audited the accompanying balance sheets of Programs For Education,
  Inc. as of September 30, 1996 and 1995, and the related statements of
  operations, retained earnings and cash flows for the years then ended.
  These financial statements are the responsibility of the management of
  Programs For Education, Inc.  Our responsibility is to express an opinion
  on the financial statements based on our audits.
  
  We conducted our audits in accordance with generally accepted auditing
  standards.  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 financial statements referred to above present fairly,
  in all material respects the financial position of Programs For Education,
  Inc. as of September 30, 1996 and  1995 and the results of their operations
  and their cash flows for the years then ended, in conformity with generally
  accepted accounting principles.
  
                               /s/  LAZAR, LEVINE & COMPANY LLP
                                    ---------------------------
                                    LAZAR, LEVINE & COMPANY LLP
  
  New York, New York
  May 16, 1997
                               F - 1
  F - 2
  PROGRAMS FOR EDUCATION, INC.
                        ----------------------------
                               BALANCE SHEETS
                               --------------
                      AS OF SEPTEMBER 30, 1996 AND 1995
                      ---------------------------------
  
                                 - ASSETS -
  
                                                                      1996           1995
                                                                      ----           ----
  CURRENT ASSETS:
   Cash (Note 2f)                                                 $  113,441     $  101,208
   Accounts receivable (Notes 2f and 3)                              250,765        236,531
   Inventory (Note 2b)                                               106,290        165,181
   Loan receivable - shareholder (Note 4)                               -            28,371
   Prepaid expenses and other current assets                           1,012         23,400
   Deferred tax asset (Note 2d)                                        3,500           -
                                                                  ----------     ----------
  
  TOTAL CURRENT ASSETS                                               475,008        554,691
                                                                  ----------     ----------
  
  PROPERTY AND EQUIPMENT (Note 2c):
   Leasehold improvements                                              2,292          2,292
   Furniture, fixtures and office equipment                          115,925        113,304
   Vehicles                                                             -            14,150
                                                                  ----------     ----------
                                                                     118,217        129,746
   Less: accumulated depreciation                                   (102,329)      (109,174)
                                                                  ----------     ----------
  
                                                                      15,888         20,572
                                                                  ----------     ----------
  
  OTHER ASSETS:
   Security deposit                                                      800            800
                                                                  ----------      ---------
  
                                                                  $  491,696     $  576,063
                                                                  ==========     ==========
  
                    - LIABILITIES AND STOCKHOLDERS' EQUITY -
  
  CURRENT LIABILITIES:
   Accounts payable                                               $    51,883     $   58,845
   Royalties payable (Note 2h)                                         58,853        45,560
   Payroll taxes payable                                               16,790        41,496
   Income taxes payable (Note 2d)                                       1,527        75,055
   Accrued litigation settlement (Note 8a)                             14,000          -
                                                                  -----------     ---------
  
  TOTAL CURRENT LIABILITIES                                           143,053       220,956
                                                                  -----------     ---------
  
  DEFERRED TAX LIABILITY (Note 2d)                                      5,516         7,416
                                                                  -----------     ---------
  
  COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 8)
  
  STOCKHOLDERS' EQUITY:
   Common stock, no par value, 100 shares issued and outstanding        1,000         1,000
   Retained earnings                                                  342,127       346,691
                                                                  -----------     ---------
  
  TOTAL STOCKHOLDERS' EQUITY                                          343,127       347,691
                                                                  -----------     ---------
  
                                                                  $   491,696    $  576,063
                                                                  ===========    ==========
  See accompanying notes and accountants' report.
  F - 2
  F - 3
  PROGRAMS FOR EDUCATION, INC.
                         ----------------------------
                           STATEMENTS OF OPERATIONS
                           ------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                -----------------------------------------------
  
                                                                      1996           1995
                                                                      ----           ----
  NET SALES (Note 7)                                              $ 1,709,061   $ 1,420,941
                                                                  -----------     ---------
  
  COST OF SALES:
   Beginning inventory                                                165,181       184,853
   Purchases (Note 7)                                                 248,733       200,872
   Direct costs (Schedule 1)                                          118,086       107,265
                                                                  -----------     ---------
                                                                      532,000       492,990
   Less: Ending inventory                                             106,290       165,181
                                                                  -----------     ---------
  TOTAL COST OF SALES                                                 425,710       327,809
                                                                  -----------     ---------
  
