UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

Commission File Number 001-32300

SMARTPROS LTD.(Exact name of small business issuer as specified in its charter)

|                                  |  |                    
|--------------------------------- |  | -------------------
|Delaware                          |  | 13-4100476         
|(State or other jurisdiction      |  | (I.R.S. Employer   
|of incorporation or organization) |  | Identification No.)

12 Skyline Drive, Hawthorne, New York 10532(Address of principal executive office)

(914) 345-2620(Issuers telephone number, including area code)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

| |              |  |               | 
| | ------------ |  | ------------- | 
| | Yes      |X| |  | No      |   | | 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

| |                         |       |  |                           |       | 
| | ----------------------- | ----- |  | ------------------------- | ----- | 
| | Large accelerated filer | |   | |  | Accelerated filer         | |   | | 
| | Non-accelerated filer   | |   | |  | Smaller reporting company | |X|   | 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

| |               |  |            | 
| | ------------- |  | ---------- | 
| | Yes     |   | |  | No     |X| | 

Number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  As of November 1, 2008, there were 4,916,456 shares of common stock outstanding.

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SMARTPROS LTD.FORM 10-Q REPORT

September 30, 2008

TABLE OF CONTENTS

|                               |  |                                                                                                    |  |     
|------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                    |  | PAGE
|                              
|PART I  FINANCIAL INFORMATION |  |                                                                                                   
|                               |  |                                                                                                    |  |     
|Item 1.                        |  | Condensed Consolidated Financial Statements (Unaudited)                                            |  |     
|                               |  |                                                                                                    |  |     
|                               |  | Balance Sheets  September 30, 2008 and December 31, 2007 (Audited)                                |  | 1   
|                               |  |                                                                                                    |  |     
|                               |  | Statements of Income for the nine-months and three-month periods
ended September 30, 2008 and 2007 |  | 2   
|                               |  |                                                                                                    |  |     
|                               |  | Statements of Cash Flows for the nine-months
ended September 30, 2008 and 2007                     |  | 3   
|                               |  |                                                                                                    |  |     
|                               |  | Notes to Condensed Consolidated Financial Statements                                               |  | 4   
|                               |  |                                                                                                    |  |     
|Item 2.                        |  | Managements Discussion and Analysis or Plan of Operation                                          |  | 7   
|                               |  |                                                                                                    |  |     
|Item 3.                        |  | Quantitative and Qualitative Risk Disclosures About Market Risk                                    |  | 17  
|                               |  |                                                                                                    |  |     
|Item 4T.                       |  | Controls and Procedures                                                                            |  | 17  
|                              
|PART II  OTHER INFORMATION    |  |                                                                                                   
|                               |  |                                                                                                   
|Item 1.                        |  | Legal Proceedings                                                                                  |  | 18  
|                               |  |                                                                                                    |  |     
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 18  
|                               |  |                                                                                                    |  |     
|Item 3.                        |  | Defaults Upon Senior Securities                                                                    |  | 19  
|                               |  |                                                                                                    |  |     
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                |  | 19  
|                               |  |                                                                                                    |  |     
|Item 5.                        |  | Other Information                                                                                  |  | 19  
|                               |  |                                                                                                    |  |     
|Item 6.                        |  | Exhibits                                                                                           |  | 19  
|                               |  |                                                                                                    |  |     
|SIGNATURES                     |  |                                                                                                    |  | 19  

i

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FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. These
statements relate to the plans and objectives of management for future operations as well as to market trends and expectations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations,
plans and assumptions relating to the future operation of our business. These expectations, plans and assumptions involve judgments with respect to, among other things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our expectations, plans and assumptions underlying the forward-looking statements are reasonable, they could
prove inaccurate and, therefore, we cannot assure you that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The terms we, our, us, or any derivative thereof, as used herein refer to SmartPros Ltd., a Delaware corporation, its subsidiaries and its
predecessors.

ii

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

SMARTPROS LTD. AND SUBSIDIARIESCondensed Consolidated Balance Sheets

|                                                                                                                              |  |   |               |   |  |   |              |  
|----------------------------------------------------------------------------------------------------------------------------- |  | - | ------------- | - |  | - | ------------ | -
|                                                                                                                              |  |   | September 30, |   |  |   | December 31, |  
|                                                                                                                              |  |   | 2008          |   |  |   | 2007         |  
|                                                                                                                              |  |   | (Unaudited)   |   |  |   | (Audited)    |  
|ASSETS                                                                                                                        |  |   |               |   |  |   |              |  
|Current Assets:                                                                                                               |  |   |               |   |  |   |              |  
|Cash and cash equivalents                                                                                                     |  | $ | 6,156,745     |   |  | $ | 10,072,338   |  
|Accounts receivable, net of allowance for doubtful accounts
of $39,677 at September 30, 2008 and $39,842 at December 31, 2007 |  |   | 1,921,472     |   |  |   | 1,964,483    |  
|Prepaid expenses and other current assets                                                                                     |  |   | 244,884       |   |  |   | 237,097      |  
|Total Current Assets                                                                                                          |  |   | 8,323,101     |   |  |   | 12,273,918   |  
|                                                                                                                             
|Property and equipment, net                                                                                                   |  |   | 660,490       |   |  |   | 630,857      |  
|Goodwill                                                                                                                      |  |   | 3,637,731     |   |  |   | 145,684      |  
|Other intangibles, net                                                                                                        |  |   | 3,585,086     |   |  |   | 3,296,538    |  
|Other assets, including restricted cash of $150,000                                                                           |  |   | 154,673       |   |  |   | 154,673      |  
|Deferred tax asset                                                                                                            |  |   | 1,152,000     |   |  |   | 978,000      |  
|                                                                                                                              |  |   | 9,189,980     |   |  |   | 5,205,752    |  
|Total Assets                                                                                                                  |  | $ | 17,513,081    |   |  | $ | 17,479,670   |  
|                                                                                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                          |  |   |               |   |  |   |              |  
|Current Liabilities:                                                                                                          |  |   |               |   |  |   |              |  
|Accounts payable                                                                                                              |  | $ | 398,187       |   |  | $ | 786,781      |  
|Accrued expenses                                                                                                              |  |   | 304,399       |   |  |   | 419,886      |  
|Other liabilities                                                                                                             |  |   | 40,040        |   |  |   | 40,040       |  
|Deferred revenue                                                                                                              |  |   | 5,218,811     |   |  |   | 5,318,382    |  
|Total Current Liabilities                                                                                                     |  |   | 5,961,437     |   |  |   | 6,565,089    |  
|                                                                                                                             
|Long-Term Liabilities:                                                                                                        |  |   |               |   |  |   |              |  
|Other liabilities-net of current portion                                                                                      |  |   | 9,999         |   |  |   | 40,041       |  
|Total Long-Term Liabilities                                                                                                   |  |   | 9,999         |   |  |   | 40,041       |  
|                                                                                                                             
|COMMITMENTS AND CONTINGENCIES                                                                                                 |  |   |               |   |  |   |              |  
|Stockholders Equity:                                                                                                         |  |   |               |   |  |   |              |  
|Convertible preferred stock, $.001 par value, authorized 1,000,000                                                            |  |   | --            |   |  |   | --           |  
|shares, 0 shares issued and outstanding                                                                                       |  |   |               |   |  |   |              |  
|Common stock, $.0001 par value, authorized 30,000,000 shares,                                                                 |  |   | 531           |   |  |   | 530          |  
|5,313,781 issued and 4,916,456 outstanding at September 30,                                                                   |  |   |               |   |  |   |              |  
|2008; and 5,304,698 issued and 4,993,967 outstanding at December 31,
2007                                                     |  |   |               |   |  |   |              |  
|Additional paid-in capital                                                                                                    |  |   | 17,090,525    |   |  |   | 16,925,314   |  
|Accumulated (deficit)                                                                                                         |  |   | (4,270,742    | ) |  |   | (5,106,459   | )
|Common stock in treasury, at cost 397,325 and 310,731 shares                                                                 |  |   | (1,273,417    | ) |  |   | (922,625     | )
|Deferred compensation                                                                                                         |  |   | (5,252        | ) |  |   | (22,220      | )
|Total Stockholders Equity                                                                                                    |  |   | 11,541,645    |   |  |   | 10,874,540   |  
|Total Liabilities and Stockholders Equity                                                                                    |  | $ | 17,513,081    |   |  | $ | 17,479,670   |  

