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, 2007


                        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 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, 2007, there were 5,012,028
shares of common stock outstanding.


Transitional Small Business Disclosure Format.

                                                        Yes | | No |x|

<PAGE>

                                 SMARTPROS LTD.
                               FORM 10-QSB REPORT

                               SEPTEMBER 30, 2007

                                TABLE OF CONTENTS

                                                                            PAGE

PART I - FINANCIAL INFORMATION

         Item 1.  Condensed Consolidated Financial Statements
                    (Unaudited)

                  Balance Sheets - September 30, 2007 and
                    December 31, 2006 (Audited)                               3

                  Statements of Operations for the nine-months
                    and three-month periods ended September 30,
                    2007 and 2006                                             4

                  Statements of Cash Flows for the nine-month
                    periods ended September 30, 2007 and 2006                 5

                  Notes to Condensed Consolidated Financial
                    Statements                                                6

         Item 2.  Management's Discussion and Analysis or Plan
                    of Operation                                              9

         Item 3.  Controls and Procedures                                    20

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings                                          21

         Item 2.  Unregistered Sales of Equity Securities and Use
                    of Proceeds                                              21

         Item 3.  Defaults Upon Senior Securities                            21

         Item 4.  Submission of Matters to a Vote of Security Holders        21

         Item 5.  Other Information                                          21

         Item 6.  Exhibits                                                   21

SIGNATURES                                                                   22


                           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. 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, 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. 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.


                                       2
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SMARTPROS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                 SEPTEMBER 30,         DECEMBER 31,
                                                                                                     2007                 2006
                                                                                                 (UNAUDITED)            (AUDITED)
                                                                                                 ------------          ------------
<S>                                                                                              <C>                   <C>
ASSETS
Current Assets:
  Cash and cash equivalents                                                                      $  9,283,346          $  7,393,789
  Accounts receivable, net of allowance for doubtful accounts
    of $39,800                                                                                      2,006,399             1,960,939
  Prepaid expenses and other current assets                                                           232,976               277,393
                                                                                                 ------------          ------------
Total Current Assets                                                                               11,522,721             9,632,121
                                                                                                 ------------          ------------

Property and equipment, net                                                                           529,597               438,260
Goodwill                                                                                              145,684               130,684
Other intangibles, net                                                                              3,214,632             2,651,132
Other assets, including restricted cash of $150,000                                                   154,673               154,673
Deferred tax asset                                                                                    853,000               378,000
                                                                                                 ------------          ------------
                                                                                                    4,897,586             3,752,749
                                                                                                 ------------          ------------
Total Assets                                                                                     $ 16,420,307          $ 13,384,870
                                                                                                 ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                                               $    356,215          $    552,630
  Accrued expenses                                                                                    487,013               380,464
  Current portion of capital lease and equipment financing obligations                                     --                25,991
  Deferred revenue                                                                                  4,996,611             4,007,074
                                                                                                 ------------          ------------
Total Current Liabilities                                                                           5,839,839             4,966,159
                                                                                                 ------------          ------------

Long-Term Liabilities:
  Other liabilities                                                                                    90,095               120,137
                                                                                                 ------------          ------------
Total Long-Term Liabilities                                                                            90,095               120,137
                                                                                                 ------------          ------------

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,
    5,322,759 issued and 5,012,028 outstanding at September 30,
    2007; and 5,186,505 issued and 4,875,774 outstanding at December 31,
    2006                                                                                                  532                   519
  Additional paid-in capital                                                                       17,031,151            16,572,944
  Accumulated (deficit)                                                                            (5,401,563)           (7,274,824)
                                                                                                 ------------          ------------
                                                                                                   11,630,120             9,298,639
  Common stock in treasury, at cost - 310,731 shares                                                 (922,625)             (922,625)
  Deferred compensation                                                                              (217,122)              (77,440)
                                                                                                 ------------          ------------
Total Stockholders' Equity                                                                         10,490,373             8,298,574
                                                                                                 ------------          ------------
Total Liabilities and Stockholders' Equity                                                       $ 16,420,307          $ 13,384,870
                                                                                                 ============          ============
</TABLE>

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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


                                       3
<PAGE>

SMARTPROS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED                     THREE MONTHS ENDED
                                                                     SEPTEMBER 30,                          SEPTEMBER 30,
                                                           --------------------------------        --------------------------------
                                                               2007                2006                2007                 2006
                                                           ------------        ------------        ------------        ------------

<S>                                                        <C>                 <C>                 <C>                 <C>
Net Revenues                                               $ 10,907,885        $  8,630,243        $  3,697,724        $  3,174,771
Cost of Revenues                                              4,009,938           3,584,891           1,325,621           1,379,795
                                                           ------------        ------------        ------------        ------------
   Gross Profit                                               6,897,947           5,045,352           2,372,103           1,794,976
                                                           ------------        ------------        ------------        ------------

Operating Expenses:
  Selling, general and administrative                         5,287,878           4,263,962           1,747,238           1,429,570
  Depreciation and amortization                                 505,021             480,792             177,757             164,212
                                                           ------------        ------------        ------------        ------------
                                                              5,792,899           4,744,754           1,924,995           1,593,782
                                                           ------------        ------------        ------------        ------------
  Operating Income                                            1,105,048             300,598             447,108             201,194
                                                           ------------        ------------        ------------        ------------

Other Income (Expense):
  Interest income                                               303,414             239,290             112,828              84,623
  Interest expense                                                 (992)             (3,604)               (173)               (612)
                                                           ------------        ------------        ------------        ------------
                                                                302,422             235,686             112,655              84,011
                                                           ------------        ------------        ------------        ------------