  GROSS PROFIT                                                      1,283,351     1,093,132
  
   Selling, general and administrative expenses (Schedule 2)        1,307,059       956,042
                                                                  -----------     ---------
  
  (LOSS) INCOME FROM OPERATIONS                                       (23,708)      137,090
                                                                  -----------     ---------
  
  OTHER INCOME (EXPENSE):
   Interest income                                                     12,370         6,287
   Interest expense                                                    (5,004)         -      
   Other income (expense)                                               4,885        (5,133)
                                                                  -----------     ---------
  TOTAL OTHER INCOME                                                   12,251         1,154
                                                                  -----------     ---------
  
  (LOSS) INCOME BEFORE PROVISION (CREDIT) FOR 
   INCOME TAXES                                                       (11,457)      138,244
  
   Provision (credit) for income taxes (Note 2d)                       (6,893)       48,026
                                                                  -----------     ---------
  
  (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
   ACCOUNTING CHANGE                                                   (4,564)       90,218
  
   Cumulative effect of accounting change (net of income
   tax of $7,866)   (Note 2c)                                            -           11,800
                                                                  -----------     ---------
  
  NET (LOSS) INCOME                                               $    (4,564)  $   102,018
                                                                  ===========   ===========
  See accompanying notes and accountants' report.
  F - 3
  F - 4
  PROGRAMS FOR EDUCATION, INC.
                         ----------------------------
                        STATEMENTS OF RETAINED EARNINGS
                        -------------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                -----------------------------------------------
  
                                                                      1996           1995
                                                                      ----           ----
  RETAINED EARNINGS, BEGINNING OF YEAR                            $   346,691     $ 244,673
  
   Net (loss) income                                                   (4,564)      102,018
                                                                  -----------     ---------
  
  RETAINED EARNINGS, END OF YEAR                                  $   342,127     $ 346,691
                                                                  ===========     =========
  See accompanying notes and accountants' report.
  F - 4
  F - 5
  PROGRAMS FOR EDUCATION, INC.
                         ----------------------------
                           STATEMENTS OF CASH FLOWS
                           ------------------------
                FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                -----------------------------------------------
  
                                                                      1996           1995
                                                                      ----           ----
  INCREASE IN CASH AND CASH EQUIVALENTS:
  
  RECONCILIATION OF NET INCOME TO NET CASH (USED)
   PROVIDED BY OPERATING ACTIVITIES:
   Net (loss) income                                              $    (4,564)    $ 102,018
   Adjustments to reconcile net (loss) income to net cash
    (used) provided by operating activities:
       Depreciation                                                     7,306         6,630
       Write-off of bad debts                                              73           377
       Deferred tax benefit                                            (5,400)         (450)
       Cumulative effect of accounting change (Note 2c)                  -          (11,800)
   Changes in assets and liabilities:
     (Increase) in employee advances                                   (1,012)         -      
     (Increase) decrease in tax refund receivable                     (22,892)          973
     (Increase) in accounts receivable                                (14,308)      (99,037)
     Decrease in inventory                                             58,891        19,672
     Decrease (increase) in prepaid expenses                           23,400       (16,000)
     (Decrease) in accounts payable                                    (6,962)       (1,036)
     Increase in accrued royalties                                     13,293        13,654
     Increase in accrued litigation costs                              14,000          -      
     (Decrease) increase in accrued payroll taxes                     (28,243)       40,326
     (Decrease) increase in accrued income taxes                      (47,099)       34,191
     (Decrease) in accrued pension plan contribution                     -           (5,668)
                                                                  -----------     ---------
     Net cash (used) provided by operating activities                 (13,517)       83,850
                                                                  -----------     ---------
  
  CASH FLOWS FROM INVESTING ACTIVITIES:
   Payment of loan to shareholder                                      28,371          -      
   Acquisition of fixed assets                                         (2,621)       (5,502)
                                                                  -----------     ---------
   Net cash provided (used) by investing activities                    25,750        (5,502)
                                                                  -----------     ---------
  
  NET INCREASE IN CASH                                                 12,233        78,348
  
   Cash, at beginning of year                                         101,208        22,860
                                                                  -----------     ---------
  
  CASH, AT END OF YEAR                                            $   113,441     $ 101,208
                                                                  ===========     =========
  
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid                                                  $     5,004     $    -      
   Income taxes paid                                                   72,084        14,000
  See accompanying notes and accountants' report.
  F - 5
  F - 6
  
                          PROGRAMS FOR EDUCATION, INC.
                          ----------------------------
                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------
                          SEPTEMBER 30, 1996 AND 1995
                          ---------------------------
          
  
  NOTE   1   -   NATURE OF BUSINESS:
  
            Programs For Education, Inc. (the "Company") was formed
            in 1964 and incorporated in 1979 in the State of New
            Jersey.  The Company is a publisher of materials for
            educators and parents of young children.  Publications
            are provided to schools, educators, and parents
            nationwide.  The Company uses the trade name of Modern
            Learning Press in its operations.
  
