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, 2005


                        Commission File Number 001-32300


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

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

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

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


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

                                 Yes |x| No | |


Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of August 1, 2005, there were 5,085,340
shares of common stock outstanding.


Transitional Small Business Disclosure Format.

                                 Yes | | No |x|

<PAGE>


                                 SMARTPROS LTD.
                               FORM 10-QSB REPORT

                                  June 30, 2005

                                TABLE OF CONTENTS
                                                                            PAGE
PART I - FINANCIAL INFORMATION

     Item 1.  Condensed Consolidated Financial Statements (Unaudited)

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

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

              Statements of Cash Flows for the six-month period
              ended June 30, 2005 and 2004                                     5

              Notes to Interim Condensed Consolidated Financial Statements     6

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

     Item 3.  Controls and Procedures                                         17

PART II - OTHER INFORMATION

     Item 1.  Legal Proceedings                                               17

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

     Item 3.  Defaults Upon Senior Securities                                 18

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

     Item 5.  Other Information                                               18

     Item 6.  Exhibits                                                        18

SIGNATURES                                                                    19


                           FORWARD-LOOKING STATEMENTS

     Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934 regarding the plans and objectives of management for
future operations and market trends and expectations. Such statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving the continued
expansion of our business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved. The terms
"we", "our", "us", or any derivative thereof, as used herein refer to SmartPros
Ltd., a Delaware corporation, and its predecessors.

                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SMARTPROS LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

                                                       JUNE 30,    DECEMBER 31,
                                                         2005          2004
                                                     (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Current Assets:
  Cash and cash equivalents                         $  3,228,463   $  1,756,991
  Investment securities available-for-sale             3,750,000      5,000,000
  Accounts receivable, net of allowance for
    doubtful accounts of $71,000                       1,095,864        985,259
  Prepaid expenses and other current assets              176,116        175,270
                                                    ------------   ------------
         TOTAL CURRENT ASSETS                          8,250,443      7,917,520
                                                    ------------   ------------

Property and equipment, net                              567,381        544,176
Goodwill                                                  53,434         53,434
Other intangible, net                                  2,314,565      2,482,653
Other assets, including restricted cash of $150,000      150,000        167,196
                                                    ------------   ------------
                                                       3,085,380      3,247,459
                                                    ------------   ------------
          TOTAL ASSETS                              $ 11,335,823   $ 11,164,979
                                                    ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                  $    265,232   $    358,867
  Accrued expenses                                       355,488        373,993
  Current portion of capital lease and
    equipment financing obligations                       44,491         56,119
  Deferred revenue                                     3,631,449      3,741,466
                                                    ------------   ------------
         TOTAL CURRENT LIABILITIES                     4,296,660      4,530,445
                                                    ------------   ------------

Long-Term Liabilities:
  Capital lease and equipment financing obligations       43,094         64,020
  Other liabilities                                      162,729        164,907
                                                    ------------   ------------
         TOTAL LONG-TERM LIABILITIES                     205,823        228,927
                                                    ------------   ------------

Commitments and Contingencies
Stockholders' Equity:
  Convertible preferred stock, $.001 par value,
    authorized 1,000,000 shares, no shares issued
    and outstanding                                           --             --
  Common stock, $.0001 par value, authorized
    30,000,000 shares, 5,143,346 issued and
    5,085,340 outstanding at June 30, 2005;
    5,140,545 issued and 5,082,539 outstanding at
    December 31, 2004                                        514            514
  Common stock in treasury, at cost - 58,006 shares     (220,000)      (220,000)
  Additional paid-in capital                          16,413,517     16,407,495
  Accumulated (deficit)                               (9,064,691)    (9,454,902)
                                                    ------------   ------------
                                                       7,129,340      6,733,107
  Deferred compensation                                  (96,000)      (127,500)
  Note receivable from stockholder                      (200,000)      (200,000)
                                                    ------------   ------------
      TOTAL STOCKHOLDERS' EQUITY                       6,833,340      6,405,607
                                                    ------------   ------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $ 11,335,823   $ 11,164,979
                                                    ============   ============

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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                       3
<PAGE>


