UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                   FORM 10-QSB

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005


                        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 | |


Number of shares  outstanding of each of the issuer's  classes of common equity,
as of the latest  practicable date: As of November 1, 2005, there were 5,087,441
shares of common stock outstanding.


Transitional Small Business Disclosure Format.

                                 Yes | | No |x|

<PAGE>


                                 SMARTPROS LTD.
                               FORM 10-QSB REPORT

                               September 30, 2005

                                TABLE OF CONTENTS
                                                                            PAGE
PART I - FINANCIAL INFORMATION

     Item 1.  Condensed Consolidated Financial Statements (Unaudited)

              Balance Sheets - September 30, 2005 and December 31, 2004       3

              Statements of Operations for the three-and nine-month
              periods ended September 30, 2005 and 2004                       4

              Statements of Cash Flows for the nine-month periods
              ended September 30, 2005 and 2004                               5

              Notes to Interim Condensed Consolidated Financial Statements    6

     Item 2.  Management's Discussion and Analysis or Plan of Operation       8

     Item 3.  Controls and Procedures                                        17

PART II - OTHER INFORMATION

     Item 1.  Legal Proceedings                                              17

     Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds    17

     Item 3.  Defaults Upon Senior Securities                                18

     Item 4.  Submission of Matters to a Vote of Security Holders            18

     Item 5.  Other Information                                              18

     Item 6. Exhibits                                                        18

SIGNATURES                                                                   19


                           FORWARD-LOOKING STATEMENTS

     Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934 regarding the plans and objectives of management for
future operations and 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 that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving the continued
expansion of our business. Assumptions relating to the foregoing 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 assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance 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. The terms
"we", "our", "us", or any derivative thereof, as used herein refer to SmartPros
Ltd., a Delaware corporation, and its predecessors.

                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SMARTPROS LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

                                                     SEPTEMBER 30,  DECEMBER 31,
                                                          2005          2004
                                                      (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Current Assets:
   Cash and cash equivalents                          $ 5,160,011   $ 1,756,991
   Investment securities available-for-sale             2,000,000     5,000,000
   Accounts receivable, net of allowance for
      doubtful accounts of $71,000                        838,131       985,259
   Prepaid expenses and other current assets              141,334       175,270
                                                      -----------   -----------
          TOTAL CURRENT ASSETS                          8,139,476     7,917,520
                                                      -----------   -----------

Property and equipment, net                               530,603       544,176
Goodwill                                                   53,434        53,434
Other intangible, net                                   2,232,414     2,482,653
Other assets, including restricted cash of $150,000       150,000       167,196
                                                      -----------   -----------
                                                        2,966,451     3,247,459
                                                      -----------   -----------
          TOTAL ASSETS                                $11,105,927   $11,164,979
                                                      ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                   $   215,186   $   358,867
   Accrued expenses                                       272,627       373,993
   Current portion of capital lease and equipment
      financing obligations                                40,901        56,119
   Deferred revenue                                     3,386,564     3,741,466
                                                      -----------   -----------
          TOTAL CURRENT LIABILITIES                     3,915,278     4,530,445
                                                      -----------   -----------

Long-Term Liabilities:
   Capital lease and equipment financing obligations       33,398        64,020
   Other liabilities                                      161,367       164,907
                                                      -----------   -----------
          TOTAL LONG-TERM LIABILITIES                     194,765       228,927
                                                      -----------   -----------


Commitments and Contingencies
Stockholders' Equity:
   Convertible preferred stock, $.001 par value,
      authorized 1,000,000 shares,
      no shares issued and outstanding                         --            --
   Common stock, $.0001 par value, authorized
      30,000,000 shares, 5,145,447 issued and
      5,087,441 outstanding at September 30, 2005;
      5,140,545 issued and 5,082,539 outstanding
      at December 31, 2004                                    514           514
   Common stock in treasury, at cost - 58,006 shares     (220,000)     (220,000)
   Additional paid-in capital                          16,418,034    16,407,495
   Accumulated (deficit)                               (8,917,164)   (9,454,902)
                                                      -----------   -----------
                                                        7,281,384     6,733,107
   Deferred compensation                                  (85,500)     (127,500)
   Note receivable from stockholder                      (200,000)     (200,000)
                                                      -----------   -----------
      TOTAL STOCKHOLDERS' EQUITY                        6,995,884     6,405,607
                                                      -----------   -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $11,105,927   $11,164,979
                                                      ===========   ===========

--------------------------------------------------------------------------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                       3
<PAGE>


SMARTPROS LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED            THREE MONTHS ENDED
                                                       SEPTEMBER 30,                 SEPTEMBER 30,
                                                 -------------------------     -------------------------
                                                    2005           2004           2005           2004
--------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C>
Net Revenues                                     $7,972,330     $7,464,787     $2,416,338     $2,872,491
Cost of Revenues                                  3,174,468      2,879,028        933,524      1,192,040
                                                 ----------     ----------     ----------     ----------
   Gross Profit                                   4,797,862      4,585,759      1,482,814      1,680,451
                                                 ----------     ----------     ----------     ----------

Operating Expenses:
   Selling, general and administrative            3,952,854      3,524,250      1,242,024      1,168,841
   Depreciation and amortization                    434,898        516,858        148,999        170,632
                                                 ----------     ----------     ----------     ----------
                                                  4,387,752      4,041,108      1,391,023      1,339,473
                                                 ----------     ----------     ----------     ----------
   Operating Income                                 410,110        544,651         91,791        340,978
                                                 ----------     ----------     ----------     ----------