  NOTE   2   -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
  
       (A)  CASH EQUIVALENTS:
  
            Securities with maturities of three months or less when
            purchased are treated as cash equivalents in presenting
            the statement of cash flows.
  
       (B)  INVENTORY:
  
            The Company's inventory is valued at the lower of cost
            (first-in, first-out method) or market.   Inventories 
            consist almost entirely of finished products.
  
       (C)  FIXED ASSETS, DEPRECIATION AND ACCOUNTING CHANGE:
  
            Fixed assets are reflected at cost.  Depreciation is
            provided using the straight-line method over the
            following useful lives:
  
                     Office equipment          5 years
                     Furniture and fixtures    7 years
                     Vehicles                  3 years
  
                Leasehold improvements are amortized over the estimated
                useful lives of the improvements.
  
                Prior to September 30, 1995, the Company recorded
                depreciation for financial statement purposes using tax
                depreciation methods which are not in accordance with
                generally accepted accounting principles.  Effective
                October 1, 1994, the Company began depreciating its fixed
                assets over the estimated useful lives on a straight-line
                basis.  The cumulative effect of the change in prior years
                of $11,800, (net of income taxes), which is reflected on
                the September 30, 1995 statement of operations, is a one
                time credit to income.
  
       (D)      INCOME TAXES:
  
                The Company has adopted Statement No. 109, "Accounting for
                Income Taxes" ("SFAS No. 109").  SFAS 109 requires use of
                the asset and liability approach of providing for income
                taxes.  The implementation of this standard had no
                material effect on the financial statements of the
                Company.
  
                                  F - 7
  F - 8
  
                     PROGRAMS FOR EDUCATION, INC.
                     ----------------------------
                    NOTES TO FINANCIAL STATEMENTS
                    -----------------------------
                     SEPTEMBER 30, 1996 AND 1995
                     ---------------------------
  
  NOTE   2   -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
  
       (D)      INCOME TAXES (CONTINUED):
  
                Deferred income taxes are provided for temporary
                differences in reporting income and expenses for financial
                statement purposes versus tax reporting purposes.  The
                differences exist because different depreciation methods
                are utilized for financial reporting purposes and for tax
                purposes, and accrued litigation settlement costs are
                expensed for tax purposes only when paid.  Deferred income
                taxes are classified as current or non-current depending
                on the classification of the assets and liabilities to
                which they relate.
  
                The deferred tax asset and liability are comprised of the
                following at September 30:
  
                                                        1996           1995
                                                        ----           ----
  
                     Deferred tax asset:
                     Litigation settlement costs       $3,500         $  -
                                                       ======         ======
  
                 Deferred tax liability:
                     Depreciation                      $5,516         $7,416
                                                       ======         ======
  
       (E)      RECLASSIFICATIONS:
  
                Certain reclassifications have been made to the 1995
                financial statements to conform to the presentation used
                in 1996.
  
       (F)      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, from time to time, maintains cash balances
                which exceed the federal depository insurance coverage
                limit.  Management attempts to monitor the soundness of
                its financial institution and feels the Company's risk is
                negligible.
  
                The Company believes that concentration with regards to
                accounts receivable is limited due to its large customer
                base.
  
       (G)      USE OF ESTIMATES:
  
                In preparing financial statements in accordance with
                generally accepted accounting principles, management makes
                certain estimates and assumptions, where applicable, that
                effect the reported amounts of assets and liabilities and
                disclosures of contingent assets and liabilities at the
                date of the financial statements, as well as the reported
                amounts of revenues and expenses during the reporting
                period.  While actual results could differ from those
                estimates, management does not expect such variances, if
                any, to have a material effect on the financial
                statements.
  
