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 JUNE 30, 2006

                        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 August 1, 2006, there were 5,060,274
shares of common stock outstanding.

Transitional Small Business Disclosure Format.

                                 Yes | | No |x|

<PAGE>

                                 SMARTPROS LTD.
                               FORM 10-QSB REPORT

                                  June 30, 2006

                                TABLE OF CONTENTS
                                      PAGE
PART I - FINANCIAL INFORMATION

   Item 1.  Condensed Consolidated Financial Statements (Unaudited)

            Balance Sheets - June 30, 2006 and December 31, 2005 (Audited)    3

            Statements of Operations for the six-month and three-month
             periods ended June 30, 2006 and 2005                             4

            Statements of Cash Flows for the six-month periods ended
             June 30, 2006 and 2005                                           5

            Notes to Condensed Consolidated Financial Statements              6

   Item 2.  Management's Discussion and Analysis or Plan of Operation         10

   Item 3.  Controls and Procedures                                           19

PART II - OTHER INFORMATION

   Item 1.  Legal Proceedings                                                 20

   Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds       20

   Item 3.  Defaults Upon Senior Securities                                   20

   Item 4.  Submission of Matters to a Vote of Security Holders               20

   Item 5.  Other Information                                                 20

   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 regarding the plans and objectives of management for
future operations and market trends and expectations. Such statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving the continued
expansion of our business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved. 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, and its predecessors.


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SMARTPROS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                             JUNE 30,         DECEMBER 31,
                                                                                               2006               2005
                                                                                           (UNAUDITED)          (AUDITED)
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                 <C>
ASSETS
Current Assets:
   Cash and cash equivalents                                                             $     7,351,738     $     7,505,691
   Accounts receivable, net of allowance for doubtful accounts
      of $39,179 and $40,429                                                                   1,403,059             777,122
   Prepaid expenses and other current assets                                                     202,324             254,176
                                                                                         -----------------------------------
Total Current Assets                                                                           8,957,121           8,536,989
                                                                                         -----------------------------------

Property and equipment, net                                                                      470,864             493,604
Goodwill                                                                                          53,434              53,434
Other intangibles, net                                                                         2,439,380           2,158,593
Other Assets, including restricted cash of $150,000                                              239,673             150,000
                                                                                         -----------------------------------
                                                                                               3,203,351           2,855,631
                                                                                         -----------------------------------
Total Assets                                                                             $    12,160,472     $    11,392,620
                                                                                         ===================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                                      $       243,067     $       228,629
   Accrued expenses                                                                              290,707             277,159
   Current portion of capital lease and equipment financing obligations                           29,011              38,148
   Deferred revenue                                                                            4,042,911           3,689,486
                                                                                         -----------------------------------
Total Current Liabilities                                                                      4,605,696           4,233,422
                                                                                         -----------------------------------

Long-Term Liabilities:
   Capital lease and equipment financing obligations                                              14,108              25,992
   Other liabilities                                                                             140,165             160,193
                                                                                         -----------------------------------
Total Long-Term Liabilities                                                                      154,273             186,185
                                                                                         -----------------------------------

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, 5,170,005
        issued and 5,060,274 outstanding at June 30, 2006 and 5,145,447 issued
        and 5,035,716 outstanding at December 31, 2005                                               517                 514
   Additional paid-in capital                                                                 16,486,357          16,418,034
   Accumulated (deficit)                                                                      (8,447,771)         (8,785,935)
                                                                                         -----------------------------------
                                                                                               8,039,103           7,632,613
   Common stock in treasury, at cost - 109,731 shares                                           (384,600)           (384,600)
   Deferred compensation                                                                         (54,000)            (75,000)
   Note receivable from stockholder                                                             (200,000)           (200,000)
                                                                                         -----------------------------------
Total Stockholders' Equity                                                                     7,400,503           6,973,013
                                                                                         -----------------------------------
Total Liabilities and Stockholders' Equity                                               $    12,160,472     $    11,392,620
                                                                                         ===================================
</TABLE>

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

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED                 THREE MONTHS ENDED
                                                                     JUNE 30,                          JUNE 30,
                                                           -----------------------------    --------------------------------
                                                               2006           2005               2006             2005
----------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>                 <C>            <C>
Net Revenues                                               $   5,455,472  $ 5,555,992         $   2,921,893  $  2,707,041
Cost of Revenues                                               2,205,096    2,240,944             1,218,409     1,158,235
                                                           -----------------------------    --------------------------------
   Gross Profit                                                3,250,376    3,315,048             1,703,484     1,548,806
                                                           -----------------------------------------------------------------

Operating Expenses:
   Selling, general and administrative                         2,834,392    2,710,830             1,466,713     1,275,670
   Depreciation and amortization                                 316,580      285,899               168,509       144,656
                                                           -----------------------------    --------------------------------
                                                               3,150,972    2,996,729             1,635,222     1,420,326
                                                           -----------------------------    --------------------------------
   Operating Income                                               99,404      318,319                68,262       128,480
                                                           -----------------------------    --------------------------------

Other Income (Expense):
   Interest income                                               154,667       77,022                81,207        47,468
   Interest expense                                               (2,992)      (5,130)               (1,405)       (1,829)
                                                           -----------------------------    --------------------------------
                                                                 151,675       71,892                79,802        45,639
                                                           -----------------------------    --------------------------------

Income before benefit for income taxes                           251,079      390,211               148,064       174,119


Income tax benefit                                               (87,085)           -               (40,085)
                                                           -----------------------------    --------------------------------
Net Income                                                 $     338,164  $   390,211         $     188,149  $    174,119
                                                           =============  ===========         =============  ============

Net Income Per Common Share:
   Basic net income per common share                       $         .07  $       .08         $         .04  $        .03
                                                           =============  ===========         =============  ============

   Diluted net income per common share                     $         .07  $       .08         $         .04  $        .03
                                                           =============  ===========         =============  ============
Weighted Average Number of Shares Outstanding
   Basic                                                       5,050,641    5,083,576             5,060,274     5,084,601
                                                           =============  ===========         =============  ============

   Diluted                                                     5,067,775    5,118,075             5.077,526     5,118,843
                                                           =============  ===========         =============  ============
</TABLE>