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

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED                   THREE MONTHS ENDED
                                                             JUNE 30,                            JUNE 30,
                                                   -----------------------------       -----------------------------
                                                      2005              2004              2005              2004
--------------------------------------------------------------------------------------------------------------------
<S>                                                <C>               <C>               <C>               <C>
Net Revenues                                       $ 5,555,992       $ 4,592,296       $ 2,707,041       $ 2,373,945
Cost of Revenues                                     2,240,944         1,686,988         1,158,235           833,514
                                                   -----------       -----------       -----------       -----------
  Gross Profit                                       3,315,048         2,905,308         1,548,806         1,540,431
                                                   -----------       -----------       -----------       -----------

Operating Expenses:
  Selling, general and administrative                2,710,830         2,355,409         1,275,670         1,170,219
  Depreciation and amortization                        285,899           346,226           144,656           175,255
                                                   -----------       -----------       -----------       -----------
                                                     2,996,729         2,701,635         1,420,326         1,345,474
                                                   -----------       -----------       -----------       -----------
  Operating Income                                     318,319           203,673           128,480           194,957
                                                   -----------       -----------       -----------       -----------

Other Income (Expense):
  Interest income                                       77,022             7,318            47,468             3,600
  Interest expense                                      (5,130)          (36,775)           (1,829)          (16,981)
                                                   -----------       -----------       -----------       -----------
                                                        71,892           (29,457)           45,639           (13,381)
                                                   -----------       -----------       -----------       -----------

Income before provision for income taxes               390,211           174,216           174,119           181,576

Provision for Income Taxes                                  --                --                --                --
                                                   -----------       -----------       -----------       -----------
Net Income                                         $   390,211       $   174,216       $   174,119       $   181,576
                                                   ===========       ===========       ===========       ===========

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

  Diluted net income per common share              $       .08       $       .05       $       .03       $       .06
                                                   ===========       ===========       ===========       ===========

Weighted Average Number of Shares Outstanding
  Basic                                              5,083,576         2,580,478         5,084,601         2,580,478
                                                   ===========       ===========       ===========       ===========

  Diluted                                            5,118,075         3,244,262         5,118,843         3,244,262
                                                   ===========       ===========       ===========       ===========
</TABLE>

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

                                       4
<PAGE>


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

                                                           SIX MONTHS ENDED
                                                               JUNE 30,
                                                      -------------------------
                                                         2005          2004
--------------------------------------------------------------------------------

Cash Flows from Operating Activities:
  Net income                                          $   390,211   $   174,216
                                                      -----------   -----------
  Adjustments to reconcile net income to net cash
      provided by operating activities:
    Depreciation and amortization                         285,899       346,226
    Reduction in deferred compensation                     31,500            --
  Changes in operating assets and liabilities:
    (Increase) decrease in operating assets:
      Accounts receivable                                (110,605)      (95,306)
      Prepaid expenses and other current assets              (845)     (313,073)
      Other assets                                         17,196            --
    (Decrease) increase in operating liabilities:
       Accounts payable and accrued expenses             (112,140)     (158,536)
       Deferred revenue                                  (110,017)      500,734
       Other liabilities                                   (2,178)           --
                                                      -----------   -----------
  Total adjustments                                        (1,190)      280,045
                                                      -----------   -----------
Net Cash Provided by Operating Activities                 389,021       454,261
                                                      -----------   -----------

Cash Flows from Investing Activities:
  Reduction in investment securities
    available-for-sale                                  1,250,000            --
  Acquisition of property and equipment                  (141,017)      (37,062)
                                                      -----------   -----------
Net Cash Provided by (Used in) Investing Activities     1,108,983       (37,062)
                                                      -----------   -----------

Cash Flows from Financing Activities:
  Proceeds from exercise of stock option                    6,022            --
  Payments on note payable - treasury stock                    --       (36,000)
  Proceeds from issuance of long-term debt                     --        10,135
  Payments on long-term debt                                   --      (136,002)
  Payments under capital lease obligations                (32,554)      (43,318)
                                                      -----------   -----------
Net Cash Used in Financing Activities                     (26,532)     (205,185)
                                                      -----------   -----------

Net Increase in Cash and Cash Equivalents               1,471,472       212,014
Cash and Cash Equivalents, beginning of period          1,756,991       546,993
                                                      -----------   -----------
Cash and Cash Equivalents, end of period              $ 3,228,463   $   759,007
                                                      ===========   ===========

Supplemental Disclosure:
  Cash paid for interest                              $     5,130   $    36,775
                                                      ===========   ===========