                                 F - 8
  F - 9
  
                     PROGRAMS FOR EDUCATION, INC.
                     ----------------------------
                    NOTES TO FINANCIAL STATEMENTS
                    -----------------------------
                     SEPTEMBER 30, 1996 AND 1995
                     ---------------------------
  
  NOTE   2   -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
  
        (H)     ROYALTIES PAYABLE:
  
                The Company pays, as part of its operations, royalties
                attributable to the sales of various products.  Those
                costs are payable primarily to third party authors of the
                related products.
  
  NOTE   3   -  ACCOUNTS RECEIVABLE:
  
                The Company does not provide for an allowance for doubtful
                accounts.  Based upon the past collection history of
                accounts receivable, management of the Company feels that
                an allowance for doubtful accounts is not necessary.
  
  NOTE   4   -  RELATED PARTY TRANSACTIONS:
  
                An outstanding loan to an officer and majority shareholder
                of the Company in the principal amount of $28,371 at
                September 30, 1995, was paid in full during the fiscal
                year ended September 30, 1996.  Interest received on the
                loan was $1,833 and $1,875 for the fiscal years ended
                September 30, 1996 and 1995, respectively.
  
  NOTE   5   -  COMMITMENTS:
  
                The Company rents its office and warehouse in Rosemont,
                New Jersey on a month-to-month basis.  Rent expense for
                the years ended September 30, 1996 and 1995 aggregated
                $12,420 and $13,148, respectively.
  
  NOTE   6   -  PENSION PLAN TERMINATION:
  
                The Company's pension plan was terminated effective April
                1, 1995 and all pension trust assets were distributed to
                vested participants.  A favorable determination letter was
                issued by the Internal Revenue Service.
  
  NOTE   7   -  ECONOMIC DEPENDENCY:
  
                For the year ended September 30, 1996 purchases from two
                vendors aggregated approximately 37% and 17% of total
                purchases for the year.  There were no amounts due to
                these two vendors at September 30, 1996.
  
                                 F - 9
  F - 10
  
                     PROGRAMS FOR EDUCATION, INC.
                     ----------------------------
                    NOTES TO FINANCIAL STATEMENTS
                    -----------------------------
                     SEPTEMBER 30, 1996 AND 1995
                     ---------------------------
  
  NOTE   7   -  ECONOMIC DEPENDENCY (Continued):
  
                For the year ended September 30, 1995 purchases from one
                vendor aggregated approximately 68% of total purchases for
                the year.  There was no amount due to this vendor at
                September 30, 1995.
  
                Approximately 80% of the Company's sales are from its
                "Words I Use" series of books, for each of the years ended
                September 30, 1996 and 1995.
  
  NOTE   8   -  SUBSEQUENT EVENTS:
  
        (A)     LITIGATION SETTLEMENT:
  
                During May 1997, subsequent to the balance sheet date, the
                Company settled a lawsuit with a former employee.  The
                Company denied any wrongdoing but agreed to an out of
                court settlement rather than incurring the expense of
                vigorously contesting this case.  The amount of the out of
                court settlement was $14,000.  This settlement cost was
                accrued at September 30, 1996.
  
        (B)     LETTER OF INTENT:
  
                On March 27, 1997, the Company entered into a letter of
                intent agreement to sell substantially all of its assets
                subject to its liabilities, to a newly formed subsidiary
                of Touchstone Applied Science Associates, Inc., for a
                purchase price of $3,200,000.
  
                                   F - 10
  F - 11
  
          INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
          --------------------------------------------------------
  
  To The Shareholders'
  Programs For Education, Inc.
  Rosemont, New Jersey
  
  Our report on our audits of Programs For Education, Inc. for the years ended
  September 30, 1996 and 1995, appears on page 1.   The audits were made for
  the purpose of forming an opinion on the basic financial statements taken as
  a whole.  The schedules supporting the statements of operations, presented
  hereinafter, are presented for purposes of additional analysis and are not
  a required part of the basic financial statements.  Such information has not
  been subjected to the auditing procedures applied in the audit of the basic
  financial statements, and accordingly, we express no opinion on it.
  