Other Income (Expense):
   Interest income                                  134,142         11,298         57,120          3,980
   Interest expense                                  (6,514)       (54,970)        (1,384)       (18,195)
                                                 ----------     ----------     ----------     ----------

                                                    127,628        (43,672)        55,736        (14,215)
                                                 ----------     ----------     ----------     ----------

Income before provision for income taxes            537,738        500,979        147,527        326,763

Provision for Income Taxes                               --             --             --             --
                                                 ----------     ----------     ----------     ----------
Net Income                                       $  537,738     $  500,979     $  147,527     $  326,763
                                                 ==========     ==========     ==========     ==========

Net Income  Per Common Share:
   Basic net income per common share             $      .11     $      .19     $      .03     $      .13
                                                 ==========     ==========     ==========     ==========

   Diluted net income per common share           $      .11     $      .15     $      .03     $      .10
                                                 ==========     ==========     ==========     ==========

Weighted Average Number of Shares Outstanding
   Basic                                          5,084,240      2,580,478      5,085,546      2,580,478
                                                 ==========     ==========     ==========     ==========

   Diluted                                        5,117,117      3,244,262      5,115,180      3,244,262
                                                 ==========     ==========     ==========     ==========
</TABLE>


--------------------------------------------------------------------------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                       4
<PAGE>


SMARTPROS LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                          NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                       ------------------------
                                                           2005          2004
--------------------------------------------------------------------------------
Cash Flows from Operating Activities:
   Net income                                          $   537,738    $ 500,979
                                                       -----------    ---------
   Adjustments to reconcile net income to net cash
        provided by operating activities:
      Depreciation and amortization                        434,898      516,858
      Reduction in deferred compensation                    42,000           --
   Changes in operating assets and liabilities:
      (Increase) decrease in operating assets:
         Accounts receivable                               147,128     (295,546)
         Prepaid expenses and other current assets          33,936     (525,474)
         Other assets                                       17,196       10,684
      (Decrease) increase in operating liabilities:
          Accounts payable and accrued expenses           (245,047)     304,652
          Deferred revenue                                (354,902)     165,966
          Other liabilities                                 (3,540)          --
                                                       -----------    ---------
   Total adjustments                                        71,669      177,140
                                                       -----------    ---------
Net Cash Provided by Operating Activities                  609,407      678,119
                                                       -----------    ---------

Cash Flows from Investing Activities:
   Reduction in investment securities
      available-for-sale                                 3,000,000           --
   Acquisition of property and equipment                  (171,087)     (72,978)
                                                       -----------    ---------
Net Cash Provided by (Used in) Investing Activities      2,828,913      (72,978)
                                                       -----------    ---------

Cash Flows from Financing Activities:
   Proceeds from exercise of stock option                   10,540           --
   Payments on note payable - treasury stock                    --      (54,000)
   Proceeds from issuance of long-term debt                     --       36,174
   Payments on long-term debt                                   --     (196,000)
   Payments under capital lease obligations                (45,840)     (63,959)
                                                       -----------    ---------
Net Cash Used in Financing Activities                      (35,300)    (277,785)
                                                       -----------    ---------

Net Increase in Cash and Cash Equivalents                3,403,020      327,356
Cash and Cash Equivalents, beginning of period           1,756,991      546,993
                                                       -----------    ---------
Cash and Cash Equivalents, end of period               $ 5,160,011    $ 874,349
                                                       ===========    =========

Supplemental Disclosure:
   Cash paid for interest                              $     6,514    $  54,025
                                                       ===========    =========

Supplemental Disclosure of Non Cash Investing
   and Financing Activities:
   Equipment purchased under capital leases            $        --    $  33,728
                                                       ===========    =========


--------------------------------------------------------------------------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                       5
<PAGE>


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"), included herein have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB. 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, 2004 and the notes thereto
included in the Company's Annual Report on Form 10-KSB filed with the United
States Securities and Exchange Commission on March 25, 2005. 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 subsidiary, Working Values, Ltd. 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. In
addition, 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. Through its Working Values
subsidiary, the Company develops programs on governance, compliance and ethics
for corporations. SmartPros also produces custom videos and rents out its
studios. SmartPros is located in Hawthorne, New York, where it maintains its
corporate offices, new media lab, video production studios and tape duplication
facilities. 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.

         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 subscriptions are generally billed on an annual basis, while
on-line subscriptions are paid by credit card at point of sale. Both of these
types of sales are deferred at the time of billing or payment and amortized into
revenue on a monthly basis over the term of the subscription, which is generally
one year. Engineering products are non-subscription based and revenue is
recognized upon shipment or, in the case of on-line 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. The
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. Otherwise, such services are recognized as
revenues after completion and delivery to the customer. Duplication and related
services are generally recognized upon shipment or, if later, when the Company's
obligations are complete and realization of receivable amounts is assured.

                                       6
<PAGE>


NOTE 2.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONT'D)

         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 with the
realization of course revenues. The amortization period is three years. Other
course costs incurred in connection with any of the Company's monthly
subscription products or custom work is charged to expense as incurred. Included
in other intangible assets at September 30, 2005 are capitalized course costs of
$217,502, net of accumulated amortization of $105,765.