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



                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                  SIX MONTHS ENDED
                                                                                                       JUNE 30,
                                                                                                     (UNAUDITED)
                                                                                         -------------------------------------
                                                                                               2006               2005
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                  <C>
Cash Flows from Operating Activities:
Net income                                                                                 $   338,164          $   390,211
                                                                                         -------------------------------------
   Adjustments to reconcile net income to net cash provided by operating
      activities:
      Depreciation and amortization                                                            316,580              285,899
      Reduction in deferred compensation                                                        21,000               31,500
      Stock compensation expense                                                                15,526                    -
      Deferred income tax benefit                                                              (85,000)                   -
   Changes in operating assets and liabilities: (Increase) decrease in operating
      assets:
         Accounts receivable                                                                  (359,878)            (110,605)
         Prepaid expenses and other current assets                                              51,852                 (845)
         Other assets                                                                                -               17,196
      (Decrease) increase in operating liabilities:
         Accounts payable and accrued expenses                                                 (27,352)            (112,140)
         Deferred revenue                                                                      353,425             (110,017)
         Other liabilities                                                                     (20,028)              (2,178)
                                                                                         -------------------------------------
   Total adjustments                                                                           266,125               (1,190)
                                                                                         -------------------------------------
Net Cash Provided by Operating Activities                                                      604,289              389,021
                                                                                         -------------------------------------

Cash Flows from Investing Activities:
   Reduction in investment securities available-for-sale                                             -            1,250,000
   Acquisition of property and equipment                                                       (40,985)            (141,017)
   Capitalized course costs                                                                    (29,505)                   -
   Cash paid for acquisitions                                                                 (719,530)                   -
                                                                                         -------------------------------------
Net Cash (Used in) Provided by Investing Activities                                           (790,020)           1,108,983
                                                                                         -------------------------------------

Cash Flows from Financing Activities:
   Exercise of stock options                                                                    52,799                6,022
   Payments under capital lease obligations                                                    (21,021)             (32,554)
                                                                                         -------------------------------------
Net Cash Provided by (Used in) Financing Activities                                             31,778              (26,532)
                                                                                         -------------------------------------

Net (Decrease) Increase in Cash and Cash equivalents                                          (153,953)           1,471,472
Cash and Cash Equivalents, beginning of period                                               7,505,691            1,756,991
                                                                                         -------------------------------------
Cash and Cash equivalents, end of period                                                   $ 7,351,738          $ 3,228,463
                                                                                         =====================================

Supplemental Disclosure:
Cash paid for interest                                                                     $     2,992          $     5,130
                                                                                         =====================================
</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, 2005 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 30, 2006. 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, although in the
latter case only as of March 1, 2006. 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 its acquisitions of Sage Online and Skye
Multimedia in February 2006, the Company now also offers educational products
for the banking and pharmaceutical industries. SmartPros also produces custom
videos and rents out its studios.

         SmartPros is located in Hawthorne, New York, where it maintains its
corporate offices, new media lab, video production studios and tape duplication
facilities. While the Company's management monitors the revenue streams of the
various products and services, operations are managed and financial performance
is evaluated on a company wide basis. Accordingly, all of the Company's
operations are considered by management to be aggregated in one reportable
segment.

         USE OF ESTIMATES

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

         REVENUE RECOGNITION

         The Company recognizes revenues from its subscription services as
earned. Video and on-line subscriptions are generally billed on an annual basis,
while individual on-line 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, which is generally one year. Engineering products are
non-subscription based and revenue is recognized upon shipment or, in the case
of individual on-line sales, payment. Revenues from non-subscription services
provided to customers, such as website design, video production, consulting
services and custom projects are generally recognized on a proportional
performance basis where sufficient information relating to project status and
other supporting documentation is available. The contracts may have different
billing arrangements resulting in either unbilled or deferred revenue. The
Company obtains either signed agreements or purchase orders from its
non-subscription customers outlining the terms and conditions of


                                       6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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. Through June 30,
2006, the Company has expended approximately $30,000 on such costs. 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 the acquisition of Sage On-Line,
the Company acquired an additional $250,000 of course costs which are being
amortized over a five-year period as well. Included in other intangible assets
at June 30, 2006, are capitalized course costs of $568,666, net of accumulated
amortization of $208,481.

         DEFERRED REVENUE

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

         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 common shares outstanding
during the year. Basic earnings or loss per share exclude any dilutive effects
of options, warrants and convertible securities. Diluted earnings per common
share include the dilutive effect of shares of Common Stock issuable under stock
options 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 17,134 and 34,499 for the
six month periods ended June 30, 2006 and 2005 respectively and, 17,252 and
34,242 shares for the three-month periods ended June 30, 2006 and 2005
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 covering up to 882,319 shares of common stock to employees, directors
and consultants. As of June 30, 2006 there were 354,382 options outstanding, of
which 307,052 are currently exercisable and 498,477 options are available for
future grants. To date 29,460 options have been exercised. All stock options
under the Plan are granted at the fair market value of the common stock at the
grant date. Employee stock options 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.

         Effective January 1, 2006, the grants under the Plan are accounted for
in accordance with the recognition and measurement provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based
Payment ("SFAS No. 123(R)), which replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. SFAS No. 123(R) requires compensation costs related to
share-based payment transactions, including employee stock options, to be
recognized in the financial statements. In addition, the Company adheres to the
guidance set forth within Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and provides interpretations with respect to the valuation of share-based
payments for public companies.

                                       7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

         Prior to January 1, 2006, the Company accounted for similar
transactions in accordance with APB No. 25 which employed the intrinsic value
method of measuring compensation cost. Accordingly, compensation expense was not
recognized for fixed stock options if the exercise price of the option equaled
or exceeded the fair value of the underlying stock at the grant date.

         In June 2006 the Company's shareholders approved an amendment to the
Plan to include restricted stock grants of up to an aggregate of 200,000 shares
of the Company's common stock from the number of shares available for issuance
there under. Restricted stock may be granted only to employees, directors and
consultants. When granted, these awards are subject to forfeiture unless certain
time and/or performance requirements are satisfied. To date, no shares have been
issued under this plan.

         While SFAS No. 123 encouraged recognition of the fair value of all
stock-based awards on the date of grant as expense over the vesting period,
companies were permitted to continue to apply the intrinsic value-based method
of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as
if the fair value approach of SFAS No. 123 had been applied. In December 2002,
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,
an amendment of SFAS No. 123, was issued, which, in addition to providing
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation, required more
prominent pro-forma disclosures in both the annual and interim financial
statements. The Company complied with these disclosure requirements for all
applicable periods prior to January 1, 2006.