Income before benefit for income taxes                        1,407,470             536,284             559,763             285,205

Add: income tax benefit                                         465,792             132,250             215,792              45,165
                                                           ------------        ------------        ------------        ------------
Net Income                                                 $  1,873,262        $    668,534        $    775,555        $    330,370
                                                           ============        ============        ============        ============

Net Income Per Common Share:
  Basic net income per common share                        $       0.38        $       0.13        $       0.16        $       0.07
                                                           ============        ============        ============        ============

  Diluted net income per common share                      $       0.37        $       0.13        $       0.15        $       0.07
                                                           ============        ============        ============        ============

Weighted Average Number of Shares
 Outstanding
   Basic                                                      4,916,823           5,039,462           4,954,854           5,017,470
                                                           ============        ============        ============        ============

   Diluted                                                    5,009,132           5,054,587           5,114,285           5,028,578
                                                           ============        ============        ============        ============
</TABLE>

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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


                                       4
<PAGE>

SMARTPROS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                     NINE MONTHS ENDED
                                                                                       SEPTEMBER 30,
                                                                            ---------------------------------
                                                                                2007                 2006
                                                                            -----------           -----------
<S>                                                                         <C>                   <C>
Cash Flows from Operating Activities:
Net income                                                                  $ 1,873,262           $   668,534
                                                                            -----------           -----------
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Depreciation and amortization                                               505,021               480,792
    Decrease in deferred compensation                                            48,168                31,500
    Stock compensation expense                                                   27,000                18,821
    Deferred income tax benefit                                                (475,000)             (136,000)
    Gain on sale of equipment                                                   (12,575)                    -
  Changes in operating assets and liabilities:
    (Increase) decrease in operating assets:
       Accounts receivable                                                      (45,460)             (456,782)
       Prepaid expenses and other current assets                                 44,417               109,661
    (Decrease) increase in operating liabilities:
       Accounts payable and accrued expenses                                    (89,866)              125,752
       Deferred revenue                                                         551,914               182,301
       Other liabilities                                                        (30,042)              (30,042)
                                                                            -----------           -----------
  Total adjustments                                                             523,577               326,003
                                                                            -----------           -----------
Net Cash Provided by Operating Activities                                     2,396,839               994,537
                                                                            -----------           -----------

Cash Flows from Investing Activities:
  Acquisition of property and equipment
                                                                               (156,883)              (45,485)
  Capitalized course costs                                                      (67,725)              (45,358)
  Capitalized software development                                             (164,565)                    -
  Property and equipment acquired from acquisitions                             (62,201)                    -
  Intangible assets acquired from acquisitions                                 (269,099)                    -
  Cash paid for acquisitions                                                    (18,412)             (719,530)
                                                                            -----------           -----------
Net Cash (Used in) Investing Activities                                        (738,885)             (810,373)
                                                                            -----------           -----------

Cash Flows from Financing Activities:
  Payment of note receivable from stockholder                                         -               200,000
  Exercise of stock options, warrants and other                                 243,370                52,799
  Purchase of treasury stock                                                          -              (538,025)
  Payments under capital lease obligations                                      (11,767)              (30,730)
                                                                            -----------           -----------
Net Cash Provided (Used in) by Financing Activities                             231,603              (315,956)
                                                                            -----------           -----------

Net Increase (Decrease) in Cash and Cash equivalents                          1,889,557              (131,792)
Cash and Cash Equivalents, beginning of period                                7,393,789             7,505,691
                                                                            -----------           -----------
Cash and Cash equivalents, end of period                                    $ 9,283,346           $ 7,373,899
                                                                            ===========           ===========

Supplemental Disclosure:
Cash paid for interest                                                      $       992           $     3,604
                                                                            ===========           ===========
</TABLE>



-----------------------------------------------------------------------------
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, 2006, 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 26, 2007. 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, Working Values, Ltd. and Skye Multimedia Ltd. (Skye). 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 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. As a result of acquisitions made during 2006 and 2007, the
Company now also offers educational products for the banking, legal, financial
services, insurance, pharmaceutical industry and information technology
professionals. SmartPros also produces custom videos and rents out its studios.

         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 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

                                       6
<PAGE>



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

         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 catalog. 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 recent acquisitions, the Company acquired $
350,000 of course costs that are being amortized over a five-year period.
Included in other intangible assets at September 30, 2007, are capitalized
course costs of $103,428 (exclusive of Sarbanes-Oxley courses), net of
accumulated amortization of $12,526.

         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 and the Financial Campus division recognize revenue
either immediately 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 92,309 and 15,125 for the nine month periods and 159,431 and 11,108 for the
three months period ended September 30, 2007, and 2006, respectively, include
the Company's stock options and warrants that are dilutive.

         STOCK-BASED COMPENSATION

         The Company's 1999 Stock Option Plan (the "Plan") permits the grant of
options and restricted stock to employees, directors and consultants. The total
number of shares currently reserved for grants under the Plan is 782,791,
provided that restricted stock grants may not exceed 200,000 shares of which
151,000 are still available. As of September 30, 2007, there were 389,904
options outstanding, of which 305,241 are currently exercisable, and 392,889
options are available for future grants. All stock options and grants under the
Plan are granted at the fair market value of the Common Stock at 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.

         Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 (revised 2004), SHARE-BASED PAYMENT ("SFAS
No.123R"), which addresses the accounting for stock-based payment transactions
in which an enterprise receives director and employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprise's equity instruments or that may be settled by
the issuance of such equity

                                       7
<PAGE>



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

instruments. In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No.
107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS
No. 123R eliminates the ability to account for stock-based compensation
transactions using the intrinsic value method under Accounting Principles Board
("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and instead
generally requires that such transactions be accounted for using a
fair-value-based method. The Company uses the Black-Scholes-Merton ("BSM")
option-pricing model to determine the fair value of stock-based awards under
SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS No. 123"). The Company
has elected the modified prospective transition method permitted by SFAS No.
123R and, accordingly, prior periods have not been restated to reflect the
impact of 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. Stock-based compensation expense for
awards granted prior to January 1, 2006, is based on the grant date fair value
as determined under the pro forma provisions of SFAS No.123. The Company has
recorded an incremental stock-based compensation expense of $27,000 and $18,821
for the nine months periods ending September 30, 2007 and 2006, respectively, as
a result of the adoption of SFAS No. 123R.

         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 BSM
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 assumptions used for the nine-month periods ended September 30,
2007, and 2006, and the resulting estimates of weighted-average fair value of
options granted during those periods are as follows:

                                              NINE MONTHS ENDED SEPTEMBER 30,
                                                   2007                2006
                                            -------------------  ---------------
Expected life (years)                            5.5 -  6.0           5.5
Risk-free interest rate                          4.1 -  4.63%         4.75%
Volatility                                      35.0 - 45.0%         33.0%
Dividend yields                                      --                --
Weighted-average fair value of options
   during the period                           $ 2.32               $ 1.19


         The Company granted 30,500 options under the Plan during the nine
months ended September 30, 2007 at exercise prices ranging from $4.49 per share
to $5.94 per share and 5,137 shares were forfeited. In the quarter ended
September 30, 2007, 21,068 options were exercised at a price of $5.32 per share.

         The following table represents our stock options granted, exercised and
forfeited for the nine months ended September 30, 2007:
<TABLE>
<CAPTION>
                                                         WEIGHTED             WEIGHTED AVERAGE
                                      NUMBER OF      AVERAGE EXERCISE             REMAINING
         STOCK OPTIONS                 SHARES         PRICE PER SHARE         CONTRACTUAL TERM
---------------------------------    -----------    --------------------    -----------------------
<S>                                   <C>                  <C>                       <C>
Outstanding at January 1, 2007        385,609              $4.57                     5.5
Granted                                30,500              $5.60
Exercised                             (21,068)             $5.32
Forfeited/expired                     (5,137)              $3.96
                                    -----------
Outstanding at September 30,
  2007                                389,904              $4.62                     7.4
                                    ===========    ====================    =======================
Exercisable at September 30,
  2007                                304,159              $4.78                     5.7
                                    ===========    ====================    =======================
</TABLE>

                                       8
<PAGE>

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

         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 net income tax benefit of $465,000 for
the nine months ended September 30, 2007. 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."

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(TM), 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 and other formats 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 February 2006, we acquired substantially all of the operating assets
and assumed certain liabilities of Skye Multimedia Inc. We contributed those
assets to a newly formed, wholly owned subsidiary, Skye Multimedia Ltd. (Skye).
The purchase price for the assets was $520,000. In addition, the selling
shareholders are entitled to an additional payment based on the average earnings
of Skye between March 1, 2006, and December 31, 2008, less adjustments for use
of capital and other costs. In no event will the total additional payment exceed
$1.2 million. The additional payment may be paid 50% in cash and 50% in shares
of our common stock at our discretion. If the additional payment is paid partly
in stock, the price of the stock will be determined by the average price for the
20 business days subsequent to December 31, 2008. Skye develops custom
interactive marketing and training applications for CD, DVD, Internet and
learning management systems. Skye offers a broad range of services including
content design, animation, and audio/video production and application
development. Skye's clients are a diverse group of companies from
pharmaceutical, financial, technology and other industries.

         Also in February 2006, we acquired substantially all of the operating
assets and assumed certain liabilities from Sage International Group, Inc.
(Sage) for $225,000 in cash. The assets acquired included a library of 58
nationally certified online training solutions for the banking, securities and
insurance industries. Sage's "off-the-shelf" courses and custom designed
programs employ delivery methods suited to the specific needs of its clients,
which include professional firms and companies of all sizes including Fortune
500 companies.

         In October 2006, we acquired substantially all of the operating assets
and assumed certain liabilities of MGI Management Institute Inc. (MGI) for
$100,000 in cash. MGI provided training courses for the engineering profession.
The acquisition expanded our offerings and enhances our ability to service this
market.

                                       9
<PAGE>

         In November 2006, through our Working Values subsidiary, we acquired
substantially all of the operating assets and assumed certain liabilities of
Cognistar Interactive Corporation (Cognistar) for $320,000. Cognistar produces
online and customized training courses for the legal profession.

         In March 2007, we acquired substantially all of the assets and assumed
certain liabilities of The Selbst Group Inc. (Selbst) for approximately $154,000
in cash. Selbst is a specialized consulting firm providing various training
programs for the financial services industry. We have combined Sage and Selbst
into our newly named Financial Services Training division.

         On August 2, 2007, we acquired substantially all of the assets and
assumed certain liabilities of Bright Ideas Group d/b/a Watch It (BIG). BIG
develops information technology education and training programs for business and
information technology professionals. The assets we acquired included
approximately 300 courses and customer contracts. We will operate these assets
under the name SmartPros Technology Training Group (STG). James Graham, BIG's
founder and president, as well as other key employees of BIG have become our
employees.