         DEFERRED REVENUE

         Deferred revenue related to subscription services represents the
portion of unearned subscription revenue, which is amortized on a monthly,
straight-line basis, as earned. Deferred revenue related to website design and
video production 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.

         CAPITAL STOCK

         On September 10, 2004, the Company filed an amendment to its
Certificate of Incorporation, effecting a reverse stock split in which each
issued share of its Common Stock was converted into 0.5169925 new shares. The
financial statements reflect this reverse split.

         EARNINGS (LOSS) 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 common shares outstanding
during the year. 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, warrants and the Company's Series A Convertible Preferred Stock.
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 32,877 and 29,634 for the nine- and
three-month periods ended September 30, 2005 and 2004 respectively, include the
Company's stock options and warrants that are dilutive.

         STOCK-BASED COMPENSATION

         Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying Common Stock at date of grant.

         The following table illustrates the effect on net earnings per share if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123 "Accounting for Stock-Based Compensation":

                                       7
<PAGE>


NOTE 2.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONT'D)

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED          NINE MONTHS ENDED
                                                       SEPTEMBER 30,              SEPTEMBER 30,
                                                   ----------------------    ----------------------
                                                      2005         2004         2005         2004
                                                   ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>
Net income as reported                             $ 147,527    $ 326,763    $ 537,738    $ 500,979

Add: Stock-based employee compensation expense
     included in reported net income (loss),
     net of related tax effects                           --           --           --           --

Deduct: Stock-based compensation expense
        determined under fair value-based method      (7,606)     (39,038)     (22,818)    (117,114)
                                                   ---------    ---------    ---------    ---------

Pro forma net income                               $ 139,921    $ 287,725    $ 514,920    $ 383,865
                                                   =========    =========    =========    =========

Basic earnings per share, as reported              $     .03    $     .13    $     .11    $     .19
                                                   =========    =========    =========    =========

Diluted earnings per share, as reported            $     .03    $     .10    $     .11    $     .15
                                                   =========    =========    =========    =========

Pro forma basic earnings per share                 $     .03    $     .11    $     .10    $     .15
                                                   =========    =========    =========    =========

Pro forma diluted earnings per share               $     .03          .09          .10          .12
                                                   =========    =========    =========    =========
</TABLE>


         The fair value of options granted in 2004 were estimated on the date of
grant using the Black-Scholes Option Pricing model with an average assumed
risk-free interest rate of 4.0%, an average expected life of 10 years, an
expected volatility of close to zero and the assumption that no dividends will
be paid. The weighted average fair value per option of options granted in 2004
was $1.40. In October 2004, subsequent to the Company's initial public offering,
the Company granted 22,925 options to employees at an exercise price of $4.27.
On May 10, 2005 the Compensation Committee awarded a grant of 10,000 options to
the Chairman of the Audit Committee of which 2,500 vested immediately and 2,500
will vest on each May 10, 2006 - 2008. The options have an exercise price of
$4.00 each. In April 2005, an option to purchase 2,801 shares was exercised at a
price of $2.15 per share. On August 8, 2005 the Compensation Committee granted
4,300 options to various employees of which 1,075 vested immediately and 1,075
will vest on each of August 8, 2006-2008. These options have an exercise price
of $4.15. In April and September 2005, options to purchase 2,801 and 2,101
shares respectively were exercised at a price of $2.15 per share. On October 3,
2005, the compensation committee granted an employee an additional 15,000 stock
options. These options have an exercise price of $3.44, which vested 3,750
shares on grant date and vest 3,750 on each of October 3, 2006-2008.

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.
CERTAIN STATEMENTS IN THIS DISCUSSION AND ELSEWHERE IN THIS REPORT CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
AND EXCHANGE ACT OF 1934. SEE THE "FORWARD LOOKING STATEMENT" IMMEDIATELY
FOLLOWING THE TABLE OF CONTENTS. BECAUSE THIS DISCUSSION INVOLVES RISK AND
UNCERTAINTIES, OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS.

         We provide learning solutions for accounting/finance and engineering
professionals, as well as ethics and compliance training for the general
corporate community. We offer "off-the-shelf" courses and custom designed
programs with delivery methods suited to the specific needs of our clients. Our
customers include approximately half of the Fortune 500 companies and a large
number of midsize and small companies.

                                       8
<PAGE>

         Our learning solutions for professionals are designed to meet the
initial and ongoing licensing and continuing professional education requirements
imposed by state licensing agencies and professional standards organizations.
Most of the courses in our accounting/finance library are designed to meet these
standards and adhere to the requirements of all state boards of accountancy as
well as those of the American Institute of Certified Public Accountants,
Institute of Management Accountants, Institute of Internal Auditors, the
Association of Finance Professionals, and the Association of Government
Accountants. In the engineering area, most of our courses have been approved for
continuing professional development credit by one or more organizations,
including the American Society of Civil Engineers, the National Society of
Professional Engineers, the American Council of Engineering Companies, the
American Society of Mechanical Engineers and the Project Management Institute.
Our corporate ethics and compliance training programs are designed to align
corporate behavior with applicable laws and regulations, as well as generally
accepted codes of conduct. So, for example, our programs may deal with issues
prompted by the Sarbanes-Oxley Act of 2002 and the U.S. Federal Sentencing
Guidelines, as well as laws addressing workplace misconduct such as harassment.