         In adopting SFAS No. 123(R), the Company applied the modified
prospective approach to transition. Under the modified prospective approach, the
provisions of SFAS No. 123(R) are to be applied to new awards and to awards
modified, repurchased, or cancelled after the required effective date of
December 15, 2005. Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of the
required effective date shall be recognized as the requisite service is rendered
on or after the required effective date. The compensation cost for that portion
of awards shall be based on the grant-date fair value of those awards as
calculated for either recognition or pro-forma disclosures under SFAS No. 123.

         As a result of the adoption of SFAS No. 123(R), the Company's results
for the six-month period ended June 30, 2006 include share-based compensation
expense totaling approximately $15,500. Such amounts have been included in the
Condensed Consolidated Statements of Operations within general and
administrative expenses. Stock compensation expense recorded under APB No. 25 in
the Consolidated Statements of Operations for the six months ended June 30, 2005
totaled $0.

         Stock option compensation expense in 2006 is the estimated fair value
of options granted amortized on a straight-line basis over the requisite service
period for the entire portion of the award.

         The weighted average estimated fair value of stock options granted in
the six months ended June 30, 2006 and 2005 was $1.20 and $0, respectively. The
fair value of options at the date of grant was estimated using the Black-Scholes
option pricing model. During 2006, the Company took into consideration guidance
under SFAS No. 123(R) and SAB 107 when reviewing and updating assumptions. The
expected volatility is based upon historical volatility of our stock and other
contributing factors. The expected term is based upon observation of actual time
elapsed between date of grant and exercise of options for all employees.
Previously such assumptions were determined based on historical data.

         The assumptions made in calculating the fair values of options for the
six month period ended June 30, 2006 is as follows:

              Contractual term (in years)                                  10
              Expected volatility                                          33%
              Expected dividend yield                                       0%
              Risk-free interest rate                                    4.75%
              Expected term (in years)                                    5.5

                                       8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

         The following table addresses the additional disclosure requirements of
SFAS No. 123(R) in the period of adoption. The table illustrates the effect on
net income and earnings per share as if the fair value recognition provisions of
SFAS No. 123 had been applied to all outstanding and unvested awards in the
prior year comparable period.

<TABLE>
<CAPTION>
                                                                    SIX MONTHS           THREE MONTHS ENDED
                                                                ENDED JUNE 30, 2005        JUNE 30, 2005
                                                                --------------------    ---------------------
<S>                                                                <C>                     <C>
Net income as reported                                             $     390,211           $      174,119
Add:  Stock-based compensation included in reported net
income
Deduct:  Total stock-based compensation expense determined
under fair value-based method for all awards (no tax
effect)                                                                  (15,212)                  (7,606)
                                                                   -------------           --------------
Pro forma net income                                               $     374,999           $      166,513
                                                                   =============           ==============

Net income per share:
Basic - as reported                                                $         .08           $          .03
                                                                   =============           ==============
Basic  - pro forma                                                 $         .08           $          .03
                                                                   =============           ==============

Diluted - as reported                                              $         .07           $          .03
                                                                   =============           ==============
Diluted - pro forma                                                $         .07           $          .03
                                                                   =============           ==============
</TABLE>


         The Company granted 15,100 options under the Plan during the six months
ended June 30, 2006 at exercise prices ranging from $3.00 per share to $3.05 per
share, 24,558 options were exercised at a price of $2.15 and 42,691 shares were
forfeited.

         The following table represents our stock options granted, exercised and
forfeited for the six months ended June 30, 2006:

<TABLE>
<CAPTION>
                                                  WEIGHTED AVERAGE       WEIGHTED AVERAGE       AGGREGATE
                                  NUMBER OF        EXERCISE PRICE           REMAINING           INTRINSIC
       STOCK OPTIONS               SHARES             PER SHARE          CONTRACTUAL TERM         VALUE
----------------------------    --------------    ------------------    -------------------   ---------------
<S>                                <C>                  <C>                    <C>               <C>
Outstanding at January 1,
  2006                             406,531              $4.67                  5.8
Granted                             15,100              $3.03
Exercised                          (24,558)             $2.15
Forfeited/expired                  (42,691)             $5.16
                                --------------
Outstanding at June 30,
  2006                             354,382              $4.71                  6.3               $73,485
                                ==============    ==================    ===================   ===============
Exercisable at June 30,
  2006                             307,052              $4.82                  6.3               $20,052
                                ==============    ==================    ===================   ===============
</TABLE>


         INCOME TAX EXPENSE

         Commencing January 1, 2006, the Company is recognizing the benefit of
its deferred income tax asset available from its net operating loss
carryforwards. This resulted in an income tax benefit of $85,000 for the six
months ended June 30, 2006, which is offset by an adjustment for over-accruals
of income tax of approximately $2,100.


                                       9
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

         THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
CERTAIN STATEMENTS IN THIS DISCUSSION AND ELSEWHERE IN THIS REPORT CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
AND EXCHANGE ACT OF 1934. SEE THE "FORWARD LOOKING STATEMENT" IMMEDIATELY
FOLLOWING THE TABLE OF CONTENTS. BECAUSE THIS DISCUSSION INVOLVES RISK AND
UNCERTAINTIES, OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO REVISE OR
UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON.

         We provide learning solutions for accounting/finance and engineering
professionals. We also provide learning solutions and training materials for
people who work in the banking and pharmaceutical industries. In addition, we
provide ethics and compliance training for the general corporate community.

         We commenced operations in 1981. Our initial product line was
educational videos for accounting and finance professionals that were designed
to meet the continuing professional education requirements of the various state
licensing agencies and professional associations. Since then, we have gradually
expanded our product offerings to address the ongoing educational needs of other
professional groups and corporate executives.

         In 2000 we acquired Virtual Education Corporation, or VEC, a provider
of license preparation and continuing professional development programs for
engineers. In May 2001, we acquired substantially all of the assets of Pro2Net.
In so doing, we acquired a library of "how to" accounting and finance programs
to augment our existing accounting courses, a functional learning content
management system that we could market with our programs, customer lists, trade
names and computer hardware.