                              /s/ LAZAR, LEVINE & COMPANY LLP
                                  ---------------------------
                                  LAZAR, LEVINE & COMPANY LLP
  
  New York, New York
  May 16, 1997
  
                                F - 10
  F - 11
  PROGRAMS FOR EDUCATION, INC.
                        ----------------------------
                SCHEDULES SUPPORTING STATEMENTS OF OPERATIONS
                ---------------------------------------------
               FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
               -----------------------------------------------
       (See Independent Auditors' Report on Supplemental Information)
  
                                                                      1996           1995
                                                                      ----           ----
  DIRECT COSTS (Schedule 1):
   Assembly costs                                                 $     -         $   1,259
   Editing, printing, art and design                                    4,220        10,939
   Royalties                                                          110,360        85,838
   Spoilage and obsolescence                                            -             2,724
   Freight-in                                                           3,506         6,505
                                                                  -----------     ---------
  TOTAL DIRECT COSTS                                              $   118,086     $ 107,265
                                                                  ===========     =========
  
  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Schedule 2):
   Officer's salary                                               $   590,000     $ 276,500
   Office salaries                                                    104,443        85,182
   Payroll taxes                                                       29,377        15,714
   Pension expense (Note 6)                                             -            46,572
   Advertising and promotion                                          184,033       162,121
   Freight-out and shipping supplies                                  107,256       107,903
   Consultant fees                                                     98,988        99,595
   Credit card fees                                                     5,362         4,159
   Professional fees                                                   76,613        36,525
   Rent (Note 5)                                                       12,420        13,148
   Telephone                                                           15,558        16,775
   Travel and entertainment                                            16,596        20,228
   Auto expenses                                                        4,938         7,582
   Utilities                                                            3,001         3,634
   Insurance                                                            7,738         6,783
   Postage                                                             14,507        13,969
   Office supplies and expenses                                         5,651         5,803
   Conventions and conferences                                          1,529         4,372
   Subcontractors                                                       1,405         5,900
   Contributions                                                        4,398         4,702
   Depreciation                                                         7,306         6,630
   Bad debts                                                               73           377
   Litigation settlement costs                                         14,000           -      
   Miscellaneous                                                        1,867        11,868
                                                                   ----------     ---------
  TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES               $1,307,059     $ 956,042
                                                                   ==========     =========
  See accompanying notes and accountants' report.
  F - 11
  F - 12
  
      TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
      ------------------------------------------------------------
      INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
      -----------------------------------------------------------
                              (Unaudited)
  
  The following unaudited pro forma financial consolidated statements
  have been prepared based upon certain pro forma adjustments to the
  historical financial statements of Touchstone Applied Science
  Associates, Inc. and Subsidiaries (collectively called the Company),
  set forth elsewhere in this report.  The pro forma financial
  statements should be read in conjunction with the notes thereto and
  the historical financial statements of the Company.
  
  The accompanying pro forma consolidated balance sheet has been
  presented as if the combination described below occurred at the
  Company's balance sheet date.   The accompanying pro forma
  consolidated statements of operations have been prepared as if the
  combinations occurred at the beginning of each period presented.  
  These pro forma consolidated financial statements do not purport to be
  indicative of future results or of the results which would actually
  have been obtained had the pro forma transactions been completed as of
  the beginning of the periods indicated.
  
  The pro forma transaction is as follows:
  
         The purchase of the net assets of Programs For Education, Inc.
         for $3,200,000, consisting of cash and notes, on May 31, 1997
         (see notes to pro forma financial statements).
  
                              F - 12
  F - 13
  TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
         ------------------------------------------------------------
                     PRO FORMA CONSOLIDATED BALANCE SHEET
                     ------------------------------------
                                 (Unaudited)
  
                                  - ASSETS -
  
                                         - Historical -   
                                           Touchstone   
                                            Applied         - Historical  -
                                      Science Associates     Programs For           Pro Forma       
                                       and Subsidiaries     Education, Inc.        Adjustments              Pro Forma
                                                                               -------------------
                                        April 30, 1997     March 31, 1997      Debit          Credit      Consolidated
                                        --------------     --------------      -----          ------      ------------
  CURRENT ASSETS:
   Cash and cash equivalents                $2,909,221       $260,625                   $2,200,000(a)   $   969,846
   Accounts receivable                         351,066         90,132                                       441,198
   Inventories                                 216,255        117,370                                       333,625
   Loan receivable                             400,000                                                      400,000
   Prepaid expenses and other
     current assets                            259,363         29,299     $  200,000(b)                     488,662
                                            ----------       --------                                    ----------
  