Supplemental Disclosure of Non Cash Investing
   and Financing Activities:
  Equipment purchased under capital leases            $        --   $    10,135
                                                      ===========   ===========


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

                                       5
<PAGE>


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

NOTE 1. BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements
of SmartPros Ltd. ("SmartPros" or the "Company"), included herein have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 2004 and the notes thereto
included in the Company's Annual Report on Form 10-KSB filed with the United
States Securities and Exchange Commission on March 25, 2005. Results of
consolidated operations for the interim periods are not necessarily indicative
of the operating results to be attained for the entire fiscal year. The
unaudited condensed consolidated financial statements herein include the
accounts of the Company and its wholly owned subsidiary, Working Values, Ltd.
All material inter-company accounts and transactions have been eliminated.

NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        The Company, a Delaware corporation, was organized in 1981 as Center for
Video Education, Inc. for the purpose of producing educational videos primarily
directed to the accounting profession. SmartPros' primary products today are
periodic video and Internet subscription services directed to corporate
accountants, financial managers and accountants in public practice. In addition,
the Company also produces a series of continuing education courses directed to
the engineering profession as well as a series of courses designed for
candidates for the professional engineering exam. Through its Working Values
subsidiary, the Company also develops various programs on governance, compliance
and ethics for corporations. SmartPros also produces custom videos and rents out
its studios. SmartPros is located in Hawthorne, New York, where it maintains its
corporate offices, new media lab, video production studios and tape duplication
facilities. While the Company's management monitors the revenue streams of the
various products and services, operations are managed and financial performance
is evaluated on a company wide basis. Accordingly, all of the Company's
operations are considered by management to be aggregated in one reportable
segment.

        USE OF ESTIMATES

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

        REVENUE RECOGNITION

        The Company recognizes revenues from its subscription services as
earned. Video subscriptions are generally billed on an annual basis, while
on-line subscriptions are paid by credit card at point of sale. Both of these
types of sales are deferred at the time of billing or payment and amortized into
revenue on a monthly basis over the term of the subscription, which is generally
one year. Engineering products are non-subscription based and revenue is
recognized upon shipment or, in the case of on-line sales, payment. Revenues
from non-subscription services provided to customers, such as website design,
video production, consulting services and custom projects are generally
recognized on a proportional performance basis where sufficient information
relating to project status and other supporting documentation is available. The
contracts may have different billing arrangements resulting in either unbilled
or deferred revenue. The Company obtains either signed agreements or purchase
orders from its non-subscription customers outlining the terms and conditions of
the sale or service to be provided. Otherwise, such services are recognized as
revenues after completion and delivery to the customer. Duplication and related
services are generally recognized upon shipment or, if later, when the Company's
obligations are complete and realization of receivable amounts is assured.

                                       6
<PAGE>


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

        CAPITALIZED COURSE COSTS

        Capitalized course costs include the direct cost of internally
developing proprietary educational products and materials that have extended
useful lives. Amortization of these capitalized course costs commences with the
realization of course revenues. The amortization period is three years. Other
course costs incurred in connection with any of the Company's monthly
subscription products or custom work are charged to expense as incurred.
Included in other intangible assets at June 30, 2005 are capitalized course
costs of $204,177, net of accumulated amortization of $90,657.

        DEFERRED REVENUE

        Deferred revenue related to subscription services represents the portion
of unearned subscription revenue, which is amortized on a monthly, straight-line
basis, as earned. Deferred revenue related to website design and video
production services represents that portion of amounts billed by the Company, or
cash collected by the Company, for which services have not yet been provided or
earned in accordance with the Company's revenue recognition policy.

        CAPITAL STOCK

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

        EARNINGS (LOSS) PER SHARE

        Basic earnings or loss per common share is net income or loss, as the
case may be, divided by the weighted average number of common shares outstanding
during the year. Basic earnings or loss per share exclude any dilutive effects
of options, warrants and convertible securities. Diluted earnings per common
share include the dilutive effect of shares of Common Stock issuable under stock
options, warrants and the Company's Series A Convertible Preferred Stock.
Diluted earnings per share are computed using the weighted average number of
Common Stock and Common Stock equivalent shares outstanding during the period.
Common Stock equivalent shares of 34,242 and 663,784 for the six- and
three-month periods ended June 30, 2005 and 2004 respectively, include the
Company's stock options and warrants that are dilutive.