         In April 2003, we acquired a library of custom-designed integrity-based
courses and other assets from Working Values Group Ltd., a company that
specialized in building custom-designed learning solutions for the general
corporate community using traditional and alternative instructional techniques.
As part of the transaction, we also hired the development team from Working
Values Group. With the increased focus on corporate governance and ethics and
the passage of the Sarbanes-Oxley Act of 2002 along with new rules and
regulations adopted by the national stock exchanges and markets, we believe that
there is a significant growth opportunity in supplying training that addresses
corporate culture as a significant risk factor. We acquired Working Values with
the intent of developing off-the-shelf ethics training course content for the
general corporate market that we could either license or sell on a subscription
basis. Initially, Working Values' primary focus was on developing customized
products for specific clients. Beginning in the second quarter of 2005, Working
Values renewed its focus on developing and licensing standardized training
modules. Working Values released its first courses in the first quarter of 2006.

         In February 2006, we acquired substantially all of the operating assets
and assumed certain liabilities of Skye Multimedia Inc. for approximately
$520,000. In addition, the selling shareholders of Skye Multimedia are entitled
to an additional payment based on the average earnings of Skye Multimedia
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
twenty business days subsequent to December 31, 2008. Skye Multimedia's sales
for the year 2005 were in excess of $1 million.

         As a result of this acquisition, through our new subsidiary, Skye
Multimedia Ltd., we develop custom interactive marketing and training
applications for CD, DVD, Internet and learning management systems. Skye
Multimedia offers a broad range of services including content design, animation,
and audio/video production and application development. Skye Mulitmedia's
clients are a diverse group of companies from pharmaceutical, financial,
technology and other industries. In the second quarter of 2006, Skye Multimedia
generated $370,000 in revenues, making this acquisition accretive sooner than we
expected.

         Also in February 2006, we acquired substantially all of the operating
assets and assumed certain liabilities from Sage International Group, Inc. As a
result, we acquired a library of 58 nationally certified


                                       10
<PAGE>

online training solutions for the banking, securities and insurance industries.
We offer "off-the-shelf" courses and custom designed programs with delivery
methods suited to the specific needs of our clients. Our customers include
professional firms of all sizes as well as many of the Fortune 500 companies and
a large number of midsize and small companies.

         Initially, our accounting/finance programs were delivered on videotape.
In 1998, we recognized that, to remain competitive, we would have to make our
products available in digital format for distribution over the Internet and
corporate intranets. Towards that end we hired information technology
professionals to build a new media department that, among other things, would
convert our programs to digital format for online delivery. Today, online
subscription sales are the fastest growing part of our business. In addition, as
part of the Pro2Net acquisition, we acquired a fully-developed learning
management system. As a result, we were able to terminate a contract with a
third party to develop a learning content management system, saving us
approximately $2 million in development costs. Our ability to provide the
value-added services represented by the learning management system is, we
believe, key to our recent revenue growth and future success.

         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) on-line sales, (iii) cash flows and (iv) EBITDA.

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

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

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

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

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

         In 2004, we raised approximately $6 million of net proceeds in an
initial public offering. To date, we have used approximately $1.2 million of
those proceeds; $500,000 to repay debt and $700,000 in connection with the
acquisitions of Sage Online and Skye Multimedia. We intend to use the remaining
$4.8 million net proceeds from the offering and our publicly-traded common stock
to execute our growth strategy, which contemplates acquiring other companies
that provide learning solutions or their assets. We continue to look for
acquisition opportunities. We intend to focus on acquisitions that will allow us
to increase the breadth and depth of our current product offerings, including
the general corporate market for compliance, governance and ethics. We will also
consider acquisitions that will give us access to new market segments such as
law, insurance, health care and financial services. We prefer acquisitions that
are accretive, as opposed to those that are dilutive, but ultimately the
decision will be based on maximizing shareholder value rather than short-term
profits. The size of the acquisitions will be determined, in part, by our size,
the capital available to us and the liquidity and price of our stock. We may use
debt to enhance or augment our ability to consummate larger transactions.

         There are many risks involved with acquisitions. These risks include
integrating the acquired business into our existing operations and corporate
structure, retaining key employees and minimizing disruptions to our existing
business. We cannot assure you that we will be able to identify appropriate
acquisitions opportunities or negotiate reasonable terms or that any acquired
business or assets will deliver the shareholder value that we anticipated at the
outset.

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


                                       11
<PAGE>

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
on-line sales, payment. Revenues from non-subscription services provided to
customers, such as website design, video production, consulting services and
custom projects, are generally recognized on a proportional performance basis
where sufficient information relating to project status and other supporting
documentation is available. Otherwise, these services are recognized as revenues
after completion and delivery to the customer. Duplication and related services
are generally recognized upon shipment or, if later, when our obligations are
complete and realization of receivable amounts is assured. Both Working Values
and Skye Multimedia recognize revenue on a proportional performance basis.

     EQUIPMENT, INTANGIBLE ASSETS AND LEASEHOLD IMPROVEMENTS

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

     IMPAIRMENT OF LONG-LIVED ASSETS

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

     STOCK-BASED COMPENSATION

         Effective January 1, 2006, we adopted SFAS No. 123R. As a result,
compensation costs are now recognized for stock options granted to employees.
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.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2006 AND 2005

         The second quarter of 2006 was our seventh straight quarter of
profitable results. The following table compares our statement of operations
data for the three months ended June 30, 2006 and 2005. The trends suggested by
this table may not he indicative of future operating results, which will depend
on


                                       12
<PAGE>

various factors including the relative mix of products sold (accounting/finance,
engineering or corporate training) 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. We continue to look for acquisition opportunities
although at this time we have nothing definite.

