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Supplying
the
Education Community
Services
Schools
OTC-BB: TASA
Touchstone Applied SCI
Hardscrabble
Heights
Brewster, NY 10509
Phone: 845-277-8100
Andrew L. Simon
Chairman, President and
Chief Executive Officer
Interviewed conducted by:
Diane Reynolds, Co Publisher
CEOCFOinterviews.com
April 2002
Company
Profile:
Touchstone Applied Science Associates
(TASA), Inc. provides the educational market with state-of-the-art literacy and assessment
tools, including a highly regarded, proprietary line of reading tests – known as the
Degrees of Reading power program.
Though its subsidiary, BETA, Inc.,
TASA evaluates assessment needs for states, school districts, and test and textbook
publishers, and designs tests specifically to met clients’ measurement
specifications.
Modern Learning Press (MLP), Inc.,
also a wholly-owned subsidiary of TASA, designs, publishes and distributes top quality
“consumable” student materials for the primary grades, and creates and publishes
books and pamphlets for elementary school teachers and parents.
The Mildred Elley School,
owned and operated by TASA Educational Services Corporation (TESC), also a subsidiary of
TASA, is an accredited, degree-granting, post-secondary school with campuses in Albany,
New York and Pittsfield, Massachusetts.
TASA is a publicly owned company with
shares traded in the NASDAQ small-capitalization over-the-counter market. The Company is headquartered in Brewster, New
York, with regional representatives located throughout the United States providing local
customer support.
Ceocfointerviews: Please explain what it is your company does.
Mr. Simon: We
are in three different areas of the education business.
We are in the assessment area K -12. In that area we have two different
divisions. The proprietary assessment unit has four mainstream products that we sell to
states and school districts. We also have a
custom testing unit, called BETA, which provides standard-setting and evaluation services
as well as constructs test items and/or custom tests to states and textbook publishers.
Over the past 5 years, our staff has played key roles in planning, developing or
implementing large-scale testing programs in more than 15 states. Our second division
operates in the instructional market. We produce supplemental instructional materials,
primarily in the K-5 market, although we are currently expanding into middle school. Our
third area is educational delivery to post-secondary proprietary locations.
Ceocfointerviews:
So, you actually have schools of your own?
Mr. Simon: That’s
correct.
Ceocfointerviews: How are they different from other schools?
Mr. Simon: Our
schools are in Albany, New York and in Pittsfield, Massachusetts. In Albany we operate a two-year granting-degree
institution. It’s difficult to come by
degree-granting licensing in New York. We are really in the upper end proprietary
post-secondary education.
Ceocfointerviews: What states are you in and what states are you
planning on moving into?
Mr. Simon: I
believe you are referring to the custom development work of TASA’s subsidiary, BETA.
As previously mentioned, we have worked in 15 states over the past 5 years. We are
currently working on contracts or multiple contracts in Massachusetts, Connecticut,
Virginia, North Carolina, Michigan, Texas, and Minnesota.
Since we will bid on any state’s
RFP, it is conceivable that we could be in a half dozen more states at this time next
year. We will go to any state where we believe we can deliver a service.
Ceocfointerviews: Where do you get the material as far as what you
are testing? The levels you test, who over
sees everything?
Mr. Simon: We
have a number of psychometric professionals and project managers on staff, who oversee the
development of the tests to our specifications. We utilize our pool of professional
writers to create the test items, based on the state’s specifications. The
interesting history of this business is that assessment is becoming more important on the
state level. Five years ago, about 80% of the testing business was on the proprietary side
and about 20% was on the custom side. It has shifted over time—now about 80% of
the business is on the custom side. That is not to suggest that the proprietary side
of our business has declined. In fact, we doubled our propriety business over the past six
years. In contrast, though, our custom testing business has gone up ten-fold. If you
want to be in the assessment business, this is the time.
Ceocfointerviews: Is there any new or exciting news that
hasn’t been published yet that you would like to talk about?
Mr. Simon: Yes, there are three things.
We are just in the process of signing a contract with the state of Indiana for two
different projects. The first project is to print, distribute, and score of their
Core 40 tests. Eventually, there will be high school tests on all relevant subject matter.
I believe there are a total of 14 tests. This year Indiana is piloting two of those
tests. My sense is, if we do well in this initial phase, we can generate substantial
business. That will give us significant volume. We’re also making an
arrangement with them to be the publisher for the Indiana Primary Tests. Right now,
Indiana has a language arts test for Grade 1. We are helping them create a test for
Kindergarten and Grade 2. We will make those tests available to the state of Indiana
and also sell them nationally. We are excited about these two projects.
The other project
that excites us is that we are one of three publishers selected by the state of Utah to
provide reading comprehension tests from which Utah school districts can choose the test
that they feel is most appropriate. Approximately 60% of the districts selected our
tests. This year, Utah has full-scale testing in Grade 3 and piloting in Grades 4-9.
Hence, we think the volume will grow over the next two or three years.
Ceocfointerviews: What is this company doing to keep ahead of the
competition? What gives you that extra edge?
Mr. Simon: We do two things. On the
proprietary side, we have three tests, all of which provide Year 2000 normative data. The
availability of current normative data is particularly relevant for school districts.