         The purchase price for the assets was $175,000 plus the assumption of
BIG's obligations under certain customer agreements. In addition, BIG is
entitled to an incentive payment of $200,000 if STG's revenues for the six month
period beginning August 1, 2007 and ending January 31, 2008 exceed $1,000,000.
If STG's revenues for this period are between $875,000 and $1,000,000, the
incentive payment will be a pro-rated portion of the $200,000. If revenues are
less than $875,000, no incentive payment is due.

         Finally, BIG is also entitled to an "earn-out" equal to the product of
(i) the excess of STG's average annual earnings before taxes after all
inter-company charges and an amount for the use of capital we provide STG, for
the 36 month period commencing August 1, 2007 and ending July 31, 2010 times
three. In no event may the "earn-out" exceed $3,000,000. Any payment under the
"earn-out" will be reduced by (i) $115,000 and (ii) any incentive payments made
with respect to the six month period ending January 31, 2008. The "earn-out"
amount may be paid at our discretion either entirely in cash or 50% in cash and
50% in shares of our common stock provided that at that time payment is due (i)
our common stock is traded on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market and (ii) we have filed all periodic
reports we were required to file under the Securities Act of 1934. Any payment
in shares of common stock will be valued based on the average closing price of
the common stock for the 20 business days after July 31, 2010.

         On August 21, 2007 we acquired substantially all of the assets and
assumed certain liabilities of Financial Campus (FC) from Skillsoft Corporation.
The seller is entitled to an additional annual earn-out for three years based on
sales in excess of $2 million per annum times ten percent (10%). In no event
shall the total cumulative earn-out for the three year period exceed $750,000
and is payable in cash. Should the purchaser sell the FC business prior to the
end of the earn-out period, the seller will be entitled to $750,000 less any
payments made against the earn-out. Certain key employees of FC have become
employees of SmartPros. FC produces and maintains a library of training courses
designed for the security, insurance and other financial services industries. In
addition, FC produces customized training courses for its customers. This
product line will be included in SmartPros Financial Services Training division.

         The Financial Campus assets and liabilities were incorporated into our
Financial Services Training division.

         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, (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  New laws and regulations affecting the conduct of business and the
         relationship between a corporation and its employees.

                                       10
<PAGE>

      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 2004, we raised approximately $6 million of net proceeds in an
initial public offering. Through September 30, 2007, we have used approximately
$2.2 million of those proceeds; $500,000 to repay debt and $1.7 million in
connection with the acquisitions made in 2006 and 2007 described above. We
intend to use the remaining $3.8 million net proceeds from the offering, cash
flow from operations and our publicly-traded common stock to execute our growth
strategy, which contemplates acquiring or investing in other companies. We will
also consider acquisitions that will give us access to new markets. We prefer
acquisitions that are accretive, as opposed to those that are dilutive, but
ultimately the decision will be based on maximizing stockholder 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 stockholder value that we anticipated at the
outset.

         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 scheduled to begin in the fourth
quarter.

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. 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 Working
Values' Cognistar


                                       11
<PAGE>

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 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. Both Working Values and Skye
recognize revenue either on a proportional performance basis or on a time and
material billing basis. The cost of fulfilling our monthly subscription
obligation does not exceed this revenue and is booked to expense as incurred.
For of our 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 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, consistent with that used
for pro forma disclosures under SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS No. 123"). We have elected the modified prospective
transition method permitted by SFAS No. 123R and, accordingly, we have not
restated prior periods to reflect the impact of 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, 2007 AND 2006

         The third quarter of 2007 was our 14th consecutive quarter of
profitability, 12th since we became a reporting company. The following table
compares our statement of operations data for the three months ended September
30, 2007 and 2006. 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 - product, 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.


                                       12
<PAGE>


<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED SEPTEMBER 30,
                                          ----------------------------------------------------------------------------
                                                     2007                            2006
                                          ----------------------------   -----------------------------
                                            AMOUNT        PERCENTAGE        AMOUNT         PERCENTAGE       CHANGE
                                          ------------    ------------   --------------    -----------    ------------
<S>                                       <C>                  <C>       <C>                  <C>              <C>
Net revenues                              $ 3,697,724          100.0%    $ 3,174,771          100.00%          16.5%
Cost of revenues                            1,325,621           35.8%      1,379,795            43.5%          (3.9%)
                                          ------------    ------------   --------------    -----------
Gross profit                                2,372,103           64.2%      1,794,976            56.5%           32.2%
                                          ------------    ------------   --------------    -----------
Selling, general and administrative         1,747,238           47.3%      1,429,570            45.0%           22.2%
Depreciation and amortization                 177,757            4.8%        164,212             5.2%            8.2%
                                          ------------    ------------   --------------    -----------
Total operating expenses                    1,924,995           52.1%      1,593,782            50.2%           20.8%
                                          ------------    ------------   --------------    -----------
Operating income                              447,107           12.1%        201,194             6.3%          122.2%
Other income, net                             112,655            3.0%         84,011             2.6%           34.1%
                                          ------------    ------------   --------------    -----------
Net income before income tax benefit          559,763           15.1%        285,205             9.0%           96.3%
Income tax benefit                            215,792            5.8%         45,165             1.4%          377.8%
                                          ------------    ------------   --------------    -----------
Net income                                $   775,555           21.0%    $   330,370            10.4%          134.8%
                                          ============    ============   ==============    ===========
</TABLE>