---

See Notes to Condensed Consolidated Financial Statements (Unaudited)

1

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SMARTPROS LTD. AND SUBSIDIARIESCondensed Consolidated Statements of Income(Unaudited)

|                                       |  |   |                   |  |   |                    |  |   |           |  |   |          
|-------------------------------------- |  | - | ----------------- |  | - | ------------------ |  | - | --------- |  | - | ---------
|                                       |  |   | Nine Months Ended |  |   | Three Months Ended
|                                       |  |   | September 30,     |  |   | September 30,     
|                                       |  |   | 2008              |  |   | 2007               |  |   | 2008      |  |   | 2007     
|                                      
|Net revenues                           |  | $ | 12,579,448        |  | $ | 10,907,885         |  | $ | 4,641,915 |  | $ | 3,697,724
|Cost of revenues                       |  |   | 5,557,525         |  |   | 4,009,938          |  |   | 2,001,564 |  |   | 1,325,621
|Gross profit                           |  |   | 7,021,923         |  |   | 6,897,947          |  |   | 2,640,351 |  |   | 2,372,103
|                                      
|Operating Expenses:                    |  |   |                   |  |   |                    |  |   |           |  |   |          
|Selling, general and administrative    |  |   | 5,929,489         |  |   | 5,287,878          |  |   | 1,879,322 |  |   | 1,747,238
|Depreciation and amortization          |  |   | 618,049           |  |   | 505,021            |  |   | 212,199   |  |   | 177,757  
|                                       |  |   | 6,547,538         |  |   | 5,792,899          |  |   | 2,091,521 |  |   | 1,924,995
|Operating income                       |  |   | 474,385           |  |   | 1,105,048          |  |   | 548,830   |  |   | 447,108  
|                                      
|Other Income:                          |  |   |                   |  |   |                    |  |   |           |  |   |          
|Interest income, net of expense        |  |   | 194,817           |  |   | 302,422            |  |   | 46,224    |  |   | 112,655  
|                                       |  |   | 194,817           |  |   | 302,422            |  |   | 46,224    |  |   | 112,655  
|                                      
|Income before benefit for income taxes |  |   | 669,202           |  |   | 1,407,470          |  |   | 595,054   |  |   | 559,763  
|                                      
|Income tax benefit                     |  |   | 166,515           |  |   | 465,792            |  |   | 131,515   |  |   | 215,792  
|Net income                             |  | $ | 835,717           |  | $ | 1,873,262          |  | $ | 726,569   |  | $ | 775,555  
|                                      
|Net income per common share:           |  |   |                   |  |   |                    |  |   |           |  |   |          
|Basic net income per common share      |  | $ | 0.17              |  | $ | 0.38               |  | $ | 0.15      |  | $ | 0.16     
|Diluted net income per common share    |  | $ | 0.17              |  | $ | 0.37               |  | $ | 0.15      |  | $ | 0.15     
|                                      
|Weighted average number of shares      |  |   |                   |  |   |                    |  |   |           |  |   |          
|outstanding                            |  |   |                   |  |   |                    |  |   |           |  |   |          
|Basic                                  |  |   | 4,956,732         |  |   | 4,916,823          |  |   | 4,920,755 |  |   | 4,954,854
|Diluted                                |  |   | 4,995,932         |  |   | 5,009,132          |  |   | 4,949,992 |  |   | 5,114,285

---

See Notes to Condensed Consolidated Financial Statements (Unaudited)

2

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SMARTPROS LTD. AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows (Unaudited)

|                                                                                  |  |   |                   |   |  |   |           |  
|--------------------------------------------------------------------------------- |  | - | ----------------- | - |  | - | --------- | -
|                                                                                  |  |   | Nine Months Ended |  
|                                                                                  |  |   | September 30,     |  
|                                                                                  |  |   | 2008              |   |  |   | 2007      |  
|Cash Flows from Operating Activities:                                             |  |   |                   |   |  |   |           |  
|Net income                                                                        |  | $ | 835,717           |   |  | $ | 1,873,262 |  
|Adjustments to reconcile net income to net cash provided by
operating activities: |  |   |                   |   |  |   |           |  
|Depreciation and amortization                                                     |  |   | 618,049           |   |  |   | 505,021   |  
|Decrease in deferred compensation                                                 |  |   | 16,968            |   |  |   | 48,168    |  
|Stock compensation expense                                                        |  |   | 145,039           |   |  |   | 27,000    |  
|Deferred income tax benefit                                                       |  |   | (174,000          | ) |  |   | (475,000  | )
|Gain on sale of equipment                                                         |  |   | (3,616            | ) |  |   | (12,575   | )
|Changes in operating assets and liabilities:                                      |  |   |                   |   |  |   |           |  
|(Increase) decrease in operating assets:                                          |  |   |                   |   |  |   |           |  
|Accounts receivable                                                               |  |   | 803,308           |   |  |   | (45,460   | )
|Prepaid expenses and other current assets                                         |  |   | 12,061            |   |  |   | 44,417    |  
|(Decrease) increase in operating liabilities:                                     |  |   |                   |   |  |   |           |  
|Accounts payable and accrued expenses                                             |  |   | (393,605          | ) |  |   | (89,866   | )
|Deferred revenue                                                                  |  |   | (131,358          | ) |  |   | 551,914   |  
|Other liabilities                                                                 |  |   | (30,042           | ) |  |   | (30,042   | )
|Total adjustments                                                                 |  |   | 862,804           |   |  |   | 523,577   |  
|Net Cash Provided by Operating Activities                                         |  |   | 1,698,521         |   |  |   | 2,396,839 |  
|                                                                                 
|Cash Flows from Investing Activities:                                             |  |   |                   |   |  |   |           |  
|Acquisition of property and equipment                                             |  |   | (204,116          | ) |  |   | (156,883  | )
|Capitalized course costs                                                          |  |   | (31,449           | ) |  |   | (67,725   | )
|Capitalized software development                                                  |  |   | (617,961          | ) |  |   | (164,565  | )
|Property and equipment acquired from acquisitions                                 |  |   | (25,252           | ) |  |   | (62,201   | )
|Proceeds from sale of asset                                                       |  |   | 12,000            |   |  |   | --        |  
|Intangible assets acquired from acquisitions                                      |  |   | (66,558           | ) |  |   | (269,099  | )
|Cash paid for acquisitions                                                        |  |   | (4,350,160        | ) |  |   | (18,412   | )
|Net Cash (Used in) Investing Activities                                           |  |   | (5,283,496        | ) |  |   | (738,885  | )
|                                                                                 
|Cash Flows from Financing Activities:                                             |  |   |                   |   |  |   |           |  
|Exercise of stock options, warrants and other                                     |  |   | 20,174            |   |  |   | 243,370   |  
|Purchase of treasury stock                                                        |  |   | (350,792          | ) |  |   | --        |  
|Payments under capital lease obligations                                          |  |   | --                |   |  |   | (11,767   | )
|Net Cash (Used in) Provided by Financing Activities                               |  |   | (330,618          | ) |  |   | 231,603   |  
|                                                                                 
|Net (decrease) increase in cash and cash equivalents                              |  |   | (3,915,593        | ) |  |   | 1,889,557 |  
|Cash and cash equivalents, beginning of period                                    |  |   | 10,072,338        |   |  |   | 7,393,789 |  
|Cash and cash equivalents, end of period                                          |  | $ | 6,156,745         |   |  | $ | 9,283,346 |  
|                                                                                 
|Supplemental Disclosure:                                                          |  |   |                   |   |  |   |           |  
|Cash paid for interest                                                            |  | $ | 140               |   |  | $ | 992       |  
|Cash paid for taxes                                                               |  | $ | 7,485             |   |  | $ | --        |  

---

See Notes to Condensed Consolidated Financial Statements (Unaudited)

3

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of SmartPros Ltd. (SmartPros or the Company) have been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form 10-Q promulgated by the United States Securities and Exchange Commission (the Commission). Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements for the year ended December 31, 2007, and the notes thereto included in the
Companys Annual Report on Form 10-KSB filed with the Commission on March 25, 2008. Results of consolidated operations for the interim periods are not necessarily indicative of a full years operating results. The unaudited condensed
consolidated financial statements herein include the accounts of the Company and its wholly owned subsidiaries, SmartPros Legal and Ethics, Ltd. (SLE) (formerly known as Working Values, Ltd.), Skye Multimedia Ltd. (Skye) and
Loscalzo Associates, Ltd. (Loscalzo) acquired on July 3, 2008. All material inter-company accounts and transactions have been eliminated.