  TOTAL CURRENT ASSETS                       4,135,905        497,426                                     2,633,331
  
  INVESTMENT IN SUBSIDIARY                       -              -          3,200,000(a)  3,200,000(b)         -      
  
  FIXED ASSETS - NET                         1,762,698         12,104                                     1,774,802
  
  OTHER ASSETS:
   Test passage bank - net                   2,667,456          -                                         2,667,456
   Software development costs - net            231,220          -                                           231,220
   Other assets                                 50,856          2,800                                        53,656
   Costs in excess of net assets
     acquired - net                            353,287          -          2,111,967(b)                   2,465,254
   Covenant not to compete                       -              -            500,000(b)                     500,000
                                            ----------       --------                                   -----------
  
                                            $9,201,422       $512,330                                   $10,325,719
                                            ==========       ========                                   ===========
  
                   - LIABILITIES AND SHAREHOLDERS' EQUITY -
  
  CURRENT LIABILITIES:
   Accounts payable and accrued expenses    $  144,520       $119,781                                   $   264,301
   Current portion of long-term debt           158,623          -                        $ 165,187(a)       323,810
                                            ----------       --------                                   -----------
  
  TOTAL CURRENT LIABILITIES                    303,143        119,781                                       588,111
                                            ----------       --------                                   -----------
  
  NON-CURRENT LIABILITIES:
   Deferred income taxes                       473,842          4,516                                       478,358
   Long-term debt                              755,675          -                          834,813(a)     1,590,488
                                            ----------       --------                                   -----------
                                             1,229,517          4,516                                     2,068,846
                                            ----------       --------                                   -----------
  
  SHAREHOLDERS' EQUITY:
   Preferred stock                                -             -                                             -      
   Common stock                                    814          1,000         $1,000(b)                         814
   Additional paid-in capital                4,251,299          -                                         4,251,299
   Stock subscription receivable               (14,350)         -                                           (14,350)
   Unrealized holding loss                         377          -                                               377
   Retained earnings                         3,430,622        387,033        387,033(b)                   3,430,622
                                            ----------       --------                                   -----------
  
                                             7,668,762        388,033                                     7,668,762
                                             ---------       --------                                   -----------
  
                                            $9,201,422       $512,330                                   $10,325,719
                                            ==========       ========                                   ===========
  See notes to pro forma consolidated financial statements.
  F - 13
  F - 14
  TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
         ------------------------------------------------------------
                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                ----------------------------------------------
                           FOR THE SIX MONTHS ENDED
                           ------------------------
                                (Unaudited)   
  
                                       - Historical -   
                                         Touchstone    
                                          Applied         - Historical -
                                     Science Associates    Programs For         Pro Forma       
                                      and Subsidiaries    Education, Inc.      Adjustments        Pro Forma
                                                                           -------------------
                                       April 30, 1997     March 31, 1997   Debit        Credit   Consolidated
                                       --------------     --------------   -----        ------   ------------
  NET REVENUE                            $1,592,167          $511,038                             $ 2,103,205
  
  COST OF GOODS SOLD                        564,236           130,535     $ 26,960(c)                 721,731
                                         ----------          --------                             -----------
  
  GROSS PROFIT                            1,027,931           380,503                               1,381,474
  
  OPERATING EXPENSES                        946,727           330,865       70,399(d)               1,630,593
                                         ----------          --------                               -----------
                                                                            35,714(e)
                                                                           100,000(f)
                                                                           146,888(g)
  INCOME (LOSS) FROM
   OPERATIONS                                81,204            49,638                                (249,119)
  
  OTHER EXPENSES (INCOME)                   (23,493)           (5,558)      45,328(h)                  16,277
                                         ----------          --------                               -----------
  
  INCOME (LOSS) BEFORE INCOME
   TAXES                                    104,697            55,196                                (265,396)
  
  INCOME TAXES                               13,520            10,290                   $23,810(i)      -
                                         ----------          --------                               -----------
  
  NET INCOME (LOSS)                    $     91,177          $ 44,906                             $  (265,396)
                                       ============          ========                             ===========
                                                                         
  EARNINGS (LOSS) PER SHARE                                                                       $      (.03)
                                                                                                  ===========
  
  WEIGHTED AVERAGE SHARES
    OUTSTANDING                                                                                     8,072,618
                                                                                                  ===========
  See notes to pro forma consolidated financial statements.
  F - 14
  F - 15
  TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
         ------------------------------------------------------------
                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                ----------------------------------------------
                              FOR THE YEAR ENDED
                              ------------------
                                 (Unaudited)
  