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED JUNE 30,
                                          ----------------------------------------------------------------------------
                                                     2005                            2006
                                          ----------------------------   -----------------------------
                                            AMOUNT        PERCENTAGE        AMOUNT         PERCENTAGE       CHANGE
                                          ------------    ------------   --------------    -----------    ------------
<S>                                       <C>                <C>         <C>                  <C>           <C>
Net revenues                              $ 2,707,041        100.0%      $   2,921,893        100.0%          7.9%
Cost of revenues                            1,158,235        42.80%          1,218,409         41.7%          5.2%
                                          ------------    ------------   --------------    -----------
Gross profit                                1,548,806         57.2%          1,703,484         58.3%         10.0%
                                          ------------    ------------   --------------    -----------
Selling, general and administrative         1,275,670         47.1%          1,466,713         50.2%         15.0%
Depreciation and amortization                 144,656          5.3%            168,509          5.8%         16.5%
                                          ------------    ------------   --------------    -----------
Total operating expenses                    1,420,326         52.4%          1,635,222         56.0%         15.1%
                                          ------------    ------------   --------------    -----------
Operating income                              128,480          4.8%             68,262          2.3%        (46.9%)
Other income, net                              45,639          1.6%             79,802          2.7%         74.9%
                                          ------------    ------------   --------------    -----------
Net income before income tax benefit          174,119          6.4%      $     148,064          5.0%        (15.0%)
Income tax benefit                                  -                           40,085          1.4%        100.0%
                                          ------------    ------------   --------------    -----------
Net income                                $   174,119          6.4%      $     188,149          6.4%          8.1%
                                          ------------    ------------   --------------    -----------
</TABLE>

     NET REVENUES

         Net revenues for the quarter ended June 30, 2006 increased
approximately $215,000, or 7.9%, compared to net revenues for the three months
ended June 30, 2005. This was primarily due to revenues from our newly acquired
Skye Multimedia subsidiary of approximately $370,000. Online sales continue to
be an important factor contributing to our overall revenue growth, a trend that
began in 2003. In the 2006 period, net revenues from online sales accounted for
approximately $717,000, or 25% of net revenues. In the 2005 period, net revenues
from online sales accounted for $816,000, or 30% of net revenues. In the 2005
period, the Company earned a non-repetitive fee and usage charge relating to a
course for one client in excess of approximately $200,000.

         In the second quarter of 2006, net revenues from our accounting/finance
and related products were $2.1 million or 71% of sales, compared to $2.0 million
or 75% of sales in the comparable 2005 period. Sales of our subscription based
products which include both subscription based revenue and direct sales of
course material on a non-subscription bases decreased slightly from $1.83
million in 2005 to $1.82 million in 2006. This decrease is due to the inclusion
of revenue from a non-repetitive fee and usage charge from the prior year as
previously mentioned. Exclusive of this usage fee our subscription based revenue
increased by approximately $131,000 as a result of our partnering with more
professional organizations and our continued marketing efforts to increase
sales. Revenue from other projects in our accounting division, which are non
subscription-based, increased from $171,000 in 2005 to $257,000 in 2006. As in
our technology and other areas, these sales fluctuate from period to period are
not indicative of any trends.

         Net revenues from sales of our engineering products, which are not
subscription-based, were $71,000 in the second quarter of 2006 compared to
$77,000 in the second quarter of 2005. This decrease is not indicative of any
trends in this division, but is a result of timing differences in the placement
of orders from customers.

         Net revenues from video production, duplication and consulting services
for the second quarter of 2006 were $249,000 compared to $489,000 for the second
quarter of 2005, reflecting the continuing decline in our video duplication
business and a decline in the video production business as a result of a change
in management in that department. In March 2006 we hired a new vice president of
video production and expect to see an increase in sales in that area in the
second half of 2006. Consulting revenue declined as a result of the completion
of large contracts in the first half of 2005. 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 second quarter of 2006 our new subsidiary, Skye Multimedia,
which we acquired on March 1, 2006, generated $370,000 of revenue. Also, sales
from our Sage Online course catalogue acquired in March 2006 generated $10,000
of revenue during the quarter.

                                       13
<PAGE>

         For the second quarter of 2006, Working Values contributed $147,000 to
net revenues compared to $116,000 in the second quarter of 2005. This income is
derived primarily from custom consulting work. Custom work is non-repetitive and
subject to market conditions and can vary from quarter to quarter. We expect
Working Values to continue its revenue growth for the balance of 2006 due to a
number of custom consulting projects currently in progress.

     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; (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. Skye Multimedia and our other non-subscription based
divisions operate on a lower gross profit percentage than that of our
subscription-based products. Nevertheless, our gross profit percentage increased
slightly for the quarter from 57.2% to 58.3% in the current period. In addition,
we have devoted a significant amount of internal resources in developing new
products and re-tooling existing products, which have not been capitalized and
are therefore included in our cost of revenues.

         Compared to the second quarter of 2005, cost of revenues in the second
quarter of 2006 increased by $60,000. The increase was primarily attributable to
payroll and related costs from our newly acquired subsidiary and other
production related costs. Despite the increased costs as a result of our
acquisitions, we have maintained our gross profit percentage.

     o    OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. Outside labor includes the
          cost of hiring actors and production personnel such as directors,
          producers and cameramen and the out-sourcing of non-video technology.
          The cost of such outside labor, which is primarily video production
          and technology personnel, decreased $82,000. This decrease is directly
          related to the lower sales in video production and consulting. The
          decrease in video production revenue also resulted in lower outside
          personnel costs. Direct production costs, which are costs related to
          producing videos other than labor costs, such as the cost of renting
          equipment and locations, and the use of outsourced labor in the
          technology area, increased $51,000. These variations are related to
          the type of video production and other projects and do not reflect any
          trends in our business. As our business grows we may be required to
          hire additional production personnel, increasing our cost of revenues.

     o    ROYALTIES. Royalty expense decreased in the three months ended June
          30, 2006 compared to the comparable 2005 period by $5,000. This
          decrease is due to reduced engineering sales that have various royalty
          arrangements.

     o    SALARIES. Overall, payroll and related costs attributable to
          production personnel increased by $78,000. We have reduced salaries
          and related costs in our video production department by $25,000 as a
          result of decreased business. However, that savings is offset by
          salaries and related costs in the Skye Multimedia subsidiary of
          approximately $100,000. There was an increase in the combined areas of
          technology and Working Values of approximately $3,000.

     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 increased slightly by $18,000
          from 2005 to 2006. This is a direct result of increased business from
          Working Values.


     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 increased by $191,000 in
the second quarter of 2006 from the comparable period in 2005. This represents a
15% increase from the prior period. This increase is primarily attributable to
the inclusion of Skye Multimedia's operating expenses in the current period.
General and administrative costs consist of a number of different types of
expenses, including salaries and related costs that increased by $129,000 from
2005 to 2006. The increase in salaries is a result of a number of factors
including additional personnel costs of approximately $126,000

                                       14
<PAGE>

as a result of our recent acquisitions, offset by savings in salary due to the
resignation of our president in the prior quarter. Selling costs, which includes
advertising, promotion, travel and entertainment, increased by $20,000. Our
other operating costs increased by approximately $42,000, including a $6,300
charge for recording the expense of stock options as now required by SFAS 123R,
and lowering our investor relations expense by $19,000 from the prior year. 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 primarily as a result of our
recent acquisitions and a general increase in such costs as health insurance and
travel.