         Our products are available in print, videotape and digital formats.
Digital format can be delivered on CD-ROM, DVD or over the Internet. The
Internet has become our fastest growing delivery channel, attracting new and
existing subscribers. This has had a positive effect on our revenue as well as
our gross margins since online sales eliminate the cost for materials, i.e.,
videotapes, packaging and shipping.

         We believe that our learning solutions effectively address the needs of
professionals and companies seeking comprehensive learning resources for
themselves and their employees. Our solutions are flexible, cost-efficient and
easy to use. They alleviate many of the inefficiencies associated with
traditional classroom training, such as travel costs, scheduling difficulties
and opportunity costs. In addition, we also offer our clients a learning content
management system, which allows the professionals and their employers to track
usage and performance.

         Accounting/finance continuing professional education was our original
market. This market covers corporate accountants and financial managers as well
as accountants in public practice. Initially, our accounting/finance programs
were delivered on videotape. In 1998, we recognized that, to remain competitive,
we would have to make our products available in digital format for distribution
over the Internet and corporate intranets. Towards that end, we hired
information technology professionals to build a new media department that, among
other things, would convert our programs to digital format for online delivery
and who would oversee the development of a learning content management system.

         To take advantage of financing opportunities that were then available
to technology companies, we were advised to pursue an acquisition strategy that
focused on building revenues and diversifying into new markets. Based on
assurances we received from a specific financing source, we identified several
viable acquisition targets, including Virtual Education Corporation, or VEC, a
provider of license preparation and continuing professional development programs
for engineers. However, the dynamics of the capital markets changed and our
financing source was unable to raise any funds. At that point, we had already
consummated our acquisition of VEC.

         The acquisition of VEC put a tremendous strain on our internal capital
resources. Although our accounting division continued to grow and generate
operating profits, overall we began losing money. In the four-year period
beginning in 2000 and ending in 2003 we generated over $10 million of losses. In
2001, we hired a new chief executive officer, Allen S. Greene, who had been the
chief operating officer of a publicly traded specialty finance company. Mr.
Greene successfully refocused on our core competencies, cut overhead,
substantially reduced debt and raised additional equity capital. In 2004, we
recorded our first annual profit since 1999 and completed our initial public
offering.

         Since 2001, we have successfully completed two key acquisitions. First,
in May 2001, we acquired substantially all of the assets of Pro2Net. In so
doing, we acquired a library of "how to" programs, a functional learning content
management system that we could market with our programs, customer lists, trade
names and computer hardware. As a result, we were able to terminate a contract
with a third party to develop a learning content management system, saving us
approximately $2 million in development costs. Our ability to provide the
value-added services represented by the learning management system is, we
believe, key to our recent revenue growth and future success.

         Second, in April 2003, we acquired a library of custom-designed
integrity-based courses and other assets from Working Values Group Ltd., a
company that specialized in building custom-designed learning

                                       9
<PAGE>


solutions for the general corporate community using traditional and alternative
instructional techniques. As part of the transaction, we also hired the
development team from Working Values Group. With the increased focus on
corporate governance and ethics and the passage of the Sarbanes-Oxley Act of
2002 along with new rules and regulations adopted by the national stock
exchanges and markets, we believe that there is a significant growth opportunity
in supplying training that addresses corporate culture as a significant risk
factor.

         The aggregate purchase price for the Pro2Net and Working Values Group
assets was $1.1 million in cash, stock (based on the value at the time of the
acquisition) and assumption of liabilities. In comparison, the sellers of these
assets had collectively raised more than $30 million to develop these assets and
fund their operations.

         We measure our operations using both financial and other metrics. The
financial metrics include revenues, gross margins, operating expenses and income
from continuing operations. Other key metrics include (i) revenues by sales
source, i.e., accounting/finance, engineering, Working Values and video
production and e-commerce. (ii) online sales, (iii) cash flows and (iv) EBITDA.

         Some of the most significant trends affecting our business are the
following:

      o  The increasing recognition by professionals and corporations that they
         must continually improve their skills and those of their employees in
         order to remain competitive.

      o  The plethora of new laws and regulations affecting the conduct of
         business and the relationship between a corporation and its employees.

      o  The increased competition in today's economy for skilled employees and
         the recognition that effective training can be used to recruit and
         train employees.

      o  The development and acceptance of the Internet as a delivery channel
         for the types of products and services we offer.

         In October 2004 we successfully completed our initial public offering.
The net proceeds to us from the offering were $6.0 million of which we
immediately used $500,000 to repay our outstanding indebtedness other than
capital leases. The remaining proceeds from the public offering are invested in
either money markets or short-term interest bearing securities. We intend to use
the remaining net proceeds, $5.5 million, cash from operations and our publicly
traded stock to execute our growth strategy, which contemplates acquiring other
companies and businesses that provide learning solutions. We intend to focus on
acquisitions that will allow us to increase the breadth and depth of our current
product offerings, including the general corporate market for compliance,
governance and ethics. We will also consider acquisitions that will give us
access to new market segments such as insurance, health care and financial
services. We prefer acquisitions that are accretive in the short term, as
opposed to those that are dilutive, but ultimately the decision will be based on
maximizing shareholder value rather than short-term profits. The size of the
acquisitions will be determined, in part, by our size, the capital available to
us and the liquidity and price of our stock. We may use debt to enhance or
augment our ability to consummate larger 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 shareholder value that we anticipated at the
outset. At the present time, we have no agreements or commitments for any
acquisitions. We cannot assure you that we will successfully complete any
acquisitions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The discussion and analysis of our financial condition and results of
operations is based on our condensed 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.