Teachers also
have access to our Readability of Textbooks via
our website at www.tasaliteracy.com. This database contains the DRP readability values of
more than 6,000 textbooks in current use. So, teachers can use the results from
administering our reading comprehension test—the Degrees of Reading PowerÒ
(DRPÒ) test—to select textbooks appropriate to a child’s reading
ability.
TASA also markets
DRP—>BookLinkÒ, a software program with a database of more than 17,500
fiction and non-fiction books, which enables teachers to search electronically to find
appropriate books for each student based upon interest categories and reading ability.
TASA launched its
new ESL test in July 2001. It is the state test in Rhode Island and is one of the three
tests in New Jersey, Florida and Illinois. We’ve received a tremendous response
from other states in terms of requests for materials and technical information. That
test measures four different skills, reading, writing, listening, and speaking. We see
this in a very large market, particularly with the new Title I funding.
We also launched
Signposts, which is a comprehensive system designed to provide a unique set of assessments
and integrated instructional activities for students in grades K-3, in 2001.
Signposts spans a range of literacy strands—reading, writing, listening, and
speaking—and includes a pre-DRP reading test and measurement scale for emergent
readers.
What makes us
particularly unique on the custom testing side is that we have a lot of senior people that
are well seasoned. They match up very well with state program directors, so we are
providing them with expert advice. I believe that we have an advantage over other testing
companies because we deliver on time and on budget. TASA’s relatively small
size—compared to our competitors—means that senior staffs are attached to each
project.
Ceocfointerviews: What do you feel has changed in the past year
that will affect the future for this company?
Mr. Simon: Our
rate of growth has increased rapidly. Take a look at our first quarter. This year, our
revenues have increased about 35%. Last year, we had some significant increases.
I believe we are just hitting our stride. Over the next three years we will have a
very significant increase in our sales area.
Ceocfointerviews: The schools you mentioned earlier, your own
schools. Do you see expanding in that area?
Mr. Simon: No,
I don’t. We originally purchased these schools because we thought we could
expand in this area. When we went into the marketplace to acquire additional schools,
every school we looked at had regulatory problems. We backed off. The company is
currently investigating alternatives to extricate ourselves from this business and to
refocus on K-12 assessment and instruction.
Ceocfointerviews: You also have Modern Learning Press, what do they
supply?
Mr.
Simon: That’s
correct, it provides supplemental language arts material in the K-5 marketplace.
Ceocfointerviews: Is this also for the teachers and parents?
Mr. Simon: It’s
primarily for classroom teacher’s—supplemental material for them.
Ceocfointerviews: How are you going to broaden your growth if you
are not doing so through acquiring additional schools?
Mr. Simon: Our strategy is to continue to
expand our custom testing area. It’s just a matter of timing and pacing so we
can maintain our cash flows and our profitability. Our custom testing business has
grown from $300,000 in 1997 to $3 million last year and should be significantly higher
this year.
We also are just
increasing our pace in our proprietary unit. Last year we launched our ESL product
and added about half of a million dollar in sales—all in three months. I would
be disappointed if we didn’t double that number this year, particularly with the
adoption of the test in additional states. We also have a new Indiana primary test
that we are launching sometime this year. I feel there is plenty of room to grow in
the proprietary assessment area.
In
the instructional area, we will be broadening our product line beyond language arts. We
also will be broadening our line by going into the middle school market place with a new
imprint. We are in the process of executing a publishing plan and investing to
launch new titles. We should have nine new titles introduced in the 2002 fiscal year and
to continue that level of development into the future.
Ceocfointerviews: Does this company have the cash flow to continue
the growth?
Mr. Simon: I
think that a small company has to be careful about how they spend money, but one of the
nice things about a company in the assessment and instructional area is that our gross
profit is in the 70% range. In the first quarter this year, both our G&A
expenses and our selling expenses were flat versus a year ago. So if we have a 35%
increase in volume we will generate the sufficient cash to sustain the growth efforts.
Ceocfointerviews: What
would you say to a potential investor?
Mr. Simon: I
would tell them that the arena in which we do business—the education arena—is
hot. Assessment is attractive, and there is certainly a lot of interest from people
looking into our type of company. The second thing I would tell investors is that
while we are a small company, we are making real profits. Last year we earned $0.10
a share. I believe that our revenues as well as our earnings per share will be
higher this year. This company is just hitting its stride.
Ceocfointerviews: I think it was about two years ago there had been
a lot of emphasis on education and on how we let our children go and now it’s very
important because we are finally looking at them as our future.
Mr. Simon: Well,
we like this President. He believes in testing, in measurement, and in accountability.
We did a lot of work in Texas when President Bush was governor. If the
situation in Texas replicates itself across the country, then it’s terrific for us.
Ceocfointerviews: Do you have a closing statement?
Mr. Simon:
I believe we are a steady company; we are not going
to double or triple our revenues in a year. That just doesn’t happen in education. However, we will continue to grow at a reasonably
rapid pace, and I know we are in this for the long haul. Your readers need to determine if
they want to invest in a non-flashy, steady-growth firm that should increase its EPS each
year. TASA is such a company.
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