     DEPRECIATION and AMORTIZATION

         Depreciation and amortization expenses increased by $24,000 in the
second quarter of 2006 compared to the second quarter of 2005 as a result of
increased amortization expense from our recent acquisitions and capitalized
course costs. We expect our depreciation and amortization expenses on our fixed
assets to continue to increase. 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 offset by the amortization of the intangibles acquired in
these acquisitions.

     INCOME FROM OPERATIONS

         For the three months ended June 30, 2006, net income from operations
was $68,000 compared to $128,000 in the comparable period of 2005. This decrease
is primarily attributable to the decline in revenues from our video production
and consulting divisions; internal costs incurred in integrating our new product
acquisitions; and from additional general and administrative costs from our new
subsidiary. Our quarterly earnings are affected by the mix of custom projects
compared to subscription and education-based sales.

     OTHER INCOME/EXPENSES

         Other income and expense items consist of interest paid on indebtedness
and interest earned on deposits. As a result of the successful completion of our
initial public offering, we were able to retire all of our debt (other than
capital lease obligations), reducing our interest expense. At the same time,
since we have not yet used the balance of the net proceeds from our initial
public offering, our interest income has increased. As a result, for the second
quarter of 2006 we had net interest income of $80,000 compared to net interest
income of $46,000 in the second quarter of 2005 after expending approximately
$720,000 for acquisitions in February 2006. The additional income is to due to
the increase in interest rates from 2005 to 2006.

     PROVISION FOR INCOME TAXES

         The Company has begun to account for deferred tax benefits available
from its net operating loss carryforward pursuant to SFAS No. 109. It is
anticipated that the Company will recognize approximately $200,000 in such
benefits this year, offset by any charges for the corporate alternative minimum
tax.

     NET INCOME

         For the three months ended June 30, 2006, we recorded net income of
$188,000, or $.04 per share, basic and diluted, compared to a net income of
$174,000, or $.03 per share, basic and diluted, for the three months ended June
30, 2005. This increase is attributable to the increases in net revenues and
interest income and the recognition of the income tax benefit, all offset by an
increase in operating expenses. Earnings per share before the income tax benefit
were $.03 per share.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2006 AND 2005

         The following table compares our statement of operations data for the
six months ended June 30, 2006 and 2005. The trends suggested by this table may
not he indicative of future operating results, which will depend on various
factors including the relative mix of products sold (accounting/finance,
engineering or corporate training) and the method of sale (video or online) 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. We continue to look for acquisition opportunities
although at this time we have nothing definite.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                   SIX MONTHS ENDED JUNE 30,
                                          ----------------------------------------------------------------------------
                                                     2005                            2006
                                          ----------------------------   -----------------------------
                                            AMOUNT        PERCENTAGE        AMOUNT         PERCENTAGE       CHANGE
                                          ------------    ------------   --------------    -----------    ------------
<S>                                       <C>                <C>         <C>                 <C>           <C>
Net revenues                              $ 5,555,992        100.0%      $   5,455,472       100.0%          (1.8%)
Cost of revenues                            2,240,944         40.3%          2,205,096        40.4%          (1.6%)
                                          ------------    ------------   --------------    -----------
Gross profit                                3,315,048         59.7%          3,250,376        59.6%          (2.0%)
                                          ------------    ------------   --------------    -----------
Selling, general and administrative         2,710,830         48.8%          2,834,392        52.0%           4.6%
Depreciation and amortization                 285,899          5.1%            316,580         5.8%          10.7%
                                          ------------    ------------   --------------    -----------
Total operating expenses                    2,996,729         53.9%          3,150,972        57.8%           5.1%
                                          ------------    ------------   --------------    -----------
Operating income                              318,319          5.8%             99,404         1.8%         (68.8%)
Other (expense), net                           71,892          1.2%            151,675         2.8%         111.0%
                                          ------------    ------------   --------------    -----------
Net income before income tax benefit          390,211          7.0%      $     251,079         4.6%         (35.7%)
Income tax benefit                                  -                           87,085         1.6%        100.00%
                                          ------------    ------------   --------------    -----------
Net income                                $   390,211          7.0%      $     338,164         6.2%         (13.3%)
                                          ------------    ------------   --------------    -----------
</TABLE>

     NET REVENUES

         Net revenues for the six months ended June 30, 2006 decreased
approximately $101,000, or 1.8%, compared to net revenues for the six months
ended June 30, 2005. This was primarily due to decreased revenues from our video
production and technology divisions, offset by sales from our new Skye
Multimedia subsidiary. Online sales continue to be an important factor
contributing to our overall revenue growth, a trend that began in 2003. In the
2006 and 2005 periods, net revenues from online sales were approximately
$1,422,000 and $1,404,000 or 26% of net revenues. In the 2005 period online
sales included a non-repetitive development fee and usage charge for a course
designed for one customer in excess of approximately $200,000.

         In the six months ended June 30, 2006, net revenues from our
accounting/finance and related products were $4.04 million or 74% of sales,
compared to $4.07 million or 73% of sales in the comparable 2005 period. Sales
of our subscription based products increased from $3.5 million in 2005 to $3.6
million in 2006. This increase is due to various factors, including converting a
number of our existing video customers to our online services, partnering with
more professional organizations and our continued marketing efforts to increase
sales. Revenue from other projects in our accounting division, which are not
subscription based, decreased from $584,000 in 2005 to $466,000 in 2006. As in
our technology and other areas, these sales fluctuate from period to period are
not indicative of any trends.

         Net revenues from sales of our engineering products, which are not
subscription-based, were $287,000 in the first six months of 2006 compared to
$323,000 in the first six months of 2005. This decrease is not indicative of any
trends in this division, but is a result of timing differences in the placement
of orders from customers.

         Net revenues from video production, duplication and consulting services
for the first six months of 2006 were $379,000 compared to $972,000 for the
first six months of 2005. This decrease is primarily attributable to the
continuing decline in our video duplication business, and a decline in the video
production business as a result of a change in management in that department. In
March 2006 we hired a new vice president of video production.

         In addition, we have included the results of our new subsidiary, Skye
Multimedia., which began operations on March 1, 2006. Skye Multimedia generated
$430,000 in revenue since its acquisition. Also, sales from our Sage Online
course catalogue acquired in March 2006 generated $19,000 of revenue.