                                       10
<PAGE>


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 one of 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. 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. Engineering products are non-subscription
based and revenue is recognized upon shipment of the product or, in the case of
on-line 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. Otherwise, these services are recognized as revenues
after completion and 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. Working Values
recognizes revenue on a proportional performance 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 whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recovered.

STOCK-BASED COMPENSATION

         We have adopted the disclosure only requirements of SFAS No. 123. As a
result, no compensation costs are recognized for stock options granted to
employees. Options and warrants granted to non-employees are recorded as an
expense at the date of grant based on the then estimated fair value of the
security in question.

                                       11
<PAGE>


RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

         The following table compares our statement of operations data for the
three months ended September 30, 2005 and 2004. 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 (accounting/finance,
engineering or corporate training) and the method of sale (video or online).

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED SEPTEMBER 30,
                                       ---------------------------------------------------------------
                                                  2004                      2005
                                       -------------------------   -----------------------
                                         AMOUNT       PERCENTAGE     AMOUNT     PERCENTAGE    CHANGE
                                       -----------    ----------   -----------  ----------   ---------
<S>                                    <C>              <C>        <C>              <C>          <C>
Net revenues                           $ 2,872,491      100.0 %    $ 2,416,338      100.0%      (15.9%)
Cost of revenues                         1,192,040       41.5 %        933,524       38.6%      (21.7%)
                                       -----------     ---------   -----------     --------   --------
Gross profit                             1,680,451       58.5 %      1,482,814       61.4%      (11.8%)
                                       -----------     ---------   -----------     --------   --------
Selling, general and administrative      1,168,841       40.7 %      1,242,024       51.4%        6.3%
Depreciation and amortization              170,632        5.9 %        148,999        6.2%      (12.7%)
                                       -----------     ---------   -----------     --------   --------
Total operating expenses                 1,339,473       46.6 %      1,391,023       57.6%        3.8%
                                       -----------     ---------   -----------     --------   --------
Operating income                           340,978       11.9 %         91,791        3.8%      (73.1%)
Other (expense), net                       (14,215)      (0.5)%         55,736        2.3%     (492.1%)
                                       -----------     ---------   -----------     --------   --------
Net income                             $   326,763       11.4 %    $   147,527        6.1%      (54.9%)
                                       -----------     ---------   -----------     --------   --------
</TABLE>


     NET REVENUES

         Net revenues for the quarter ended September 30, 2005 decreased 15.9%
compared to net revenues for the three months ended September 30, 2004. This was
primarily due to decreased revenues from our Working Values division. To offset
the decline in consulting revenues, Working Values is concentrating on building
its "Learning Moments" ethics-training products. Online sales continue to be an
important factor contributing to our overall revenue growth, a trend that began
in 2003. In the 2005 period, net revenues from online sales accounted for
approximately $688,000, or 28% of net revenues. In the 2004 period, net revenues
from online sales accounted for $627,000, or 22% of net revenues.

         In the third quarter of 2005, net revenues from our accounting/finance
and related products were $1.8 million or 75% of sales, compared to $1.6 million
or 56% of sales in the comparable 2004 period. This increase is due to various
factors, including converting a number of our existing video customers to our
online services, partnering with more professional organizations and our
continued marketing efforts to increase sales.

         Net revenues from sales of our engineering products, which are not
subscription-based, were $95,000 in the third quarter of 2005 compared to
$133,000 in the third quarter of 2004. This decrease is not indicative of any
trends in this division, but is a result of timing differences in the placement
of orders from certain customers.

         Net revenues from video production, duplication, consulting and
e-commerce services for the third quarter of 2005 were $365,000 compared to
$495,000 for the third quarter of 2004. This decrease is primarily attributable
to the continual decline in our video duplication business and the completion of
certain custom jobs in both the technology and video production areas. 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. Custom work is non-repetitive and subject to market
conditions and can vary from quarter to quarter.

         For the third quarter of 2005 Working Values contributed $101,000 to
net revenues compared to $619,000 in the third quarter of 2004. We acquired
Working Values in 2003 with the intent of developing off-the-shelf ethics
training course content for the general corporate market that we could either
license or sell on subscription basis. However, in 2004, Working Values devoted
a significant portion of its resources to develop custom designed ethics
training courses for two clients. In 2005, Working Values has renewed its focus
on developing and licensing standardized training modules. Working Values
intends to release its first course in the fourth quarter.

                                       12
<PAGE>


      COST OF REVENUES

         Cost of revenues includes 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; royalties paid to third parties; the cost of
materials, such as videotape and packaging supplies; and shipping 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.