        STOCK-BASED COMPENSATION

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

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

                                       7
<PAGE>


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

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED           SIX MONTHS ENDED
                                                            JUNE 30,                    JUNE 30,
                                                     -----------------------     -----------------------
                                                        2005          2004          2005          2004
                                                     ---------     ---------     ---------     ---------
<S>                                                  <C>           <C>           <C>           <C>
Net income  as reported                              $ 174,119     $ 181,576     $ 390,211     $ 174,216

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

Deduct: Stock-based compensation expense
        determined under fair value-based method        (7,606)      (39,038)      (15,212)      (78,076)
                                                     ---------     ---------     ---------     ---------

Pro forma net income                                 $ 166,513     $ 142,538     $ 374,999     $  96,140
                                                     =========     =========     =========     =========

Basic earnings  per share, as reported               $     .03     $     .07     $     .08     $     .07
                                                     =========     =========     =========     =========

Diluted earnings per share, as reported              $     .03     $     .06            08     $     .05
                                                     =========     =========     =========     =========

Pro forma basic earnings  per share                  $     .03     $     .05            07     $     .04
                                                     =========     =========     =========     =========

Pro forma diluted earnings  per share                $     .03     $     .04            07     $     .03
                                                     =========     =========     =========     =========
</TABLE>


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

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

        THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
CERTAIN STATEMENTS IN THIS DISCUSSION AND ELSEWHERE IN THIS REPORT CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
AND EXCHANGE ACT OF 1934. SEE THE "FORWARD LOOKING STATEMENT" IMMEDIATELY
FOLLOWING THE TABLE OF CONTENTS. BECAUSE THIS DISCUSSION INVOLVES RISK AND
UNCERTAINTIES, OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS.

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

        Our learning solutions for professionals are designed to meet the
initial and ongoing licensing and continuing professional education requirements
imposed by state licensing agencies and professional standards organizations.
Most of the courses in our accounting/finance library are designed to meet these
standards and adhere to the requirements of all state boards of accountancy as
well as those of the American Institute of Certified Public Accountants,
Institute of Management Accountants, Institute of Internal Auditors, the
Association of Finance Professionals, and the Association of Government
Accountants. In the engineering area, most of our courses have been approved for
continuing professional

                                       8
<PAGE>


development credit by one or more organizations, including the American Society
of Civil Engineers, the National Society of Professional Engineers, the American
Council of Engineering Companies, the American Society of Mechanical Engineers
and the Project Management Institute. Our corporate ethics and compliance
training programs are designed to align corporate behavior with applicable laws
and regulations, as well as generally accepted codes of conduct. So, for
example, our programs may deal with issues prompted by the Sarbanes-Oxley Act of
2002 and the U.S. Federal Sentencing Guidelines, as well as laws addressing
workplace misconduct such as harassment.

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

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

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

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

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

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

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

                                       9
<PAGE>


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

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

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

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

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

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

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

        In October 2004 we successfully completed our initial public offering.
The net proceeds to us from the offering were $6.0 million of which we
immediately used $500,000 to repay our outstanding indebtedness other than
capital leases. The remaining proceeds from the public offering are invested in
either money markets or short-term interest bearing securities. We intend to use
the remaining net proceeds, $5.5 million, cash from operations and our publicly
traded stock to execute our growth strategy, which contemplates acquiring other
companies and businesses that provide learning solutions. We intend to focus on
acquisitions that will allow us to increase the breadth and depth of our current
product offerings, including the general corporate market for compliance,
governance and ethics. We will also consider acquisitions that will give us
access to new market segments such as insurance, health care and financial
services. We prefer acquisitions that are accretive in the short term, as
opposed to those that are dilutive, but ultimately the decision will be based on
maximizing shareholder value rather than short-term profits. The size of the
acquisitions will be determined, in part, by our size, the capital available to
us and the liquidity and price of our stock. We may use debt to enhance or
augment our ability to consummate larger transactions.