         For the first six months of 2006, Working Values contributed $305,000
to net revenues compared to $186,000 in the first half of 2005. This income is
derived primarily from custom consulting work. Custom work is non-repetitive and
subject to market conditions and can vary from quarter to quarter.

     COST OF REVENUES

         For the period, we maintained our gross profit percentage, even after
including the operating results of Skye Multimedia that operates on a lower
gross profit percentage. This is typical of non-subscription based products.

                                       16
<PAGE>

         Compared to the first six months of 2005, cost of revenues in the first
half of 2006 decreased by $36,000. The decrease was primarily attributable to
both reduced personnel and sub-contracted labor costs related to various
projects in the technology department. Costs of revenues for the 2006 period
included approximately $10,000 of costs directly related to developing Working
Values' ethics courses and approximately $21,000 related to integrating Sage's
banking courses into our technology systems. Of the latter amount, $13,000 was
personnel costs and $8,000 reflects payments to third party consultants and
other expenses. The expenses that showed the greatest variations from 2005 to
2006 and the reasons for those variations were as follows:

     o    OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. Outside labor includes the
          cost of hiring actors and production personnel such as directors,
          producers and cameramen and the out-sourcing of non-video technology.
          The cost of such outside labor, which is primarily video production
          and technology personnel, decreased $148,000. This decrease is
          directly related to the completion of a number of custom technology
          and video projects in 2005 and the outsourcing of certain technology
          projects overseas where the labor rates are reduced. The decrease in
          video production revenue also resulted in lower outside personnel
          costs. Direct production costs, which are costs related to producing
          videos other than labor costs, such as the cost of renting equipment
          and locations and any outside costs related to technology or Skye
          Multimedia projects, increased $37,000. These variations are related
          to the type of video production and other projects and do not reflect
          any trends in our business. As our business grows we may be required
          to hire additional production personnel, increasing our cost of
          revenues.

     o    ROYALTIES. Royalty expense increased in the six months ended June 30,
          2006 compared to the comparable 2005 period by $36,000. This increase
          is due to a growth of sales in our accounting products and the mix of
          products in the engineering area that have various royalty
          arrangements.

     o    SALARIES. Overall, payroll and related costs attributable to
          production personnel increased by $66,000. Although we have reduced
          salaries and related costs in our video production department by
          $72,000 as a result of decreased business, that savings is offset by
          the salaries and related costs in our new Skye Multimedia subsidiary
          of approximately $139,000. Salaries in the combined areas of
          technology and Working Values were relatively flat.

     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 increased by $20,000 from 2005
          to 2006, primarily from travel costs related to various consulting and
          video projects.


     GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses in the first six months of 2006
increased by $124,000 from the comparable period in 2005. As a percentage of net
revenues they increased by 4.6% and as a percentage of net revenues they
increased from 48.8% to 52.0% from the prior year. These costs consist of a
number of different types of expenses. A few of the key elements of these
expenses are, personnel costs that increased by $177,000 from 2005 to 2006. This
increase is a result of additional personnel costs as a result of our recent
acquisitions. Although we have increased salaries and personnel in our sales and
marketing and finance departments, these were offset by reductions in other
personnel costs. Selling costs, which includes advertising, promotion, travel
and entertainment, increased by $15,000. Our other operating costs decreased by
approximately $68,000, including a $15,500 charge for recording the expense of
stock options as now required by SFAS No. 123R. We have reduced the costs of our
being a public company by lowering our investor relations expense by $30,000
from the prior year, and we continue to look for opportunities to reduce our
overhead further. Although, we make every effort to control our costs, we
anticipate that general and administrative expenses will continue to increase
primarily as a result of our recent acquisitions.

     DEPRECIATION and AMORTIZATION

         Depreciation and amortization expenses increased by $31,000 in the
first half of 2006 compared to the first half of 2005 as a result of increased
amortization expense from our recent acquisitions and capitalized course costs.
We expect our depreciation and amortization expenses on our fixed assets to
continue to increase. Although many of our older assets are either fully or
almost fully depreciated and we

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<PAGE>

do not anticipate replacing them at the same rate, this is offset by the
amortization of the intangibles acquired in these acquisitions.

     INCOME FROM OPERATIONS

         For the six months ended June 30, 2006, net income from operations was
$99,000 compared to $318,000 in the comparable period of 2005. This decrease is
primarily attributable to the decline in revenues from our video production and
consulting divisions; internal costs incurred in integrating our new product
acquisitions; and from increased general and administrative costs. Our quarterly
earnings are affected by the mix of custom projects compared to subscription and
education-based sales.

     OTHER INCOME/EXPENSES

         For the first half of 2006, we had net interest income of $152,000
compared to net interest income of $72,000 in the first half of 2005 after
expending approximately $720,000 for acquisitions in February 2006. This is to
due to the increase in interest rates from 2005 to 2006.

     PROVISION FOR INCOME TAXES

         The Company has begun to account for deferred tax benefits available
from its net operating loss carryforward pursuant to SFAS No. 109. It is
anticipated that the Company will recognize approximately $200,000 in such
benefits this year, offset by any charges for the corporate alternative minimum
tax.

     NET INCOME

         For the six months ended June 30, 2006, we recorded net income of
$338,000, or $.07 per share, basic and diluted, compared to a net income of
$390,000, or $.08 per share, basic and diluted, for the six months ended June
30, 2005. This decrease is attributable to lower revenues and higher operating
expenses offset by an increase in interest income and the income tax benefit
recorded in the 2006 period. Earnings per share before the income tax benefit
were $.05 per share.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

         Historically, we have financed our working capital requirements through
internally generated funds, sales of equity and debt securities and proceeds
from short-term bank borrowings. In October 2004, we completed our initial
public offering, which resulted in net proceeds to us of approximately $6
million. We have used approximately $720,000 of these funds to make
acquisitions.

         Our working capital as of June 30, 2006 was approximately $4.35 million
compared to $4.3 million at December 31, 2005. Our current ratio at June 30,
2006 was 1.94 to 1 compared to 2.02 to 1 at December 31, 2005. 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, $4.0 million at June 30, 2006
compared to $3.7 million at December 31, 2005, was deferred revenue, which is
revenue collected or billed but not yet earned under the principles of revenue
recognition. Most of this revenue is in the form of subscription fees and will
be earned over the next 12 months. The cost of fulfilling our monthly
subscription obligation does not exceed this revenue and is booked to expense as
incurred. For some of our products, there are no additional costs, other than
shipping costs, required to complete our obligations, as the material already
exists.