Note 2. Description of Business and Summary of Significant Accounting Policies

The Company, a Delaware corporation, was organized in 1981 as Center for Video Education, Inc. for the purpose of producing educational videos primarily directed to the accounting profession.
SmartPros primary products today are periodic video and Internet subscription services directed to corporate accountants, financial managers and accountants in public practice. With the acquisition of Loscalzo in July 2008 the Company now
offers live instructional training to accountants and accounting firms throughout the United States As a result of acquisitions made in 2000 and 2006, the Company also produces a series of continuing education courses directed to the engineering
profession, as well as a series of courses designed for candidates for the professional engineering exam. As a result of an acquisition made in 2003, the Company develops programs on governance, compliance and ethics for the general corporate
market. As a result of a series of acquisitions made since 2006, the Company also offers educational products for the banking, legal, financial services, insurance and pharmaceutical industries and for information technology
professionals.

SmartPros also produces custom videos, rents out its studios and provides video duplication and technology consulting services.

While the Companys management monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a company-wide basis.
Accordingly, all of the Companys operations are considered by management to be aggregated in one reportable segment.

SmartPros is located in Hawthorne, New York, where it maintains its corporate offices, new media lab, video production studios and tape duplication facilities.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenues from its subscription services as earned. Video and online subscriptions are generally billed on an annual basis, while individual online subscriptions
predominately are paid by credit card at point of sale. Both of these types of sales are deferred at the time of billing or

4

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 2. Description of Business and Summary of Significant Account Policies (contd)

payment and amortized into revenue on a monthly basis over the term of the subscription, generally one year. Engineering products are non-subscription-based and revenue is recognized upon shipment or, in the case of
individual online sales, payment. Revenues from non-subscription services provided to customers, such as website design, video production, consulting services and custom projects are generally recognized on a proportional performance basis where
sufficient information relating to project status and other supporting documentation is available. Contracts may have different billing arrangements resulting in either unbilled or deferred revenue. The Company obtains either signed agreements or
purchase orders from its non-subscription customers outlining the terms and conditions of the sale or service to be provided. In all other cases revenues are recognized after completion and delivery of the product to the customer. Revenue related to
duplication and related services is generally recognized upon shipment or, if later, when the Companys obligations are complete and realization of receivable amounts is assured.

Capitalized Course Costs

Capitalized course costs include the direct cost of internally developing proprietary educational products and materials that have extended useful lives. Amortization of these capitalized
course costs commences when the courses are available for sale from the Companys catalogue. The amortization period is five years, except for the Sarbanes-Oxley courses, which have a three-year amortization period. Other course costs incurred
in connection with any of the Companys monthly subscription products or custom work is charged to expense as incurred. As a result of acquisitions made since 2003, the Company is amortizing $600,000 of course costs over a five-year period.
Included in other intangible assets at September 30, 2008, are capitalized course costs of $159,493 (exclusive of Sarbanes-Oxley courses), net of accumulated amortization of $36,152.

Deferred Revenue

Deferred revenue related to subscription services represents the portion of unearned subscription revenue amortized on a straight-line basis as earned. Deferred revenue related to website
design, video production or technology services represents that portion of amounts billed by the Company, or cash collected by the Company for which services have not yet been provided or earned in accordance with the Companys revenue
recognition policy. The Cognistar Legal division, the Financial Campus division and the Information Technology division recognize revenue eitherimmediately from the direct
sale of courses or on a deferred basis as earned, from the sale of prepaid courses.

Earnings Per Share

Basic earnings or loss per common share is net income or loss, as the case may be, divided by the weighted average number of outstanding shares outstanding of the Companys common stock, par value $.0001 per share
(the Common Stock) during the period. Basic earnings or loss per share exclude any dilutive effects of options, warrants and convertible securities. Diluted earnings per common share include the dilutive effect of shares of Common Stock
issuable under stock options and warrants. Diluted earnings per share are computed using the weighted average number of Common Stock and Common Stock equivalent shares outstanding during the period. Common Stock equivalent shares of 39,200 and
92,309 for the nine months periods ended September 30, 2008 and 2007, include the Companys stock options, warrants and grants that are dilutive.

Stock-Based Compensation

The Companys 1999 Stock Option Plan (the Plan) permits the grant of options and restricted stock awards to employees, directors and consultants. The total number of shares currently reserved for issuance
under the Plan is 752,003, provided that restricted stock awards may not exceed 200,000 shares. As of September 30, 2008, there were 384,650 options outstanding under the Plan, of which 297,677 are currently exercisable, and 66,772 shares of
restricted common stock that were awarded under the Plan were outstanding. As of September 30, 2008, 300,581 shares reserved under the Plan are available for future grants of options and restricted stock awards, provided that only 133,228 of such
shares are available for restricted stock awards. All stock options granted under the Plan

5

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 2. Description of Business and Summary of Significant Account Policies (contd)

have an exercise price equal to the fair market value of the Common Stock on the grant date. Employee stock options generally vest ratably over a four-year period and generally expire 10 years from the grant date. Stock
options granted to non-employee directors vest in the same manner. Restricted stock awards are subject to forfeiture unless certain time and/or performance requirements are satisfied.

SFAS No. 123R requires
the use of a valuation model to calculate the fair value of stock-based awards.
The Company has elected to use the Black-Scholes-Merton option-pricing model,
which incorporates various assumptions including volatility, expected life, interest
rates and dividend yields. The expected volatility is based on the historic volatility
of the Companys Common Stock over the most recent period commensurate with
the estimated expected  life of the Companys stock options, adjusted for
the impact of unusual fluctuations not reasonably expected to recur. The expected
life of an award is based on historical experience and on the terms and conditions
of the stock awards granted  to employees and directors. The Company has recorded
stock-based compensation expense of approximately $145,000 and $27,000
for the nine months periods ending September 30, 2008 and 2007, respectively.

The assumptions used for the nine-month periods ended September 30, 2008 and 2007, and the resulting estimates of weighted-average fair value of options granted during those periods are as
follows:

|                                                         |  |   |                                 |  |   |             
|-------------------------------------------------------- |  | - | ------------------------------- |  | - | ------------
|                                                         |  |   | Nine months ended September 30,
|                                                         |  |   | 2008                            |  |   | 2007        
|Expected life (years)                                    |  |   | 5.5                             |  |   | 5.5  6.0   
|Risk-free interest rate                                  |  |   | 2.8  3.0%                      |  |   | 4.1  4.63% 
|Volatility                                               |  |   | 45.0%                           |  |   | 35.0  45.0%
|Dividend yields                                          |  |   |                                |  |   |            
|Weighted-average fair value of options during the period |  | $ | 2.48                            |  | $ | 2.32        

The following table represents our stock options granted, exercised and forfeited for the nine months ended September 30, 2008:

|                                  |  |           |   |  |   |                |  |                 
|--------------------------------- |  | --------- | - |  | - | -------------- |  | ----------------
|                                  |  |           |   |  |   | Weighted       |  | Weighted        
|                                  |  |           |   |  |   | Average        |  | Average         
|                                  |  | Number of |   |  |   | Exercise Price |  | Remaining       
|Stock Options                     |  | Shares    |   |  |   | per Share      |  | Contractual Term
|                                 
|Outstanding at January 1, 2008    |  | 386,282   |   |  | $ | 4.62           |  | 5.5             
|Granted                           |  | 34,025    |   |  | $ | 5.11           |  |                 
|Exercised                         |  | (9,383    | ) |  | $ | 2.15           |  |                 
|Forfeited/expired                 |  | (26,274   | ) |  | $ | 5.29           |  |                 
|Outstanding at September 30, 2008 |  | 384,650   |   |  | $ | 4.68           |  | 6.0             
|Exercisable at September 30, 2008 |  | 297,677   |   |  | $ | 4.64           |  | 5.6             

Income Tax Benefit

Since January 1, 2006, the Company recognizes the benefit of its deferred income tax asset available from its net operating loss carryforwards, which expire in 2023. This benefit is offset by
any corporate alternative minimum income tax. This resulted in a cumulative net income tax benefit of $1,152,000 through September 30, 2008. The Company believes that in the near future it will have maximized its benefit available from its net
operating loss carryforward and will begin to record an income tax provision that will reduce the deferred tax asset. The Company does not believe that it takes any aggressive income tax positions that would require disclosure under Financial
Interpretation No. 48, Accounting for Uncertainty in Income Taxes.