         Compared to the third quarter of 2004, cost of revenues in the third
quarter of 2005 decreased by $259,000. The decrease was primarily attributable
to both reduced personnel and sub-contracted labor costs related to various
projects in the technology department. The expenses that showed the greatest
variations from 2004 to 2005 and the reasons for those variations were as
follows:

      o  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 out-sourcing of non-video technology.
         The cost of such outside labor, which is primarily video production and
         technology personnel, decreased $357,000. This decrease is directly
         related to the completion of a number of custom technology and video
         projects. Direct production costs, are costs related to producing
         videos other than labor costs, such as the cost of renting equipment
         and locations, increased $5,000. These variations are related to the
         type of video 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.

      o  ROYALTIES. Royalty expense increased in the 2005 period compared to the
         2004 period by $44,000. This increase is due to a growth of sales in
         our accounting products. During the first quarter of 2004 the Company
         had over-accrued its royalty expense because some of our partners were
         behind in providing us with the necessary sales information. The
         adjustment for this over-accrual is reflected in lower costs for the
         third quarter of 2004.

      o  SALARIES. Overall, payroll and related costs attributable to production
         personnel increased by $101,000. Most of the increase - I.E., $78,000 -
         was attributable to our technology group.

      o  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 were constant from 2004 to
         2005, except for a $50,000 reduction in travel related costs from 2004,
         which was directly related to a consulting contract and charged to a
         customer.


      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 in the third quarter of
2005 were $73,000 higher than they were in 2004, and as a percentage of net
revenues they increased by 6%. Part of the increase is attributable to the costs
of being a public company, such as legal, accounting, board member fees,
investor relations, insurance and regulatory expenses, some of which we did not
have in the third quarter of 2004. The increase in these expenses was
approximately $45,000. In addition, personnel costs increased by $36,000, which
is primarily due to increases in our accounting department necessary to our
being a public company. Selling costs, which includes advertising, promotion,
travel and entertainment, increased by $9,000. These increases were offset by
reductions in various other operating costs of approximately $17,000. Although,
we make every effort to control our costs, we anticipate that general and
administrative expenses will continue to increase primarily as a result of
increased accounting, legal and insurance costs, attributable to the fact that
we are now a public company.

      DEPRECIATION and AMORTIZATION

         Depreciation and amortization expenses decreased by $22,000 in the
third quarter of 2005 compared to the second quarter of 2004 as a number of our
assets become fully depreciated. We expect our depreciation and amortization
expenses on our current assets to continue to decrease as many of our older
assets are either fully or almost fully depreciated and we do not anticipate
replacing them at the same rate.

                                       13
<PAGE>


      INCOME FROM OPERATIONS

         For the three months ended September 30, 2005 net income from
operations was $92,000 compared to $341,000 in the comparable period of 2004.
This decrease is primarily attributable to the decline in revenues from Working
Values consulting jobs that was partially offset by decreases in costs related
to these types of projects and from the increased costs related to our being a
public company. Our quarterly earnings are affected by the mix of custom
projects compared to subscription and education-based sales.

      OTHER INCOME/EXPENSES

         Other income and expense items consist of interest paid on indebtedness
and interest earned on deposits. As a result of the successful completion of our
initial public offering, we were able to retire all of our debt (other than
capital lease obligations), reducing our interest expense. At the same time,
since we have not yet used the balance of the net proceeds from our initial
public offering, our interest income has increased. As a result, for the third
quarter of 2005 we had net interest income of $56,000 compared to a net interest
expense for the third quarter of 2004 of $14,000.

      NET INCOME

         For the three months ended September 30, 2005, we recorded a net profit
of $147,527, or $.03 per share, basic and diluted, compared to a net income of
$326,763 or $.13 and $.10 per share, basic and diluted, for the three months
ended September 30, 2004. The decrease in net profit is attributable to
decreased revenue and an increase in operating costs. The decrease in earnings
per share is a result of the additional shares issued in October 2004 in
connection with our public offering and lower earnings.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

         The following table compares our statement of operations data for the
nine months ended September 30, 2005 and 2004. 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,
engineering or corporate training) and the method of sale (video or online).

<TABLE>
<CAPTION>
                                                      NINE MONTHS ENDED SEPTEMBER 30,
                                       -------------------------------------------------------------
                                                 2004                      2005
                                       ------------------------   ----------------------
                                          AMOUNT     PERCENTAGE     AMOUNT    PERCENTAGE     CHANGE
                                       -----------   ----------   ----------  ----------   ---------
<S>                                    <C>             <C>        <C>           <C>            <C>
Net revenues                           $ 7,464,787     100.0 %    $7,972,330    100.0%         6.8 %
Cost of revenues                         2,879,028      38.6 %     3,174,468     39.8%        10.3 %
                                       -----------     -------    ----------    ------     ---------
Gross profit                             4,585,759      61.4 %     4,797,862     60.2%         4.6 %
                                       -----------     -------    ----------    ------     ---------
Selling, general and administrative      3,524,250      47.2 %     3,952,854     49.6%        12.2 %
Depreciation and amortization              516,858       6.9 %       434,898      5.5%       (15.9)%
                                       -----------     -------    ----------    ------     ---------
Total operating expenses                 4,041,108      54.1 %     4,387,752     55.0%         8.6 %
                                       -----------     -------    ----------    ------     ---------
Operating income                           544,651       7.3 %       410,110      5.1%        24.7 %
Other (expense), net                       (43,672)      (.6)%       127,628      1.6%      (392.2)%
                                       -----------     -------    ----------    ------     ---------
Net income                             $   500,979       6.7 %    $  537,738      6.7%         7.3 %
                                       -----------     -------    ----------    ------     ---------
</TABLE>

      NET REVENUES

         Net revenues for the nine months ended September 30, 2005 increased
6.8% compared to net revenues for the nine months ended September 30, 2004.
Online sales continue to be an important factor contributing to our overall
revenue growth, a trend that began in 2003. In the 2005 period, net revenues
from online sales accounted for approximately $2.1 million, or 26% of net
revenues. In the 2004 period, net revenue from online sales accounted for $1.8
million, or 24% of net revenues.