     NET REVENUES

         Net revenues for the three months ended September 30, 2007, increased
approximately $523,000, or 16.5%, compared to net revenues for the three months
ended September 30, 2006. This increase was primarily due to: (i)
Accounting/Finance division, whose net revenues increased $175,000; (ii) the
Financial Services Training division, whose net revenues increased $351,000
primarily as a result of acquisitions made during the quarter; (iii) the
Cognistar legal division, acquired in November 2006, which had net revenues of
$129,000 in the third quarter of 2007; (iv) the Engineering division, whose net
revenues increased $107,000; and (v) our newly acquired Technology Training
division whose revenues were $45,000. These increases were offset by: (i) a
$152,000 reduction in net revenues from video production and duplication group;
(ii) a $98,000 reduction in net revenues from our Skye Multimedia division;
(iii) a $14,000 reduction in net revenues from our consulting division; and (iv)
a $20,000 reduction in net revenues from our Ethics and Compliance 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 2007, net revenues from our Accounting/Finance
division were $2.3 million, or 63% of revenue, compared to $2.2 million, or 68%
of revenue, in the comparable 2006 period. Net revenues from subscription-based
products, which include both subscription-based revenue and direct sales of
course material on a non-subscription basis, increased from $1.93 million in the
2006 period to $2.04 million in the corresponding 2007 period. This increase is
due to our continued marketing efforts. Net revenues derived from other projects
in our Accounting/Finance division that are not subscription based increased
from $236,000 in 2006 to $298,000 in 2007. These revenues fluctuate from period
to period, and are not indicative of any trends. Online revenues, which are
primarily accounting/finance products, continue to be an important factor
contributing to our overall revenue growth. In the 2007 period, net revenues
from online sales accounted for approximately $906,000, or 25% of net revenues,
compared to $812,000, or 26% of net revenues in the comparable 2006 period. This
represents a 12% increase in absolute dollars.

         For the three months ended September 30, 2007, Skye generated net
revenues of $347,000 compared to $445,000 in the third quarter of 2006. This
decrease is not indicative of any long-term trends.

         Our Financial Services Training division, which includes Sage, Selbst,
and Financial Campus (acquired in August 2007) generated $398,000 of net
revenues in the quarter ended September 30, 2007. For the quarter ended
September 30, 2006, this division generated only $47,000 of net revenues.
However, both Selbst and Financial Campus were acquired in 2007 and Sage was
acquired in March 2006.

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

         In the quarter ended September 30, 2007, Working Values had net
revenues of $287,000 compared to net revenues of $178,000 for the quarter ended
September 30, 2006. For the 2007 period, $158,000 of Working Values' net
revenues was generated by the Ethics and Compliance division and $129,000 was
generated by the Cognistar legal division, acquired in November 2006. Net
revenues generated by the Ethics and Compliance division are derived primarily
from custom consulting work.


                                       13
<PAGE>

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 $220,000 of net revenues in the
third quarter of 2007 compared to $114,000 in the third quarter of 2006. 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. Also, we acquired the assets of MGI in October 2006, which contributed
additional net revenues in the 2007 period. Sales of our engineering products
are not subscription based.

         Net revenues from video production and duplication services were
$43,000 and from consulting services were $15,000 for the third quarter of 2007
compared to $195,000 and $29,000 respectively for the third quarter of 2006. We
believe the decline in video production and duplication net revenues reflects an
overall trend in the business.

     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, have higher profit margins than sales involving physically delivery of
tapes, disks and written materials.

         Our gross profit margin increased for the three months ended September
30, 2007 to 64.2% compared to 56.5% for the three months ended September 30,
2006. This increase is attributable, in part, to our recent acquisitions and
changes in our product mix. In addition, we capitalized approximately $117,000
of costs relating to new courses and the development of our new learning
management system. These adjustments added approximately 3% to our gross profit
margin in the 2007 period. On the other hand, 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 decreased by $54,000 in the current quarter from the
comparable period last year. The decrease is attributable to a number of
factors, including increased salaries and related costs associated with
acquisitions, offset by reductions in personnel in our technology and video
production areas. We have reduced our labor costs by outsourcing technology
projects to firms in India 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. This decrease is in part due
to the capitalization of $117,000 in costs for course development and the
redesign of our learning management system. We have determined that it is
cheaper to outsource certain projects to India rather than hire additional
personnel, in the event that the number of such projects may decrease. In
addition, royalty expense increased by $7,000.

     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 outsourcing of non-video technology.
         The cost of such outside labor, which is primarily video production and
         technology personnel, decreased $172,000, after capitalizing a portion
         of these costs. This decrease is directly related to the decrease of
         video production projects and the completion of a number of custom
         projects. 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, the use of outsourced labor in the technology
         area and for our recent acquisitions increased $63,000. 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.

     o   ROYALTIES. Royalty expense increased in the three months ended
         September 30, 2007, compared to the comparable 2006 period by $7,000.
         This is a result of royalties from our Cognistar legal division, which
         we acquired in November 2006, and to our organizational partners in the

                                       14
<PAGE>

         accounting education area for which we often have to make estimates, as
         the information may not be available.

     o   SALARIES. Overall, payroll and related costs attributable to production
         personnel increased by $73,000, after capitalizing a portion of these
         costs during the current quarter. 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 as a
         result of our recent acquisitions.

     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 decreased by $25,000 from 2006
         to 2007. This is primarily a direct result of decreased business in our
         video production.


     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, 2007 increased $317,000, or 22%, compared to the three months
ended September 30, 2006. The increase in general and administrative expenses is
primarily attributable to the various acquisitions we made in 2006 and 2007.