6

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 3. Acquisition of Loscalzo Associates Ltd.

On July 3, 2008, the Company acquired all of the outstanding shares of Loscalzo for approximately $4.4 million. The Company has not finalized the purchase price allocation.

The followingpro-formaresults for the nine months ended September 30, 2008 and 2007 assume that the Loscalzo
acquisition was made as of January 1, 2007:

|                             |  |   |                                 |  |   |           
|---------------------------- |  | - | ------------------------------- |  | - | ----------
|                             |  |   | Nine Months Ended September 30,
|                             |  |   | 2008                            |  |   | 2007      
|                            
|Revenues                     |  | $ | 13,500,000                      |  | $ | 12,900,000
|Net income                   |  | $ | 725,000                         |  | $ | 220,000   
|Basic net income per share   |  | $ | 0.15                            |  | $ | .04       
|Diluted net income per share |  | $ | 0.15                            |  | $ | .04       

Item 2. Managements Discussion and Analysis or Plan of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included
elsewhere in this report.

We provide learning solutions and/or training materials for: (a) accounting and finance professionals; (b) engineering professionals; (c) legal professionals; (d) the financial services
industry, including, banking, securities and insurance personnel; (e) pharmaceutical industry employees; and (f) information technology professionals. We also provide ethics and compliance training materials for the general corporate community. Our
learning solutions for the accounting, engineering and legal professions are designed to meet the continuing professional education requirements of the various state licensing agencies and professional associations. In addition, we provide
value-added services through our learning management system, marketed under the name SmartPros Professional Education Center, which we believe is key to our revenue growth and future success.

Our learning and training solutions are delivered in multiple formats including videotape, CD-ROM, DVD. They are also available for distribution over the Internet and corporate intranets.
Online subscription sales and delivery are the fastest growing part of our business.

Since February 2006, we have made a number of acquisitions that have enabled us to expand into new markets and enhance our offerings to the markets we historically served.

In 2004, we raised approximately $6 million of net proceeds in an initial public offering. As of September 30, 2008, we have used all of the proceeds, $500,000 to repay indebtedness and
$5.5 million in connection with acquisitions. Our most recent acquisition occurred in July 2008 when we acquired Loscalzo, a leading provider of live continuing education training programs for the accounting profession. The net purchase price
was approximately $4.4 million in cash. Loscalzo delivers seminars and conferences either through co-sponsorships with state CPA societies, accounting firms, association of accounting firms or on their own. We intend to continue our strategy of
acquiring other companies that either compliment or expand our existing product offerings. We will use cash flow from operations, our publicly traded common stock, and, possibly, debt to enhance or augment our ability to consummate transactions.
There are many risks involved with acquisitions. These risks include integrating the acquired business into our existing operations and corporate structure, retaining key employees and minimizing disruptions to our existing business. We cannot
assure you that we will be able to identify appropriate acquisitions opportunities or negotiate reasonable terms or that any acquired business or assets will deliver the stockholder value that we anticipated at the outset.

In the first quarter of 2008 we launched a new division that we call The Hawthorne Center of Excellence. We have engaged a number of academicians on a consulting basis to produce accounting-
and finance-based courses. Upon completion of the requisite number of courses, a user will receive a certificate

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of completion. We will market this product to both our existing clients and the general public. We expect that the product line will have approximately 36 hours of coursework and may also qualify for CPE credits. To date,
we have incurred limited costs relating to this project. However, once the courses have been developed and delivered to us, we will have to convert them to digital format for online delivery and begin our marketing efforts. Accordingly, we expect to
incur significant expenses relating to this project in the second half of 2008. We expect that the first courses will be available for enrollment in the first quarter of 2009.

While we have not experienced any significant impact from the general slowdown of the economy or current global credit crisis, continuing economic deterioration could have a negative impact on
our net revenues and profitability in future periods. For example, recently we have noticed that clients are taking longer to renew their subscriptions.

We have retained a consultant to assist management in connection with their obligation under the Sarbanes-Oxley Act of 2002 to prepare a report on our internal controls and reporting systems.
Management has prepared a list of internal controls and testing of those controls began in the fourth quarter of 2007.

On April 22, 2008, our stock and warrants began trading on the NASDAQ Capital Market under the symbols SPRO and SPROW, respectively.

Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have been prepared according to accounting principles
generally accepted in the United States. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent
assets and liabilities. We evaluate these estimates on an ongoing basis. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We consider the following accounting policies to be the most important to the
portrayal of our financial condition.

Revenues

Most of our revenue is in the form of subscription fees for our monthly accounting update programs or our course library. Other sources of revenue include direct sales of programs on a
non-subscription basis, fees for various services, including website design, software development, tape duplication, video production, video conversion, course design and development, ongoing maintenance of our clients online learning content
management system and licensing fees. Subscriptions are billed on an annual basis, payable in advance and deferred at the time of billing. Individual sales made over the Internet are by credit card only. Renewals are usually sent out 60 days before
the subscription period ends. We usually obtain either a signed agreement or purchase orders from our non-subscription customers outlining the terms and conditions of the sale or service to be provided. Larger transactions are usually dealt with by
contract, the financial terms of which depend on the services being provided. The contracts may have different billing arrangements resulting in either unbilled or deferred revenue. Contracts for development and production services typically provide
for a significant upfront payment and a series of payments based on deliverables specifically identified in the contract.

Revenues from subscription services are recognized as earned, deferred at the time of billing or payment and amortized into revenue on a monthly basis over the term of the subscription.
Revenues from the Loscalzo division are not subscription based and recognized when the seminar or conference is held. Engineering products are non-subscription-based and revenue is recognized upon shipment of the product or, in the case of online
sales, payment. Revenues from the sale of legal courses, through our Cognistar Legal division, are either through direct sales, which are recognized immediately, or through prepaid course usage, in which case revenue is recognized as courses are
taken. Unused course usage is treated as deferred revenue. Revenues from non-subscription services provided to customers, such as website design, video production, consulting services and custom projects, are generally recognized on a proportional
performance basis where sufficient information relating to project status and other supporting documentation is available. Otherwise, these services are recognized as revenues after completion and

8

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delivery to the customer. Duplication and related services are generally recognized upon shipment or, if later, when our obligations are complete and realization of receivable amounts is assured.

The cost of fulfilling our monthly subscription obligation does not exceed this revenue and is booked to expense as incurred. For most of our subscriptions products, there are no significant
additional costs, other than shipping costs, required to complete our obligations, as the material already exists.

We use the term revenue to be differentiated from sales because a majority of our sales are recognized on a deferred basis.

Equipment, intangible assets and leasehold improvements

Fixed and intangible assets are carried at cost less their respective accumulated depreciation/amortization and are depreciated/amortized using the straight-line method over their estimated
useful lives, which range from three to ten years. Leasehold improvements are amortized over the lesser of their estimated lives or the life of the lease. Major expenditures for renewals and improvements are capitalized and amortized over their
useful lives.

Impairment of long-lived assets

We review long-lived assets and certain intangible assets annually for impairment and whenever circumstances and situations change such that there is an indication that the carrying amounts may
not be recovered.

Stock-based compensation

Effective January 1, 2006, we adopted SFAS No. 123R. As a result, compensation expense includes the cost of compensatory stock option grants and stock awards, restricted and unrestricted,
granted to employees, directors and consultants. Options and warrants granted to employees and non-employees are recorded as an expense at the date of grant based on the then estimated fair value of the security in question.

SFAS No. 123R requires the use of a valuation model to calculate the fair value of stock-based awards. We use the Black-Scholes-Merton (BSM) option-pricing model, which incorporates
various assumptions including volatility, expected life, interest rates and dividend yields, to determine the fair value of stock-based awards under SFAS No. 123R. We have elected the modified prospective transition method permitted by SFAS No.
123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options that are ultimately expected to vest as the requisite service is rendered beginning on January 1,
2006.

Results of operations

Comparison of three months ended September 30, 2008 and 2007

The third quarter of 2008 resulted in an operating profit and net income, even though we continue to expend internal resources to develop new products and update existing products in our course
catalogues. The quarters results also include those of Loscalzo, acquired in July 2008.