         For the nine months ended September 30, 2005, net revenues from sales
of accounting and finance products grew in both real dollars and as a percentage
of total net revenues compared to the nine months ended September 30, 2004. In
the first nine months of 2005, net revenues from sales of accounting/finance
products were $5.9 million, or 72.8% of net revenues. For the first nine months
of 2004, net revenues from sales of accounting/finance products were $4.9
million, or 65.6% of net revenues. These increases are due


                                       14
<PAGE>


in part to an increased level of sales in the subscription-based products and a
development fee and usage charge related to a custom designed course for one
customer.

         Net revenues from sales of engineering products, which are not
subscription-based, increased in absolute terms but were relatively flat as a
percentage of total net revenues. For the nine months ended September 30, 2005,
net revenues from sales of engineering products were $418,000 or 5.2% of net
revenues. For the nine months ended September 30, 2004, net revenues from sales
of engineering products were $380,000, or 5.1% of net revenues. The increase in
net revenue from sales of engineering products is primarily attributable to our
continuing effort to market existing products.

         For the first nine months of 2005, Working Values contributed $287,000
to net revenues compared to $994,000 for the first nine months of 2004. As
previously described, we acquired Working Values in 2003 with the intent of
building a library of off-the-shelf ethics based training courses that would
generate license and/or subscription fees similar to our other products.
However, in 2004, Working Values devoted a significant portion of its resources
to develop custom-designed training programs on corporate ethics for two
clients, which prevented it from developing the generic content. With the
slowdown in large custom projects in 2005, Working Values has resumed its
efforts to develop these courses and will release its first title in the fourth
quarter.

         Net revenues from video production, duplication, consulting and
e-commerce services for the first nine months of 2005 were $1.5 million compared
to $1.1 million for the first nine months of 2004. Although video production and
duplication income in the 2005 period was $24,000 less than in it was in the
comparable 2004 period, consulting revenues increased by $167,000 and e-commerce
revenues increased by $150,000 over the comparable period of last year. In
addition to doing custom work for clients, the technology department provides
services to the entire company. We continue to see a downturn in our video
duplication business, which accounts for the decrease in that area. 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 accounting education if that
is where the sales originated, even if the sale has nothing to do with
accounting. Custom work is non-repetitive and subject to market conditions and
can vary from period to period.

      COST OF REVENUES

         Compared to the first nine months of 2004, cost of revenues in the
first nine months of 2005 increased in absolute terms and as a percent of net
revenues, resulting in lower gross margins. In the case of the first nine months
of 2004 and 2005, the expenses that showed the greatest variations and the
reasons for those variations were as follows:

      o  OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. The cost of outsourced
         production personnel related to custom video and technology projects
         decreased by $52,000. This is directly attributable to the completion
         of a number of custom jobs in the video and technology departments

      o  SALARIES. Overall, payroll and related costs attributable to production
         personnel increased by $356,000. Most of this increase was attributable
         to the fact that we added additional personnel to Working Values and to
         our consulting group to meet the demands of a number of custom projects
         and to design new products. In addition, the technology group has been
         redesigning and making continual improvements to our learning
         management system.

      o  ROYALTIES. Royalty expense for the current period increased by $44,000
         over the nine-month period of 2004. This is a result of increased sales
         in our accounting and finance area. If sales volume increases, we
         expect the actual royalty payments in 2005 will be higher than they
         were in 2004.

      o  OTHER COSTS. Other costs related to the production of our products
         decreased by $52,000 for the nine-month period ended September 30, 2005
         as compared to the same period in the prior year. This reduction is not
         indicative of any trends in our business, but primarily related to the
         completion of custom contracts in the video and technology areas.

         As our business grows we may be required to hire additional production
personnel, increasing our cost of revenues.

                                       15
<PAGE>


      GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses in the first nine months of 2005
increased in both absolute terms compared to the first nine months of 2004, and
as a percentage of net revenues they increased by 2%. The increase is primarily
attributable to the costs of being a public company, increased marketing and
product development costs and an increase in staffing and related costs. We
anticipate that general and administrative expenses will continue to increase as
a result of increased accounting, legal and insurance costs resulting from the
fact that we are now a public company.

      DEPRECIATION and AMORTIZATION

         Depreciation and amortization expenses were lower in the nine months
ended September 30, 2005 than they were in the comparable 2004 period, and as a
percentage of net revenues they decreased from 6.9% to 5.5%. The decrease is
attributable to the fact that although we continue to purchase additional
computer hardware many of our older assets are now fully depreciated. Through
September 2005 we acquired $171,000 of depreciable and amortizable assets
compared to $73,000 in the same period of 2004. In addition, many of our older
assets are either fully or almost fully depreciated. We expect our depreciation
and amortization expenses to decrease as we realize the full effect of the asset
acquisitions and capitalized costs that were made before 2004.