         Compensation expense in the 2007 period increased $269,000 over
compensation expense for the 2006 period. Our total number of full time general
and administrative employees at September 30, 2007 was 33 compared to 27 at
September 30, 2006. Compensation expense includes stock based compensation
expense of $9,000 for the 2007 period and $3,300 for the 2006 period.

     o   In August 2007 we granted 9,000 options to a member of our Board of
         Directors in connection with his election to the board. The price of
         the stock on date of issuance was $5.94. Using the BSM model we
         determined that these options had a cost of $26,730 that is being
         amortized over a three- year period. The value of the options was
         determined by using a volatility factor of 45%, a risk-free interest
         rate of 4.63% and expected life of six years.

     o   In September 2007 we issued 15,000 options to two employees that were
         valued at $2.10 per share, for a total cost of $31,500 after applying a
         volatility factor of 45%, a risk free interest rate of 4.1%. The stock
         price on the date of issuance was $5.78. These options vest on January
         1, 2011 and expire in ten years from date of issuance. In addition,
         three employees received stock grants for 32,500 shares in September
         2007 of which 12,500 vest on January 1, 2009 and 20,000 vest on January
         1, 2011. The price of the stock was $5.78 on date of issuance. The
         grants will be treated as deferred compensation and expensed on a
         pro-rata basis over the vesting period of the grant.

         In September 2006 we began to outsource our customer service operations
at a quarterly expense of approximately $30,000. This function was formally
performed internally. For the quarter ended September 30, 2007 our customer
service expense was approximately $39,000. Our other general and administrative
costs, exclusive of compensation costs, increased $48,000. These costs consist
of a number of expenses including increased professional fees for Sarbanes-Oxley
compliance of approximately $15,000. On the other hand, by consolidating our
Ethics and Compliance division and our legal division into one office, we were
able to reduce our rent expense. We continue to look for other opportunities to
reduce our overhead. 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.

     DEPRECIATION and AMORTIZATION

         Depreciation and amortization expenses increased by $14,000 in the
third quarter of 2007 compared to the third quarter of 2006 as a result of
increased amortization expense from our capitalized course costs and from the
depreciation and amortization of fixed and intangible assets acquired from our
various acquisitions. We expect our depreciation and amortization expense on our
fixed and intangible assets to continue to increase as we replace computer
equipment, capitalize internal costs for the development of new courses and our
learning management system. Although many of our older assets are either fully
or almost fully depreciated and we do not anticipate replacing them at the same
rate, this is


                                       15
<PAGE>

offset by the amortization of the intangibles acquired through acquisitions.

     OPERATING INCOME

         For the three months ended September 30, 2007, net income from
operations was $447,000 compared to $201,000 in the comparable period of 2006.

     OTHER INCOME, NET

         Other income and expense items consist of interest paid on indebtedness
and interest earned on deposits. We have not yet used all of the net proceeds
from our initial public offering. We have no debt and, with larger cash balances
and higher interest rates, this has resulted in increased interest income. As a
result, for the third quarter of 2007 we had net interest income of $113,000
compared to net interest income of $84,000 in the third quarter of 2006.

     INCOME TAX BENEFIT

         We account for deferred tax benefits available from our net operating
loss carryforward pursuant to SFAS No. 109. We anticipate that we will recognize
a total of approximately $540,000 in such benefits from recognizing the net
operating loss this year by annualizing the current quarter's income, offset by
charges for the corporate alternative minimum tax, which we estimate to be
approximately $40,000 for the year. This results in an estimated net annual tax
benefit of $600,000. The net benefit for the three month period ended September
30, 2007 is $216,000 as compared to $45,000 for the comparable period of 2006.
This amount is subject to change based on earnings during the year.

     NET INCOME

         For the three months ended September 30, 2007, we recorded net income
of $776,000, or $0.16 and $.15 per share, basic and diluted respectively,
compared to net income of $330,000 or $0.07 per share, basic and diluted, for
the three months ended September 30, 2006. Earnings per share before the benefit
of the deferred tax asset would have been $.11 per share basic and $.10 per
share diluted for the current period.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

         The following table compares our statement of operations data for the
nine months ended September 30, 2007, and 2006. 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.

<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED SEPTEMBER 30,
                                          ----------------------------------------------------------------------------
                                                     2007                            2006
                                          ----------------------------   -----------------------------
                                            AMOUNT        PERCENTAGE        AMOUNT         PERCENTAGE       CHANGE
                                          ------------    ------------   --------------    -----------    ------------
<S>                                       <C>               <C>           <C>                   <C>             <C>
Net revenues                              $ 10,907,585      100.0%        $ 8,630,243           100.0%          26.4%
Cost of revenues                             4,009,938       36.8%          3,584,891            41.5%          11.9%
                                          ------------    ------------   --------------    -----------
Gross profit                                 6,897,947       63.2%          5,045,352            58.5%          36.7%
                                          ------------    ------------   --------------    -----------
Selling, general and administrative          5,287,878       48.5%          4,263,962            49.4%          24.0%
Depreciation and amortization                  505,021        4.6%            480,792             5.6%           5.0%
                                          ------------    ------------   --------------    -----------
Total operating expenses                     5,792,899       53.1%          4,744,754            55.0%          22.1%
                                          ------------    ------------   --------------    -----------
Operating income                             1,105,048       10.1%            300,598             3.5%         267.6%
Other income, net                              302,422        2.8%            235,686             2.7%          28.3%
                                          ------------    ------------   --------------    -----------
Net income before income tax benefit         1,407,470       12.9%            536,284             6.2%         162.4%
Income tax benefit                             465,792        4.3%            132,250             1.5%         252.2%
                                          ------------    ------------   --------------    -----------
Net income                                 $ 1,873,262       17.2%        $   668,534             7.7%         180.2%
                                          ============    ============   ==============    ===========
</TABLE>


                                       16
<PAGE>

     NET REVENUES

         Net revenues for the nine months ended September 30, 2007 increased
approximately $2,278,000, or 26%, compared to net revenues for the nine months
ended September 30, 2006. This increase was primarily due to: (i) our
Accounting/Finance division, whose net revenues increased $581,000; (ii) Skye
whose net revenues increased $720,000; (iii) our Financial Services Training
division, whose net revenues increased $556,000, primarily as a result of recent
acquisitions; (iv) our Cognistar legal division, which had net revenues of
$434,000; (v) our Ethics and Compliance division, whose net revenues increased
$80,000; (vi) our Engineering division whose net revenues increased $236,000 and
(vi) our newly acquired Technology Training Group that generated $45,000 in net
revenues; and (vii) an increase in net revenues from consulting services of
$11,000. These increases were offset by a net reduction in net revenues from
video production and duplication of $385,000.