The following table compares our statement of income data for the three months ended September 30, 2008 and 2007. The trends suggested by this table may not be indicative of future operating
results, which will depend on various factors including the relative mix of products sold (accounting/finance, law, engineering, financial services, sales training, information, technology or compliance and ethics) and the method of sale (video or
online) as well as the timing of custom project work, which can vary from quarter to quarter. In addition, our operating results in future periods may also be affected by acquisitions.

9

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|                                     |  |                                  |           |      |            |       |        |  |   |            |  |        |       |   |  |       |   
|------------------------------------ |  | -------------------------------- | --------- | ---- | ---------- | ----- | ------ |  | - | ---------- |  | ------ | ----- | - |  | ----- | --
|                                     |  | Three months ended September 30,
|                                     |  | 2008                             |           | 2007 |            |       |       
|                                     |  | Amount                           |           |      | Percentage |       | Amount |  |   | Percentage |  | Change |      
|                                     |  |                                  |           |      |            |       |        |  |   |            |  |        |       |   |  |       |   
|Net revenues                         |  | $                                | 4,641,915 |      |            | 100.0 | %      |  | $ | 3,697,724  |  |        | 100.0 | % |  | 25.5  | % 
|Cost of revenues                     |  |                                  | 2,001,564 |      |            | 43.1  | %      |  |   | 1,325,621  |  |        | 35.8  | % |  | 51.0  | % 
|Gross profit                         |  |                                  | 2,640,351 |      |            | 56.9  | %      |  |   | 2,372,103  |  |        | 64.2  | % |  | 11.3  | % 
|Selling, general and administrative  |  |                                  | 1,879,322 |      |            | 40.5  | %      |  |   | 1,747,238  |  |        | 47.3  | % |  | 7.6   | % 
|Depreciation and amortization        |  |                                  | 212,199   |      |            | 4.6   | %      |  |   | 177,757    |  |        | 4.8   | % |  | 19.4  | % 
|Total operating expenses             |  |                                  | 2,091,521 |      |            | 45.1  | %      |  |   | 1,924,995  |  |        | 52.1  | % |  | 8.7   | % 
|Operating income                     |  |                                  | 548,830   |      |            | 11.8  | %      |  |   | 447,108    |  |        | 12.1  | % |  | 22.8  | % 
|Other income, net                    |  |                                  | 46,224    |      |            | 1.0   | %      |  |   | 112,655    |  |        | 3.0   | % |  | (59.0 | %)
|Net income before income tax
benefit |  |                                  | 595,054   |      |            | 12.8  | %      |  |   | 559,763    |  |        | 15.1  | % |  | 6.3   | % 
|Income tax benefit                   |  |                                  | 131,515   |      |            | 2.8   | %      |  |   | 215,792    |  |        | 5.8   | % |  | (39.1 | %)
|Net income                           |  | $                                | 726,569   |      |            | 15.6  | %      |  | $ | 775,555    |  |        | 20.9  | % |  | ( 6.3 | %)

Net revenues

Net revenues for the three months ended September 30, 2008, increased approximately $944,000, or 25.5%, compared to net revenues for the three months ended September 30, 2007. This increase
was primarily due to the acquisition of Loscalzo whose revenues for the quarter were $908,000. The remaining increases came from: (i) the Financial Services Training division, whose net revenues increased $73,000 primarily as a result of
acquisitions made during the third quarter of 2007; (ii) the Technology Training division, which we also acquired in the third quarter of 2007, whose revenues increased by $41,000; (iii) the Working Values Ethics and Compliance division whose
revenues increased $21,000; (iv) the Engineering division whose revenues increased by $16,000, (v) a $69,000 increase in revenues from Skye, one of our wholly-owned subsidiaries; and (vi) an increase of $4,000 from the Congistar
legal division of SmartPros Legal and Ethics, Ltd., another of our wholly-owned subsidiaries. These increases were offset by: (i) a $156,000 reduction in net revenues from our Accounting Education division; (ii) a $13,000 reduction in
revenues from our technology consulting department; and (iii) an $18,000 reduction in revenues from our video production and duplication division. Under our long-standing policy, revenue is credited to the originating department regardless of
the type of service that is performed. For example, a contract to convert videotapes to digital format is credited to the accounting education department if that is where the sale originated, even if the project has nothing to do with accounting.

In the third quarter of 2008, net revenues from our Accounting/Finance division, exclusive of Loscalzo were $2.19 million, or 47% of revenue, compared to $2.34 million, or 63% of
revenue, in the comparable 2007 period. Net revenues from subscription-based products and direct sales of course material on a non-subscription basis, decreased by $35,000 from $2.04 million in the 2007 period to $2.01 million in the
corresponding 2008 period. Net revenues derived from other projects in our Accounting/Finance division that are not subscription based decreased from $298,000 in 2007 to $177,000 in 2008. These revenues fluctuate from period to period, and
are not indicative of any trends.

Online revenues, which previously were primarily derived from the sales of accounting/finance products, continue to be an important factor contributing to our overall revenue growth. However,
many of our other products, including our Cognistar law library, our Financial Campus and banking courses and our technology training products are also delivered online. In the 2008 period, net revenues from online sales of accounting products
accounted for approximately $966,000, or 21% of net revenues, compared to $906,000, or 25% of net revenues in the comparable 2007 period. This represents a 7% increase in absolute dollars. With the acquisitions made in 2007 and prior years,
total online sales were $1.6 million in the 2008 period or 35% of sales as compared to $1.4 million or 38% of sales in the comparable 2007 period, an increase of 15%.

For the three months ended September 30, 2008, Skye generated net revenues of $416,000 compared to $347,000 in the third quarter of 2007. Skyes income is derived primarily from
consulting projects that vary from quarter to quarter. Therefore, quarterly results will vary and revenues are not necessarily indicative of long-term trends. In addition, Skye has made its first sales of its new iReflect product. iReflect is a
joint venture and revenues from the sales of this product will vary depending on a number of factors.

Our Financial Services Training division generated $471,000 of net revenues in the quarter ended September 30, 2008, as compared to revenues of $398,000 in the comparable quarter of
2007. The increase

10

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was due to a number of acquisitions made in the third quarter of 2007 and therefore do not reflect an entire quarter of revenue.

Our Technology Training Group, acquired in August 2007, generated $86,000 of net revenues in the current quarter as compared to $45,000 in the comparable quarter of 2007.

In the quarter ended September 30, 2008, our SmartPros Legal and Ethics Ltd. (SLE) subsidiary had net revenues of $312,000 compared to net revenues of $287,000 for the
quarter ended September 30, 2007. For the 2008 period, $179,000 of SLEs net revenues were generated by the Working Values Ethics and Compliance division, and $133,000 was generated by the Cognistar Legal division. Net revenues
generated by the Working Values Ethics and Compliance division are derived primarily from custom consulting work. Custom work is non-repetitive and subject to market conditions and can vary from quarter to quarter. The Cognistar Legal division
derives its revenue primarily from prepaid usage and direct sales of its courses.

Our Engineering division generated $236,000 of net revenues in the third quarter of 2008 compared to $220,000 in the third quarter of 2007. This increase is not necessarily indicative
of any trends, but is a result of timing differences, in the placement of orders from customers and greater marketing efforts. Sales of our engineering products are not subscription based.

Net revenues from video
production and duplication services were $25,000 and from technology consulting
services were $2,000 for the third quarter of 2008 compared to $43,000
and
$15,000 respectively for the third quarter of 2007. We believe these fluctuations
in net revenues continue to reflect a steady decline in the tape duplication
business. The technology consulting division continues to devote a substantial
 portion of its resources to other divisions of the Company.

Cost of revenues

Cost of revenues includes: (i) production costs i.e., the salaries, benefits and other costs related to
personnel, whether our employees or independent contractors, who are used directly in production, including producing our educational programs and/or upgrading our technology; (ii) royalties paid to third parties; (iii) the cost of materials, such
as videotape and packaging supplies; and (iv) shipping and other costs. There are many different types of expenses that are characterized as production costs and many of them vary from period to period depending on many factors. Generally,
subscription-based products have higher profit margins than non-subscription-based products and online sales, which includes electronic delivery of the product and have higher profit margins than sales involving physical delivery of tapes, disks and
written materials.