        There are many risks involved with acquisitions. These risks include
integrating the acquired business into our existing operations and corporate
structure, retaining key employees and minimizing disruptions to our existing
business. We cannot assure you that we will be able to identify appropriate
acquisitions opportunities or negotiate reasonable terms or that any acquired
business or assets will deliver the shareholder value that we anticipated at the
outset. At the present time, we have no agreements or commitments for any
acquisitions. We cannot assure you that we will successfully complete any
acquisitions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

                                       10
<PAGE>


REVENUES

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

        Revenues from subscription services are recognized as earned, deferred
at the time of billing or payment and amortized into revenue on a monthly basis
over the term of the subscription. Engineering products are non-subscription
based and revenue is recognized upon shipment of the product or, in the case of
on-line sales, payment. Revenues from non-subscription services provided to
customers, such as website design, video production, consulting services and
custom projects, are generally recognized on a proportional performance basis
where sufficient information relating to project status and other supporting
documentation is available. Otherwise, these services are recognized as revenues
after completion and delivery to the customer. Duplication and related services
are generally recognized upon shipment or, if later, when our obligations are
complete and realization of receivable amounts is assured. Working Values
recognizes revenue on a proportional performance basis.

EQUIPMENT, INTANGIBLE ASSETS AND LEASEHOLD IMPROVEMENTS

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

STOCK-BASED COMPENSATION

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

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2005 AND 2004

        The following table compares our statement of operations data for the
three months ended June 30, 2005 and 2004. The trends suggested by this table
may not he indicative of future operating results, which will depend on various
factors including the relative mix of products sold (accounting/finance,
engineering or corporate training) and the method of sale (video or online).

                                       11
<PAGE>


<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED JUNE 30,
                                       -------------------------------------------------------------------------------
                                                  2004                              2005
                                       ----------------------------      ---------------------------
                                          AMOUNT        PERCENTAGE          AMOUNT       PERCENTAGE         CHANGE
                                       -----------     ------------      -----------    ------------     -------------
<S>                                    <C>                <C>            <C>               <C>               <C>
Net revenues                           $ 2,373,945        100.0%         $ 2,707,041       100.0%            14.0%
Cost of revenues                           833,514         35.1%           1,158,235        42.8%            39.0%
                                       -----------     ------------      -----------    ------------     -------------
Gross profit                             1,540,431         64.9%           1,548,806        57.2%              .5%
                                       -----------     ------------      -----------    ------------     -------------
Selling, general and administrative      1,170,219         49.3%           1,275,670        47.1%             9.0%
Depreciation and amortization              175,255          7.4%             144,656         5.3%           (17.4%)
                                       -----------     ------------      -----------    ------------     -------------
Total operating expenses                 1,345,474         56.7%           1,420,236        52.4%             5.6%
                                       -----------     ------------      -----------    ------------     -------------
Operating income                           194,957          8.2%             128,480         4.8%           (34.1%)
Other (expense), net                       (13,381)        (0.6) %            45,639         1.6%           441.1%
                                       -----------     ------------      -----------    ------------     -------------
Net income                             $   181,576          7.6%         $   174,119         6.4%            (4.1%)
                                       -----------     ------------      -----------    ------------     -------------

</TABLE>


    NET REVENUES

        Net revenues for the quarter ended June 30, 2005 increased 14.0%
compared to net revenues for the three months ended June 30, 2004. This increase
was primarily due to the development fee and usage charges relating to a custom
designed course for one client. Online sales continue to be an important factor
contributing to our overall revenue growth, a trend that began in 2003. In the
2005 period, net revenues from online sales accounted for approximately
$816,000, or 30% of net revenues. In the 2004 period, net revenues from online
sales accounted for $479,000, or 20% of net revenues.

        In the second quarter of 2005, net revenues from our accounting/finance
and related products were $2.0 million, compared to $1.7 million in the
comparable 2004 period. This increase is due to various factors, including
converting a number of our existing video customers to our online services,
partnering with more professional organizations and our continued marketing
efforts to increase sales and the one large sale referred to above. For the
second quarter of 2005, net revenues from accounting/finance products, which
includes both subscription-based revenue and direct sales of course material on
a non-subscription basis, was $1.85 million. Net revenues from custom work and
advertising were $171,000. For the comparable 2004 period, subscription-based
revenue and direct sales of course material on a non-subscription basis was $1.6
million, and net revenues from custom work and advertising was $119,000.

        Net revenues from sales of our engineering products, which are not
subscription-based, were $77,000 in the second quarter of 2005 compared to
$64,000 in the second quarter of 2004. This increase is due to our continual
sales and marketing efforts in this area.