         The primary components of our operating cash flows are net income
adjusted for non-cash expenses, such as depreciation and amortization, and the
changes in accounts receivable, accounts payable and deferred revenues. For the
six months ended June 30, 2006, net cash provided by operating activities was
$604,000 and we had a net cash decrease of $153,000, which included an outlay of
approximately $720,000 for acquisitions. Included in the decrease is
approximately $70,000 for asset purchases and course capitalization. We also
received $53,000 from the exercise of stock options. Our accounts receivable and
deferred revenue have both increased by approximately $350,000 from the
beginning of the year, indicating a growth in sales that will be recognized in
subsequent periods.

         Capital expenditures for the six months ended June 30, 2006 were
approximately $70,000, which consisted primarily of computer equipment purchases
and the capitalization of internally produced courses for Working Values and our
SmartPros Advantage library of courses. Although, we continually upgrade

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<PAGE>

our technology hardware, we do not anticipate any significant capital
expenditures relating to equipment purchases over the next 12 months.

         At June 30, 2006, our only indebtedness consisted of capital lease
obligations, the balance of which was $43,000 compared to $64,000 at December
31, 2005. We have three leases with IDB Leasing, which had an aggregate
outstanding balance at June 30, 2006 of $25,000. One lease has a 48-month term
that expires in 2007, an imputed interest rate of 7.0% and monthly payments of
$2,055. A second lease has a 36-month term that expires in 2006, an imputed
interest rate of 7.5% and monthly payments of $996. The third lease has a
36-month term that expires in 2007, an imputed interest rate of 6.05% and a
monthly payment of $313. In August 2004, we financed the purchase of a van. The
loan is for a term of 36 months, bears interest at 4.99% per annum and requires
35 monthly payments of $358 and a final payment of approximately $13,800 due in
August 2007. The lender has agreed to repurchase the vehicle at our option for
the amount of the final payment less any applicable expenses, at the end of the
term. At June 30, 2006, the balance on the loan was $21,900.

         As of June 30, 2006, we had commitments under three operating leases -
the leases for executive offices in Hawthorne, New York, the Working Values
executive offices in Sharon, Massachusetts and the Skye Multimedia executive
offices in Bridgewater, New Jersey - aggregating $1.3 million through February
2010.

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

         In the future, we may issue additional debt or equity securities to
satisfy our cash needs. Any debt incurred or issued may be secured or unsecured,
at a fixed or variable interest rates and may contain other terms and conditions
that our board of directors deems prudent. Any sales of equity securities may be
at or below current market prices. We cannot assure you that we will be
successful in generating sufficient capital to adequately fund our liquidity
needs.

ITEM 3.  CONTROLS AND PROCEDURES

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

         CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no
changes in our internal controls over financial reporting that occurred during
the period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.


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<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS.

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

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

RECENT SALES OF UNREGISTERED SECURITIES

         There were no sales of unregistered securities during the period
covered by this Report.

USE OF PROCEEDS

         On October 19, 2004, our registration statement on Form SB-2,
commission file number 333-115454 (the "Registration Statement") registering the
offer and sale of units (each a "Unit" and collectively the "Units"), each Unit
consisting of three shares of our common stock, par value $.0001 per share, and
one and one-half common stock purchase warrants, was declared effective by the
U.S. Securities and Exchange Commission. The warrants included in the Units have
a term of five years and an exercise price of $7.125 per share. We sold all
600,000 Units covered by the Registration Statement. Paulson Investment Company,
Inc. was the representative of the underwriters of the offering. The gross
proceeds to us from the offering were $7.65 million and the net proceeds were
$6.0 million. As of the date hereof, we used $490,000 of the net proceeds to
repay indebtedness and approximately $700,000 for acquisitions. The remaining
$4.8 million will be used for working capital and general corporate purposes,
including acquisitions.

COMPANY PURCHASES OF ITS EQUITY SECURITIES

         On December 15, 2005, the Board of Directors approved a stock buy back
program under which $750,000 of company funds was allocated to purchase shares
of our common stock on the American Stock Exchange. There were no purchases
pursuant to the program in the second quarter.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On Thursday, June 15, 2006 at 10:00 A.M. eastern time we held our 2006
Annual Meeting of Stockholders for the purposes of (i) electing two (2) Class II
directors; (ii) approving an amendment to our 1999 stock option plan to provide
for restricted stock awards not to exceed 200,000 shares of common stock in the
aggregate; and (iii) obtaining advisory approval of the appointment of our
independent registered public accounting firm for the fiscal year ending
December 31, 2006.

         In connection with the Annual Meeting, proxies were solicited pursuant
to Regulation 14A under the Exchange Act and there was no solicitation in
opposition to any of the director-nominees. At the Annual Meeting, all of the
director-nominees, Joshua A. Weinreich and Jack Fingerhut, were re-elected for
three-year terms. Each director-nominee received at least 4,345,252 votes, which
represented 86% of the shares voted. The other directors, whose term of office
continued after the election, are Allen S. Greene, Martin H. Lager, John J.
Gorman and Bruce Judson. The proposal to amend our 1999 Stock Option Plan also
passed, receiving 3,433,473 votes in favor, which represented 68% of the shares
voted. Finally, advisory approval of the appointment of Holtz Rubenstein
Reminick LLP as our independent registered public accounting firm for the fiscal
year ended December 31, 2006 was ratified with 4,350,635 votes in favor,
representing 86% of the shares voted.

ITEM 5.  OTHER INFORMATION.

         None.

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<PAGE>

ITEM 6.  EXHIBITS.

a.       Exhibits:

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

            31.1    Certification of Chief Executive Officer pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

            31.2    Certification of Chief Financial Officer pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

            32.1    Certification of Chief Executive Officer and Chief Financial
                    Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.

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<PAGE>
                                   SIGNATURES

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

                                 SMARTPROS LTD.
                                  (Registrant)

Date:   August 8, 2006                            /s/ Allen S. Greene
                                                  -------------------
                                                  Chief Executive Officer

Date:   August 8, 2006                            /s/ Stanley P. Wirtheim
                                                  -----------------------
                                                  Chief Financial Officer
                                                  (Principal Financial Officer)

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