Our gross profit margin
decreased for the three months ended September 30, 2008, to 56.9% compared to
64.2% for the comparable period in 2007. This decrease is attributable, in part,
to: (i)  our recent acquisitions, as we added additional personnel in our technology
area; and (ii) changes in our product mix. As a result of the Loscalzo acquisition,
we will see fluctuations in our gross profit percentage as its business is seasonal.
We  have devoted a significant amount of internal resources in developing new
products, re-tooling existing products and technology and integrating our recently
acquired subsidiaries into our various platforms. These costs have not been capitalized
and  are therefore included in our cost of revenues.

Cost of revenues increased by approximately $676,000 in the current quarter from the comparable period last year. The increase is attributable to a number of factors, including costs of
revenues associated with Loscalzo as well as increased salaries and related costs resulting from acquisitions made in 2007, and increased costs of producing various custom projects for clients. We have increased our labor costs as a result of these
acquisitions in order to integrate these products into our various delivery platforms. We have also expended internal labor for the development of the iReflect product, which costs have not been capitalized. We outsource a substantial amount of
technology projects to firms where labor costs are lower than they are in the United States. Our outsourcing strategy has been driven, in part, by increased business generated from Skye and internal projects. We have determined that it is cheaper to
outsource certain projects rather than hire additional personnel. In addition, royalty expense increased by $96,000, primarily as a result of new and increased business and timing differences in reconciling our obligations to the licensors in
both the accounting and engineering sectors.

11

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- Outside labor and direct production costs. Outside labor includes the cost of hiring actors and production personnel such as directors, producers and
cameramen and the outsourcing of non- video technology. The cost of such outside labor, which is primarily video production and technology personnel, increased $55,000, after
capitalizing a portion of these costs. This increase is directly related to work on a number of custom projects. Direct production costs, which are costs related to producing videos,
courses or custom projects other than labor costs, such as the cost of renting equipment and locations and the use of consultants increased $11,000. A substantial portion of this
increase is related to outside consultants who obtain approvals from various state entities for the Financial Campus course catalogue as well as processing the certificates of
completion. (We acquired Financial Campus, which is part of our Financial Services Training division, in the third quarter of 2007.) The variation in direct production costs are
related to the type of production and other projects and do not reflect any trends in our business. As our business grows we may be required to hire additional production
personnel, increasing our cost of revenues.
- Royalties. Royalty expense increased in the three months ended September 30, 2008, compared to the comparable 2007 period by $96,000. This is a
result of increased business from new and existing products and timing differences in reconciling our obligations to the licensors.
- Salaries. Overall, payroll and related costs attributable to production personnel increased by $236,000, which includes Loscalzos salaries
We also capitalized a portion of these costs during the current quarter, which would have resulted in a larger increase. We have reduced salaries and related costs in our video
production and technology consulting departments as a result of decreased business and outsourcing. This is offset by increased salaries and related costs as a result of normal salary
increases and additional personnel acquired as a result of the Loscalzo acquisition and the acquisitions made during the third quarter of 2007.
- Other production related costs. These are other costs directly related to the production of our products such as purchases of materials, travel,
shipping and other. These costs increased by $379,000 from 2007 to 2008. Of this increase, $375,000 was a direct result of the Loscalzo acquisition, which provides live
training throughout the United States and includes the costs of the lecturers as well as travel and related costs.

Selling, general and administrative expenses

General and administrative expenses include corporate overhead, such as compensation and benefits for administrative, sales and marketing and finance personnel, rent, insurance, professional
fees, travel and entertainment and office expenses. General and administrative expenses for the three months ended September 30, 2008, increased $132,000, or 8%, compared to the three months ended September 30, 2007. The increase in general and
administrative expenses is primarily attributable to the various acquisitions we made and to an overall increase in the costs of doing business.

Compensation expense in the 2008 period increased only $37,000 over compensation expense for the 2007 period. Our total number of full-time general and administrative employees at September
30, 2008, was 56 compared to 49 at September 30, 2007. Compensation expense includes stock-based compensation expense of $30,000 for the 2008 period and $17,000 for the 2007 period.

In September 2006 we began to outsource our customer service operations. This function was formerly performed internally. For the quarter ended September 30, 2008, our external customer service
expense was approximately $47,000 compared to $39,000 in the comparable 2007 quarter, as we added an additional service person to handle the Financial Service Training products. Our other general and administrative costs, exclusive of
compensation costs and customer service, increased $55,000. These costs consist of a number of expenses including professional fees, bank and credit card processing fees and also include the operating expenses of Loscalzo for the period.
Although, we make every effort to control our costs, we anticipate that general and administrative expenses will continue to increase as a result of acquisitions and a general increase in such costs as health insurance and travel.

12

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Depreciationandamortization

Depreciation and amortization expenses increased by $34,000 in the third quarter of 2008 compared to the third quarter of 2007 as a result of increased amortization expense from our
capitalized course costs, intangible assets that we acquired and from the depreciation of fixed assets that we acquired and/or purchased in 2007 and 2008. We expect our depreciation and amortization expense to continue to increase as we replace and
add computer equipment and capitalize internal costs for the development of new courses. We have completed the development of our new learning management system and will begin to amortize its cost commencing in the fourth quarter of 2008.

Operating income

For the three months ended September 30, 2008,net income from operations was $548,000 compared to a net operating
income of $447,000 in the comparable period of 2007.

Other income, net

Other income and expense items consist of interest earned on deposits, net of any interest expense. We have no debt. In the quarter ended September 30, 2008, we used approximately $5.3
million of our cash to acquire Loscalzo, purchase treasury shares, purchase additional computer equipment, and capitalize our new LMS and course content during the quarter. That and lower interest rates resulted in a decrease in interest income for
the third quarter of 2008 as compared to the third quarter of 2007 by $66,000. Due to the general decrease in interest rates and cash expended for the acquisition of Loscalzo in July 2008, we anticipate lower interest income in future periods.

Income Tax Benefit

We account for deferred tax benefits available from our net operating loss carryforward pursuant to SFAS No. 109. In the current quarter we recognized $139,000 of such benefits.
To date we have recognized a total of approximately $1.15 million in such benefits.

Net income

For the three months ended September 30, 2008,we recorded net income of $727,000, or $0.15 per share, basic and
diluted, compared to net income of $776,000, or $0.16 and $0.15 per share, basic and diluted, for the three months ended September 30, 2007.Earnings per share for
the 2008 and 2007 periods before the benefit of the deferred tax asset would have been $.12 and $.11 per share basic and diluted, respectively.

Comparison of nine months ended September 30, 2008 and 2007

The following table compares our statement of income data for the nine months ended September 30, 2008 and 2007. The trends suggested by this table may not he indicative of future operating
results, which will depend on various factors including the relative mix of products sold and the method of sale as well as the timing of custom project work, which can vary from quarter to quarter. In addition, our operating results in future
periods may also be affected by acquisitions.

|                                     |  |   |                                 |  |            |   |      |   |            |  |            |   |  |        |   
|------------------------------------ |  | - | ------------------------------- |  | ---------- | - | ---- | - | ---------- |  | ---------- | - |  | ------ | --
|                                     |  |   | Nine months ended September 30, | 
|                                     |  |   | 2008                            |  |            |   | 2007 |   |            |  |           
|                                     |  |   | Amount                          |  | Percentage |   |      |   | Amount     |  | Percentage |   |  | Change |   
|                                    
|Net revenues                         |  | $ | 12,579,448                      |  | 100.0      | % |      | $ | 10,907,885 |  | 100.0      | % |  | 15.3   | % 
|Cost of revenues                     |  |   | 5,557,525                       |  | 44.20      | % |      |   | 4,009,938  |  | 36.8       | % |  | 38.6   | % 
|Gross profit                         |  |   | 7,021,923                       |  | 55.8       | % |      |   | 6,897,947  |  | 63.2       | % |  | 1.8    | % 
|Selling, general and administrative  |  |   | 5,929,489                       |  | 47.1       | % |      |   | 5,287,878  |  | 48.5       | % |  | 12.1   | % 
|Depreciation and amortization        |  |   | 618,049                         |  | 4.9        | % |      |   | 505,021    |  | 4.6        | % |  | 22.4   | % 
|Total operating expenses             |  |   | 6,547,538                       |  | 52.0       | % |      |   | 5,792,899  |  | 53.1       | % |  | 13.0   | % 
|Operating income                     |  |   | 474,385                         |  | 3.8        | % |      |   | 1,105,048  |  | 10.1       | % |  | (57.1  | %)
|Other income, net                    |  |   | 194,817                         |  | 1.5        | % |      |   | 302,422    |  | 2.8        | % |  | (35.6  | %)
|Net income before income tax benefit |  |   | 669,202                         |  | 5.3        | % |      |   | 1,407,470  |  | 12.9       | % |  | (52.5  | %)
|Income tax benefit                   |  |   | 166,515                         |  | 1.3        | % |      |   | 465,792    |  | 4.3        | % |  | (64.3  | %)
|Net income                           |  | $ | 835,717                         |  | 6.6        | % |      | $ | 1,873,262  |  | 17.2       | % |  | ( 55.5 | %)