      INCOME FROM OPERATIONS

         For the first nine months of 2005 net income from operations was
$410,000 compared to $545,000 in the comparable period of 2004. This decrease is
primarily attributable to a reduction in custom jobs in our Working Values
division from 2004 to 2005 of approximately $700,000 and an increase in general
and administrative expenses of approximately $428,000.

      OTHER INCOME/ EXPENSES

         Other income and expense items consist of interest paid on indebtedness
and interest earned on deposits. The decrease in our net interest expense is due
primarily to the reduction in debt in the fourth quarter of 2004 following the
completion of our public offering. In addition, the approximately $5.5 million
of net proceeds from the offering (after repaying debt) and cash generated from
operations are invested in various money market funds and interest bearing
securities. This resulted in $128,000 of net income for the first six months of
2005 as compared to a net expense of $44,000 in the same period of 2004.

      NET INCOME

         For the nine months ended September 30, 2005, we recorded a net profit
of $538,000 compared to $501,000 for the nine months ended September 30, 2004.
This decrease is attributable to the reasons mentioned previously.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

         Historically, we have financed our working capital requirements through
internally generated funds, sales of equity and debt securities and proceeds
from short-term bank borrowings. In October 2004 we completed our initial public
offering, which resulted in net proceeds to us of approximately $6 million.

         Our working capital as of September 30, 2005 was approximately $4.22
million compared to $3.39 million at December 31, 2004. Our current ratio at
September 30, 2005 was 2.08 to 1 compared to 1.75 to 1 at December 31, 2004. 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, $3.39 million at
September 30, 2005 compared to $3.74 million at December 31, 2004, was deferred
revenue, which is revenue collected or billed but not yet earned under the
principles of revenue recognition. Most of this revenue is in the form of
subscription fees and will be earned over the next 12 months. The cost of
fulfilling our monthly subscription obligation does not exceed this revenue and
is booked to expense as incurred. For some of our products, there are no
additional costs, other than shipping costs, required to complete our
obligations, as the material already exists.

                                       16
<PAGE>


         The primary components of our operating cash flows are net income
adjusted for non-cash expenses, such as depreciation and amortization, and the
changes in accounts receivable, accounts payable and deferred revenues. For the
nine months ended September 30, 2005, net cash generated by operating activities
was $609,000 and we had a net cash increase of $3.40 million, which includes a
$3.0 million transfer from investment securities held for sale. Exclusive of
that transfer, net cash increased by $403,000 after purchasing and capitalizing
$171,000 of fixed assets and debt reduction of $46,000 during the first half of
the year. We also received $10,000 from the exercise of stock options.

         Capital expenditures for the nine months ended September 30, 2005 were
approximately $171,000, which consisted primarily of computer equipment
purchases and the capitalization of internally produced courses for Working
Values. Although, we continually upgrade our technology hardware, we do not
anticipate any significant capital expenditures relating to equipment purchases
over the next 12 months.

         At September 30, 2005 our only indebtedness consisted of capital lease
obligations, the balance of which was $74,000 compared to $121,000 at December
31, 2004. We have three leases with IDB Leasing, which had an aggregate
outstanding balance at September 30, 2005 of $54,000. One lease has a 48-month
term that expires in 2007, an imputed interest rate of 7.0% and monthly payments
of $2,055. A second lease has a 36-month term that expires in 2006, an imputed
interest rate of 7.5% and monthly payments of $996. The third lease has a
36-month term that expires in 2007, an imputed interest rate of 6.05% and a
monthly payment of $313. In August 2004 we financed the purchase of a van. The
loan is for a term of 36 months, bears interest at 4.99% per annum and requires
35 monthly payments of $358 and a final payment of approximately $13,800 due in
August 2007. The lender has agreed to repurchase the vehicle at our option for
the amount of the final payment less any applicable expenses, at the end of the
term. At September 30, 2005, the balance on the loan was $20,000.

         As of September 30, 2005 we had commitments under two operating leases
- the leases for executive offices in Hawthorne, New York and the Working Values
executive offices in Sharon, Massachusetts - aggregating $1.6 million through
February 2010. In May 2004 we paid $92,000 in connection with our termination of
a sublease in Irvine, California.

         We believe that the net proceeds of our initial public offering in
October 2004 together with cash flow from operations will be sufficient to meet
our working capital and capital expenditure requirements from the next 12
months.

         In the future, 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 rates 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.  CONTROLS AND PROCEDURES

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management, with the
participation of the chief executive officer and the chief 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, the chief executive officer and the chief 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 chief executive and chief 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, known to the chief
executive officer or the chief financial officer 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.

                                       17
<PAGE>


                                     PART II
                                OTHER INFORMATION


ITEM 1:  LEGAL PROCEEDINGS.

         We are not  currently  a party  to any  legal  proceeding  that we deem
material.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

RECENT SALES OF UNREGISTERED SECURITIES

         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  $490,000 of the net proceeds to
repay indebtedness.  The remaining $5.5 million will be used for working capital
and general corporate purposes, including acquisitions.

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.

a.       Exhibits:

         Exhibit No.        Description
         -----------        -----------

            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.

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<PAGE>


                                   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 10, 2005               /s/ Allen S. Greene
                                        -------------------
                                        Chief Executive Officer

Date:   November 10, 2005               /s/ Stanley P. Wirtheim
                                        -----------------------
                                        Chief Financial Officer
                                        (Principal Financial Officer)



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