         In the first nine months of 2007, our Accounting/Finance division
generated net revenues of $6.8 million, representing 62% of total net revenues
for the period compared to net revenues of $6.2 million for the first nine
months of 2006, representing 72% of total net revenues. Net revenues
attributable to sales of our subscription-based products, which include both
subscription-based revenue, and direct sales of course material on a
non-subscription basis, increased to $6.1 million for the 2007 period compared
to $5.5 million for the 2006 period. This increase is due to our continued
marketing efforts. Net revenues from non-subscription-based accounting/finance
products decreased slightly from $702,000 in the 2006 period to $688,000 in the
2007 period. These revenues fluctuate from period to period, and are not
indicative of any trends. 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 2007 period, net revenues from online sales
accounted for approximately $2.7 million, or 25% of net revenues, compared to
$2.2 million, or 26% of net revenues in the comparable 2006 period. This
represents a 23% increase in absolute dollars even though as a percentage of net
revenues online sales declined because most of the sales attributable to our
newly acquired divisions are not Internet based subscription sales.

         For the nine months ended September 2007 Skye generated net revenues of
$1.6 million compared to $875,000 in the first nine months of 2006. For 2006
Skye only had seven months of operations.

         Net revenues generated by our Financial Services Training division,
which includes Sage, Selbst, and Financial Campus (acquired in the third quarter
of 2007) was $622,000 in the first nine months of 2007. For the comparable 2006
period, the Financial Services Training division generated net revenues of
$66,000, reflecting seven months of operations for Sage. Both Selbst and
Financial Campus were not acquired until 2007.

         Our newly acquired Technology Training Group generated $45,000 in net
revenues during the period.

         For the first nine months of 2007, Working Values contributed a total
of $997,000 to net revenues compared to $483,000 in the first nine months of
2006. For the 2007 period, $563,000 of Working Values' net revenues were
generated by the Ethics and Compliance division and $434,000 was generated by
the Cognistar legal division, acquired in November 2006. For the corresponding
2006 period, all of Working Values' net revenues was generated by the Ethics and
Compliance division as the acquisition of Conigstar did not occur until November
2006. Revenue generated by our 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.

         For the first nine months of 2007, our Engineering division generated
net revenues of $637,000 compared to net revenues of $401,000 in the same 2006
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. Also, we acquired the assets of MGI in October 2006,
whose revenues are included in the 2007 period.

         Net revenues from video production, duplication and consulting services
for the first nine months of 2007 were $150,000 compared to $535,000 for the
comparable 2006 period.


                                       17
<PAGE>

     COST OF REVENUES

         Our gross profit margin for the nine-month period ended September 30,
2007 was 63.2% compared to 58.5% for the nine-month period ended September 30,
2006. The increase is due, in part, to our recent acquisitions and changes in
our product mix. In addition, we capitalized some costs for the development of
new courses and our learning management system. On the other hand, 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, 2007 was
$4.0 million compared to $3.6 million for the nine-month period ended September
30, 2006, an increase of $425,000, or 11.9%. The increase was primarily
attributable to payroll and related costs from our newly acquired subsidiaries
and other production related costs including the expenditure of approximately
$90,000 to convert Cognistar courses to our platform.

     o   OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. Outside labor costs
         increased $184,000, including the $90,000 spent on converting Cognistar
         courses to our platform and capitalizing some of these expenses for the
         development of our new Professional Education Center, or PEC. 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 $78,000. 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.

     o   ROYALTIES. Royalty expense increased in the nine months ended September
         30, 2007, compared to the comparable 2006 period by $27,000. This is a
         result of royalties from our Cognistar legal division, which we
         acquired in November 2006.

     o   SALARIES. Overall, payroll and related costs attributable to production
         personnel increased by $150,000. 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 as a
         result of our recent acquisitions, including Watch-It and Financial
         Campus in the third quarter of this year. In addition, 2006 does not
         include the additional salaries relating to MGI, Cognistar and Selbst
         personnel and only includes salaries of Sage and Skye personnel for
         seven months.

     o   OTHER PRODUCTION RELATED COSTS. Other production costs decreased by
         $14,000 from 2006 to 2007. This is a direct result of increased
         business from Skye and our recent acquisitions.


     GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses for the nine month period ended
September 30, 2007 were $5.29 million compared to $4.26 million for the nine
month period ended September 30, 2006, an increase of $1.03 million, or 24%.
This increase is primarily attributable to the assumption of various operating
expenses in connection with our recent acquisitions.