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Net revenues

Net revenues for the nine-months ended September 30, 2008, increased approximately $1.7 million, or 15.3%, compared to net revenues for the nine months ended September 30, 2007. This
increase was primarily due to the acquisition of Loscalzo that generated approximately $908,000 of revenues. In addition, the remaining increases were a result of the following: (i) the Financial Services Training division, whose net revenues
increased $810,000, primarily as a result of acquisitions in the middle of the third quarter of 2007; (ii) the Engineering division whose net revenues increased $60,000; and (iii) the Technology Training Group, which we also acquired in the
third quarter of 2007 whose net revenues increased by $188,000; and (iv) a net increase from SLE of $13,000. These increases were offset by: (i) a reduction in the net revenues from the accounting and finance division of $88,000, most of
which is from non-subscription based revenues such as advertising and custom work; (ii) a reduction in the aggregate net revenues from the video production and duplication and technology consulting departments of $91,000; and (iii) a reduction
in net revenues from Skye of $128,000.

In the first nine months of 2008, our Accounting/Finance division, including the revenues from Loscalzo, generated net revenues of $7.6 million, representing 60% of total net revenues for
the period. For the comparable period of 2007, this division generated net revenues of $6.8 million, representing 62% of total net revenues. The percentage of Accounting/Finance revenues as compared to total net revenues is down because of
revenues from other non-accounting acquisitions made in the third quarter of 2007 that have increased total revenues. Net revenues attributable to sales of both our subscription-based products, and direct sales of course material on a
non-subscription basis, increased to $6.16 million for the 2008 period compared to $6.1 million for the 2007 period. This increase is due to our continued marketing efforts and the conversion of a number of clients to our online products.
Net revenues generated by Loscalzo for the current period was approximately $908,000. Loscalzos net revenues are seasonal and the third and fourth calendar quarters have traditionally been their largest, as most accountants do not take
training in the first calendar quarter during the tax season. Net revenues from non-subscription-based accounting/finance products decreased from $723,000 in the 2007 period to $536,000 in the 2008 period. These revenues include advertising
and custom work and fluctuate from period to period, and are not indicative of any trends. In addition, certain custom projects for accounting clients have been transferred to other divisions.

Net revenues from online sales, which are primarily accounting/finance products, continue to be an important factor contributing to our overall revenue growth. In the 2008 period, net revenues
from all online sales accounted for approximately $4.8 million, or 38% of net revenues, compared to $3.5 million, or 32% of net revenues, in the comparable 2007 period. This represents a 38% increase in absolute dollars even though as a
percentage of net revenues online sales declined.

For the nine months ended September 30, 2008, Skye generated net revenues of $1.47 million compared to $1.6 million of net revenues in the first nine months of 2007. This decrease is
not attributable to any specific trend.

Net revenues generated by the Financial Services Training division were $1.4 million in the first nine months of 2008. For the comparable 2007 period, the Financial Services Training
division generated net revenues of $622,000. The increase was attributable to the acquisition of Financial Campus in August 2007.

The Technology Training Group acquired in August 2007 generated $233,000 in net revenues during the period, as compared to $45,000 in the comparable 2007 period. This division was also
acquired in the third quarter of 2007.

For the nine months of 2008 and 2007, SLE contributed a total of $1 million to net revenues. For the 2008 period, $585,000 of SLEs net revenues were generated by the Working Values Ethics and Compliance
division and $425,000 was generated by the Cognistar Legal division. For the corresponding 2007 period, the Working Values Ethics and Compliance division and the Cognistar Legal division generated $563,000 and $434,000 of net revenues
respectively. Revenue generated by our Working Values Ethics and Compliance division is derived primarily from custom consulting work. Custom work is non-repetitive and subject to market conditions and can vary from quarter to quarter. The Cognistar
Legal division derives its revenues primarily from prepaid course usage and direct sales of its courses.

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For the nine months of 2008, our Engineering division generated net revenues of $697,000 compared to net revenues of $637,000 in the same 2007 period. This increase is not necessarily
indicative of any trends, but is a result of timing differences in the placement of orders from customers and greater marketing efforts.

Net revenues from video production, duplication and consulting services for the first nine months of 2008 were $138,000 compared to $229,000 for the comparable 2007 period.

Cost of revenues

Our gross profit margin for the nine-month period ended September 30, 2008, was 55.8% compared to 63.2% for the nine-month period ended September 30, 2007. The decrease is due, in part, to our
recent acquisitions and changes in our product mix. We devoted a significant amount of internal resources to develop new products; re-tooling existing products and technology and integrating our recently acquired subsidiaries into our various
platforms. These costs have not been capitalized and are therefore included in our cost of revenues.

Cost of revenues for the nine-month period ended September 30, 2008, was $5.56 million compared to $4.01 million for the nine-month period ended September 30, 2007, an increase of
$1.55 million, or 38.6% . The increase was primarily attributable all of the acquisitions made in the third quarter of 2007 and the Loscalzo acquisition made in the third quarter of this year and other production related costs including the
introduction of Skyes iReflect product.

- Outside labor and direct production costs. Outside labor costs, exclusive of Loscalzo increased $220,000, including the costs of developing
iReflect and modifying existing courses. This increase is directly related to the outsourcing of technology personnel. Direct production costs, which are costs related to producing
videos or courses other than labor costs, such as the cost of renting equipment and locations, increased $306,000. This increase is primarily related to outside consultants for
the Financial Campus products. The variation in direct production costs are related to the type of production and other projects and do not reflect any trends in our business. As
our business grows we may be required to hire additional production personnel, increasing our cost of revenues.
- Royalties. Royalty expense increased in the nine months ended September 30, 2008, compared to the comparable 2007 period by $193,000, primarily as
a result of increased business from new and existing products and timing differences in reconciling our obligations to the licensors.
- Salaries. Overall, payroll and related costs attributable to production personnel increased by $414,000, of which $300,000 relates to 2008 and
2007 acquisitions. We have reduced salaries and related costs in our video production department as a result of decreased business. This is offset by increased salaries and related
costs from Skye and our technology consulting department.
- Other production related costs. Other production costs increased by $447,000 from 2007 to 2008. This is a direct result of costs related to
Loscalzo for the same reasons previously noted above and slight increases in other costs such as shipping.

General and administrative expenses

General and administrative expenses for the nine-month period ended September 30, 2008, were $5.93 million compared to $5.28 million for the nine-month period ended September 30, 2007,
an increase of $641,000, or 12.1% . This increase is primarily attributable to the assumption of various operating expenses as a result of recent acquisitions.

General and administrative costs consist of a number of different types of expenses, including salaries and related costs. Compensation expense for the 2008 period increased $623,000 over
the compensation expense for the 2007 period. Compensation expense includes stock based compensation expense of $108,000 for the 2008 period and $14,000 for the 2007 period.

Although certain operating costs have increased as a result of our acquisitions, such as telephone, office expenses, outsourced customer service and credit card processing costs, these have
been offset by

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decreases in expenses such as professional fees, insurance and rent. We continue to look for other opportunities to reduce our overhead.

Depreciationandamortization

Depreciation and amortization expenses increased by $113,000 in the first nine-months of 2008 compared to the comparable period in 2007 as a result of our recent acquisitions, capitalized
course costs and equipment purchases, offset by a decline in amortization from previously capitalized course costs. We expect our depreciation and amortization expenses to continue to increase due to our recent acquisitions and equipment purchases.
We have not yet determined the amortizable portion of the assets acquired from Loscalzo, all of which are included in goodwill. We have until June 30, 2009 to allocate the purchase price. We have retained an independent consultant to assist in
valuing the amortizable assets acquired. This will also result in increased amortization expense over the next number of years.

Operating income

For the nine months ended September 30, 2008,net income from operations was $474,000 compared to $1,105,000 in
the comparable period of 2007.