        Net revenues from video production, duplication, consulting and
e-commerce services for the second quarter of 2005 were $489,000 compared to
$259,000 for the second quarter of 2004. This increase is primarily attributable
to the growth in custom work in both the technology and video production areas.
Under our long-standing policy, revenue is credited to the originating
department regardless of the type of service that is performed. For example, a
contract to convert videotapes to digital format is credited to the accounting
education department if that is where the sale originated, even if the project
has nothing to do with accounting. Custom work is non-repetitive and subject to
market conditions and can vary from quarter to quarter.

        For the second quarter of 2005 Working Values contributed $116,000 to
net revenues compared to $363,000 in the second quarter of 2004. In 2004, the
Company had two large consulting contracts for ethics-based training that it
completed during the year. In 2005, the Company began concentrating on
developing its newest product, Learning Moments. Custom work is non-repetitive
and subject to market conditions and can vary from quarter to quarter.

    COST OF REVENUES

        Cost of revenues includes production costs - I.E., the salaries,
benefits and other costs related to personnel, whether our employees or
independent contractors, who are used directly in production, including
producing our educational programs; royalties paid to third parties; the cost of
materials, such as videotape and packaging supplies; and shipping costs. There
are many different types of expenses that are characterized as production costs
and many of them vary from period to period depending on many factors.

                                       12
<PAGE>


        Compared to the second quarter of 2004, cost of revenues in the second
quarter of 2005 increased by $325,000. The increase was primarily attributable
to additional personnel and the cost of sub-contracted labor related to various
projects in the technology department. The expenses that showed the greatest
variations from 2004 to 2005 and the reasons for those variations were as
follows:

    o   OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. Outside labor includes the
        cost of hiring actors and production personnel such as directors,
        producers and cameramen and the out-sourcing of non-video technology.
        The cost of actors increased $7,000; the cost of video production and
        technology personnel increased $188,000. This increase is directly
        related to the outsourcing of labor associated with the completion of a
        number of custom technology and video projects. The higher than
        anticipated cost of such personnel reduced our margins during the
        quarter. Direct production costs, are costs related to producing videos
        other than labor costs, such as the cost of renting equipment and
        locations, decreased $4,000. These variations are related to the type of
        video production and other projects and do not reflect any trends in our
        business. As our business grows we may be required to hire additional
        production personnel, increasing our cost of revenues.

    o   ROYALTIES. Royalty expense increased in the 2005 period compared to the
        2004 period by $32,000. This increase was due to a growth of sales in
        our accounting and engineering products. During the first quarter of
        2004 the Company had over-accrued its royalty expense because some of
        our partners were behind in providing us with the necessary sales
        information. The adjustment for this over-accrual is reflected in lower
        costs for the second quarter of 2004.

    o   SALARIES. Overall, payroll and related costs attributable to production
        personnel increased by $115,000. Most of the increase - I.E., $105,000 -
        was attributable to our technology group.

    o   TRAVEL AND ENTERTAINMENT; SHIPPING. Travel and entertainment and
        shipping expenses increased only $1,000, reflecting our continuing
        effort to control costs.


    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. While general and administrative expenses in the second quarter
of 2005 were $105,000 higher than they were in 2004, as a percentage of net
revenues they decreased by 2%. Part of the increase is attributable to the costs
of being a public company, such as legal, accounting, investor relations,
insurance and regulatory expenses, which we did not have in the second quarter
of 2004. The increase in these expenses was $68,000. In addition, personnel
costs increased by $28,000, which is primarily due to increases in our
accounting department necessary to our being a public company. Selling costs,
which includes advertising, promotion, travel and entertainment, increased by
$9,000. Although, we make every effort to control our costs, we anticipate that
general and administrative expenses will continue to increase primarily as a
result of increased accounting, legal and insurance costs, attributable to the
fact that we are now a public company.

    DEPRECIATION and AMORTIZATION

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

    INCOME FROM OPERATIONS

        For the three months ended June 30, 2005 net income from operations was
$128,000 compared to $195,000 in the comparable period of 2004. This is
primarily attributable to the fact that the increase in net revenues was offset
by an increase in sub-contracted labor, additional personnel required for some
of our consulting jobs and the additional costs incurred related to being a
public company. Our quarterly earnings are effected by the mix of custom
projects compared to subscription and education-based sales.

                                       13
<PAGE>


    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 2005 we had net interest income compared to a net interest expense
for the second quarter of 2004.