         General and administrative costs consist of a number of different types
of expenses, including salaries and related costs. Compensation expense for the
2007 period increased $783,000 over the compensation expense for the 2006
period. Compensation expense includes stock based compensation expense of
$27,000 for the 2007 period and $19,000 for the 2006 period.

o        In January 2007, the Company granted 16,500 shares in restricted stock
         to its management team, of which one-third vested immediately and the
         remaining shares will vest pro-ratably in each of January 2008 and
         2009. The closing price of the stock on the date of the grant was $4.04
         per share.

o        In March 2007, we granted 6,500 options to employees at exercise prices
         ranging from $4.49 to $5.50 per share. The options vest over a
         three-year period commencing one-year from grant date and expire 10
         years from the date of grant. Using the BSM model, we determined that
         the options have a fair value of $12,445, which amount is being
         expensed over a three-year period. In August


                                       18
<PAGE>

         2007 a board member was granted 9,000 options. The stock price at date
         of grant was $5.94. The options vest over a three year period and
         expire in ten years and have a fair value of $26,730 after applying a
         volatility factor of 4.63% and a risk-free interest rate of 4.63%.

     o   In September 2007 we granted 15,000 options to two employees. The price
         of the stock at date of issuance was $5.78. The options vest over a
         four year period and have a fair value of $31,425, using a risk free
         interest rate of 4.1% and a volatility factor of 45%.

     o   In September 2007 we granted 32,500 shares of restricted stock to three
         employees. The price of the stock was $5.78 on date of issuance. The
         grants vest through 2010 and will be treated as deferred compensation
         and expensed on a pro-rata basis over the vesting period of the grant.

         Certain operating costs have increased as a result of our acquisitions,
such as rent, telephone, office expenses and insurance for approximately
$113,000. Our other operating expenses increased by approximately $134,000,
including increased professional fees as we begin our Sarbanes-Oxley compliance,
a reduction in investor relation expense and fluctuations in our other costs. We
continue to look for other opportunities to reduce our overhead.

     DEPRECIATION and AMORTIZATION

         Depreciation and amortization expenses increased by $24,000 in the
first nine months of 2007 compared to the comparable period in 2006 as a result
of increased depreciation and amortization expense from our recent acquisitions,
capitalized course costs and the development of our new PEC, offset by a decline
in amortization from previously capitalized course costs. We expect our
depreciation and amortization expenses on our fixed and intangible assets to
continue to increase due to our recent acquisitions, although many of our older
assets are either fully or almost fully depreciated.

     OPERATING INCOME

         For the nine months ended September 30, 2007, net income from
operations was $1,105,000 compared to $301,000 in the comparable period of 2006.

     OTHER INCOME, NET

         For the first nine months of 2007, we had net interest income of
$302,000 compared to net interest income of $236,000 in the first nine months of
2006. This increase is attributable to higher interest rates and larger cash
balances attributable to operations.

     INCOME TAX BENEFIT

         The income tax benefit from the nine-month period ended September 30,
2007 is $466,000 as compared to $132,000 in the 2006 period. This amount is
subject to change based on earnings during the year.

     NET INCOME

         For the nine months ended September 30, 2007, we recorded a net profit
of $1.9 million, or $0.38 per share, basic and $0.37 per share diluted, compared
to a net income of $669,000 or $0.13 per share, basic and diluted, for the nine
months ended September 30, 2006. Earnings per share before the benefit of the
deferred tax asset would have been $0.29 and $0.28 per share basic and 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. To date we have used approximately $1.7 million of the net proceeds
from the offering to make acquisitions and $500,000 to repay debt.

         Our working capital as of September 30, 2007 was approximately $5.7
million compared to $4.7 million at December 31, 2006. Our current ratio at
September 30, 2007 was 1.97 to 1 compared to 1.94 to


                                       19
<PAGE>

1 at December 31, 2006. 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 $5.0 million at September 30, 2007
compared to $4.0 million at December 31, 2006. Most of this revenue is in the
form of subscription fees and will be earned over the next 12 months.

         At September 30, 2007, we had cash and cash equivalents of $9.3
million. For the nine months ended September 30, 2007, we reported a net
increase in cash of $1.9 million, which includes $2.4million of cash provided by
operating activities and $232,000 of cash provided by financing activities
offset by $739,000 of cash used in investing 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.

         For the 2007 period, cash used in investing activities included capital
expenditures of $157,000, which consisted primarily of computer equipment
purchases; capitalized course costs and software development costs relating to
our learning management system, aggregating $263,000 and $350,000 relating to
our 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 2007 period, cash provided by financing activities included
$243,000 from the exercise of stock options and warrants and $32,000 of short
swing profits (after deducting legal expenses) that we recovered from a
stockholder pursuant to Rule 16b promulgated under the Securities Exchange Act
of 1934. This amount was offset by $12,000 of payments under capital leases.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

         At September 30, 2007, we had no indebtedness. 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. The loan was repaid in August
2007.

         As of September 30, 2007, we had commitments under three operating
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; and (iii) a lease in Bridgewater, New Jersey
where Skye is based. Our financial commitment under all three leases aggregates
approximately $1.0 million through February 2010.

         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 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 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.  CONTROLS AND PROCEDURES

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management, with the
participation of our chief executive officer and 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, our chief executive officer and 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


                                       20
<PAGE>

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 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.


                                     PART II
                                OTHER 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 $1.5 million for
acquisitions. The remaining $4.0 million will be used for working capital and
general corporate purposes, including acquisitions.

COMPANY PURCHASES OF ITS EQUITY SECURITIES

         On November 7, 2006, 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 on the American Stock Exchange. To date no share repurchases
were made.

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
          -----------        -----------
             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.


                                       21
<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 6, 2007                   /s/ ALLEN S. GREENE
                                           -------------------
                                           Chief Executive Officer

Date:   November 6, 2007                   /s/ STANLEY P. WIRTHEIM
                                           -----------------------
                                           Chief Financial Officer
                                           (Principal Financial Officer)




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