Other income, net

For the first nine-months of 2008, we had net interest income of $195,000 compared to net interest income of $302,000 in the first nine months of 2007. This decrease is attributable to
lower interest rates and the use of cash for acquisitions, capital expenditures and the purchase of treasury shares.

Income Tax Benefit

The income tax benefit from the nine-month period ended September 30, 2008, is $174,000 as compared to $475,000 in the 2007 period. This amount is subject to change based on
earnings during the year.

Net income

For the nine-months ended
September 30, 2008,we
recorded a net profit of $836,000, or $0.17 per share, basic
and diluted, compared to a net income of $1,873,000 or $0.38 per share,
basic and $0.37 diluted, for the nine-months ended September 30, 2007.Earnings
per share  before the benefit of the deferred tax asset would have been $0.14
per share basic and $0.13 per share diluted respectively for the current
period.

Liquidity and Capital Resources

Since becoming a public reporting company in October 2004, we have financed our working capital requirements through internally generated funds. In addition, our initial public offering yielded
net proceeds of approximately $6.0 million. With the Loscalzo acquisition in August 2008, we have now used all of the proceeds from the offering to make acquisitions and to repay debt. Our working capital at September 30, 2008 was $2.4
million compared to $5.7 million at December 31, 2007. Our current ratio at September 30, 2008, was 1.4 to 1.0 compared to 1.87 to 1.0 at December 31, 2007. The current ratio is derived by dividing current assets by current liabilities and is a
measure used by lending sources to assess our ability to repay short-term liabilities. The largest component of our current liabilities is deferred revenue, which was $5.2 million at September 30, 2008, compared to $5.3 million at December
31, 2007.

At September 30, 2008, we had cash and cash equivalents of $6.2 million. For the nine-months ended September 30, 2008, we reported a net decrease in cash of $3.9 million, which reflects $1.7 million of cash
provided by operating activities offset by $5.3 million of cash used by investing activities and $331,000 of cash used in financing activities.

The primary components of our operating cash flows are net income adjusted for non-cash expenses, such as depreciation and amortization stock-based compensation and deferred compensation, and
the changes in our operating assets and liabilities, such as accounts receivable, accounts payable and deferred revenues.

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For the 2008 period, cash used in investing activities included capital expenditures of $204,000, primarily computer equipment purchases, $25,000 for the acquisition of engineering course content and $31,000
for internally developed courses. We expended $618,000 for software development costs relating to our learning management system. We also expended approximately $4.4 million to make acquisitions.

We continually upgrade our technology hardware and we do not anticipate any unusual capital expenditures relating to equipment purchases over the next 12 months.

For the 2008 period, cash used in financing activities included $20,000 received from the exercise of stock options and $351,000 expended for the purchase of treasury shares under our
share buy-back program.

Contractual Obligations, Commitments and Contingencies

At September 30, 2008, we had no indebtedness for borrowed money.

As of September 30, 2008, we had commitments under four real estate leases: (i) the leases for our executive offices in Hawthorne, New York; (ii) a lease in Westborough, Massachusetts, where
our Working Values subsidiary and its Cognistar Legal division are based; (iii) a lease in Bridgewater, New Jersey where Skye is based; and (iv) a lease in Red Bank, New Jersey where Loscalzo is based. In connection with our acquisition of Loscalzo
we signed a three-year lease with a total rent payable of $180,000 or $5,000 per month. Our financial commitment under all four leases aggregates approximately $686,000 through June 2011. We also have a number of operating leases for
office equipment, none of which are material individually or in the aggregate.

We believe that our current cash balances together with cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months.

Although we have no current plans to do so, we may issue additional debt or equity securities to satisfy our cash needs. Any debt incurred or issued may be secured or unsecured, at a fixed or
variable interest rate and may contain other terms and conditions that our board of directors deems prudent. Any sales of equity securities may be at or below current market prices. We cannot assure you that we will be successful in generating
sufficient capital to adequately fund our liquidity needs.

Item 3. Quantitative and Qualitative Risk Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.Management, with the participation of our principal executive officer and principal financial officer,
carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the Exchange Act) Rules 13a-15(e) and 15-d-15(e)) as of the end of the
period covered by this quarterly report (the Evaluation Date). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and
forms and (ii) is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.There were no changes in our internal controls over financial reporting that occurred during the
period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material legal proceeding not in the ordinary course of business at this time.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

Except as otherwise set forth in this Item 2, there were no sales of unregistered securities during the period covered by this Report.

Use of Proceeds

On October 19, 2004, our registration statement on Form SB-2, commission file number 333-115454 (the Registration Statement) registering the offer and sale of units (each a
Unit and collectively the Units), each Unit consisting of three shares of our common stock, par value $.0001 per share, and one and one-half common stock purchase warrants, was declared effective by the U.S. Securities
and Exchange Commission. The warrants included in the Units have a term of five years and an exercise price of $7.125 per share. We sold all 600,000 Units covered by the Registration Statement. Paulson Investment Company, Inc. was the
representative of the underwriters of the offering. The gross proceeds to us from the offering were $7.65 million and the net proceeds were $6.0 million. As of the date hereof, we used approximately $0.5 million of the net proceeds to
repay indebtedness and approximately $5.5 million for acquisitions.

Company Purchases of its Equity Securities

On November 6, 2007, the Board of Directors approved a stock buy back program under which $750,000 of our funds was allocated to purchase shares of our common stock. During the current quarter $21,700 was expended
for the purchase of 5,500 shares of our common stock. As of April 22, 2008, our common stock is listed on the NASDAQ Capital Market.

ISSUER PURCHASES OF EQUITY SECURITIES

|                       |  |  |            |  |            |  |               |  |   |                  
|---------------------- |  |  | ---------- |  | ---------- |  | ------------- |  | - | -----------------
|                       |  |  |            |  |            |  | (c)           |  |   | (d)              
|                       |  |  |            |  |            |  | Total Number  |  |   | Maximum          
|                       |  |  |            |  |            |  | of Shares (or |  |   | Number (or       
|                       |  |  |            |  |            |  | Units)        |  |   | Approximate      
|                       |  |  | (a)        |  |            |  | Purchased as  |  |   | Dollar Value) of 
|                       |  |  | Total      |  | (b)        |  | Part of       |  |   | Shares (or Units)
|                       |  |  | Number     |  | Average    |  | Publicly      |  |   | that May Yet Be  
|                       |  |  | of Shares  |  | Price Paid |  | Announced     |  |   | Purchased Under  
|                       |  |  | (or Units) |  | per Share  |  | Plans or      |  |   | the Plans or     
|Period                 |  |  | Purchased  |  | (or Unit)  |  | Programs      |  |   | Programs         
|                      
|Month #1               |  |  |            |  |            |  |               |  |   |                  
|(July 1-31, 2008)      |  |  | --         |  | --         |  | --            |  | $ | 540,516          
|                      
|Month #2               |  |  |            |  |            |  |               |  |   |                  
|(August 1-31, 2008)    |  |  | --         |  | --         |  | --            |  |   |                  
|                      
|Month #3               |  |  |            |  |            |  |               |  |   |                  
|(September 1-30, 2008) |  |  | 5,500      |  | 3.95       |  | 5,500         |  |   |                  
|                      
|Total                  |  |  | 5,500      |  | 3.95       |  | 5,500         |  | $ | 518,816          

18



Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information.

None.

Item 6.Exhibits.

Exhibits:

| |             |                                                                                                                                
| | ----------- | -------------------------------------------------------------------------------------------------------------------------------
| | Exhibit No. | Description                                                                                                                    
| |             |                                                                                                                                
| | 10.1        | Stock Purchase Agreement, dated as of July 3, 2008.(1)                                                                         
| |             |                                                                                                                                
| | 31.1        | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                            
| |             |                                                                                                                                
| | 31.2        | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                            
| |             |                                                                                                                                
| | 32.1        | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
| |             |                                                                                                                                
| | (1)         | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
July 8, 2008.                             

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                        |                              
|----------------------- | -----------------------------
|                        | SmartPros Ltd.               
|                        | (Registrant)                 
|                       
|Date:
November 11, 2008 | /s/ Allen S. Greene          
|                        | Chief Executive Officer      
|                       
|Date:
November 11, 2008 | /s/ Stanley P. Wirtheim      
|                        | Chief Financial Officer      
|                        | (Principal Financial Officer)

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