                                       - Historical -  
                                         Touchstone   
                                          Applied          - Historical -     
                                     Science Associates     Programs For            Pro Forma       
                                      and Subsidiaries     Education, Inc.         Adjustments            Pro Forma
                                                                               -------------------
                                      October 31, 1996   September 30, 1996    Debit        Credit      Consolidated
                                      ----------------     ------------------  -----        ------      ------------
  NET REVENUE                            $2,519,908        $1,709,061                                     $ 4,228,969
  
  COST OF GOODS SOLD                        711,564           425,710        $  91,150(c)                   1,228,424
                                         ----------        ----------                                     -----------
                                                                                                                       
  GROSS PROFIT                            1,808,344         1,283,351                                       3,000,545
  
  OPERATING EXPENSES                      1,699,914         1,307,059          140,798(d)                   3,419,199
                                         ----------        ----------                                     -----------
                                                                                71,428(e)
                                                                               200,000(f)
                                                              
  INCOME (LOSS)  FROM 
   OPERATIONS                               108,430           (23,708)                                       (418,654)
                                                               
  OTHER EXPENSES (INCOME)                  (102,827)          (12,251)          86,879(h)                     (28,199)
                                         ----------        ----------                                     -----------
  
  INCOME (LOSS) BEFORE INCOME
   TAXES                                    211,257           (11,457)                                       (390,455)
  
  INCOME TAXES (BENEFIT)                     19,209            (6,893)                      $12,316(i)          -
                                         ----------        ----------                                     -----------
  
  NET INCOME (LOSS)                      $  192,048        $   (4,564)                                    $  (390,455)
                                         ==========        ==========                                     ===========
  
  EARNINGS (LOSS) PER SHARE                                                                               $      (.05)
                                                                                                          ===========
  
  WEIGHTED AVERAGE SHARES
   OUTSTANDING                                                                                              7,640,867
                                                                                                          ===========
  See notes to pro forma consolidated financial statements.
  F - 15
  F - 16
  
      TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
      ------------------------------------------------------------
          NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
          ----------------------------------------------------
                              (Unaudited)
  
  NOTE (A)    Reflects  the acquisition of the net assets of Programs For
              Education, Inc. for a purchase price of $3,200,000, of which
              $2,200,000 was paid in cash with the balance in the form of  a
              $1,000,000 note payable in equal quarterly installments of
              principal and interest, at the higher of 9% or prime plus one
              percent per annum, over a five year period.
  
  NOTE (B)    The acquisition price of $3,200,000 was allocated as follows:
  
              (1) $2,111,967 to goodwill
              (2)   $500,000 to covenant not to compete
              (3)   $200,000 to prepaid consulting fees
              (4)   $388,033 to net assets
  
  NOTE (C)    Reflects an 8% royalty payable to the shareholder of Programs
              For Education, Inc. based upon the sales of a particular
              group of products for the periods indicated.
  
  NOTE (D)    Reflects the straight-line amortization of goodwill arising
              from the acquisition based upon a fifteen-year period.
  
  NOTE (E)    Reflects the straight-line amortization of non-compete
              agreements arising from the acquisition based upon a seven-year
              period.
  
  NOTE (F)    Reflects the recognition of the expense associated with the
              $200,000 paid at closing for prepaid consulting fees.  The
              consulting agreement is for a one-year period.
  
  NOTE (G)    Reflects a deferred salary bonus of $293,776 due to a
              shareholder of Programs For Education, Inc. based upon sales,
              pro rated for the six month period ended March 31, 1997.  The
              twelve month period ended September 30, 1996 already reflects
              the officer salary in full.
  
  NOTE (H)    Reflects the interest expense on the $1,000,000 note payable
              which arose from the acquisition.
  
  NOTE (I)    Results of pro forma entries (C) - (H) above result in a
              consolidated loss, accordingly, the prior net tax provisions
              have been eliminated.
  
                               F - 16
  SIGNATURE
    
    
            Pursuant to the requirements of the Securities
    Exchange Act of 1934, the registrant has duly caused this
    report to be signed on its behalf by the undersigned,
    thereunto duly authorized.
    
    
                    TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. 
    
    
    
    
                      By:  /s/ LINDA G. STRALEY
                         --------------------------------------
                                                   
                          Linda G. Straley
                          Vice President and Secretary
    
    
    Date: June 16, 1997