    NET INCOME

        For the three months ended June 30, 2005, we recorded a net profit of
$174,119, or $.03 per share, basic and diluted, compared to a net income of
$181,576 or $.07 and $.06 per share, basic and diluted, for the three months
ended June 30, 2004. The decrease in net profit is attributable to increased
revenue offset by an increase in operating costs. The decrease in earnings per
share is a result of the additional shares issued in October 2004 in connection
with our public offering.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2005 AND 2004

        The following table compares our statement of operations data for the
six months ended June 30, 2005 and 2004. The trends suggested by this table may
not be indicative of future operating results, which will depend on various
factors including the relative mix of products sold (accounting/finance,
engineering or corporate training) and the method of sale (video or online).

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED JUNE 30,
                                       ------------------------------------------------------------
                                                  2004                             2005
                                       ----------------------------     ---------------------------
                                          AMOUNT        PERCENTAGE         AMOUNT       PERCENTAGE        CHANGE
                                       -----------     ------------     -----------    ------------    ------------
<S>                                    <C>                <C>           <C>               <C>             <C>
Net revenues                           $ 4,592,296        100.0%        $ 5,555,992       100.0%            21.0%
Cost of revenues                         1,686,988         36.7%          2,240,944        40.3%            32.8%
                                       -----------     ------------     -----------    ------------    ------------
Gross profit                             2,905,308         63.3%          3,315,048        59.7%            14.1%
                                       -----------     ------------     -----------    ------------    ------------
Selling, general and administrative      2,355,409         51.3%          2,710,830        48.8%            15.1%
Depreciation and amortization              346,226          7.5%            285,899         5.1%           (17.4)%
                                       -----------     ------------     -----------    ------------    ------------
Total operating expenses                 2,701,635         58.8%          2,996,729        53.9%            10.9%
                                       -----------     ------------     -----------    ------------    ------------
Operating income                           203,673          4.4%            318,319         5.8%            56.3%
Other (expense), net                       (29,457)         (.6)%            71,892         1.2%         (344.1)%
                                       -----------     ------------     -----------    ------------    ------------
Net income                             $   174,216          3.8%        $   390,211         7.0%           124.0%
                                       -----------     ------------     -----------    ------------    ------------
</TABLE>


    NET REVENUES

        Net revenues for the six months ended June 30, 2005 increased 21.0%
compared to net revenues for the six months ended June 30, 2004. Online sales
continue to be an important factor contributing to our overall revenue growth, a
trend that began in 2003. In the 2005 period, net revenues from online sales
accounted for approximately $1.44 million, or 26% of net revenues. In the 2004
period, net revenue from online sales accounted for $1.15 million, or 25% of net
revenues.

        For the six months ended June 30, 2005, net revenues from sales of
accounting and finance products grew in real dollars but was relatively flat as
a percentage of total net revenues compared to the six months ended June 30,
2004. In the first six months of 2005, net revenues from sales of
accounting/finance products were $4.07 million, or 73% of net revenues. For the
first six months of 2004, net revenues from sales of accounting/finance products
were $3.32 million, or 72% of net revenues. These increases are due in part to
an increased level of sales in the subscription-based products and a development
fee and usage charge related to a custom designed course for one customer. For
the first six months of 2005, net revenues from sales of accounting/finance
products, which includes subscription-based revenue and direct sales of course
material on a non-subscription basis, was $3.5 million. Net revenues primarily
from custom work and advertising was $584,000. For the first six months of 2004,
subscription-based revenue and direct sales of course material on a
non-subscription basis was $3.1 million, and net revenues from custom work and
advertising was $191,000 in the aggregate.

        Net revenues from sales of engineering products, which are not
subscription-based, increased in absolute terms but were relatively flat as a
percentage of total net revenues. For the six months ended June

                                       14
<PAGE>


30, 2005, net revenues from sales of engineering products were $323,000 or 5.8%
of net revenues. For the six months ended June 30, 2004, net revenues from sales
of engineering products were $251,000, or 5.5% of net revenues. The increase in
net revenue from sales of engineering products is primarily attributable to our
continuing effort to market existing products.

        For the first six months of 2005, Working Values contributed $186,000 to
net revenues compared to $375,000 for the first six months of 2004. The decrease
in revenues form Working Values in 2005 can be attributed to several factors. In
2004, the Company had two large consulting contracts for ethics-based training
courses. In addition, Working Values has been concentrating on adding scalable
products to its course library.

        Net revenues from video production, duplication, consulting and
e-commerce services for the first six months of 2005 were $972,000 compared to
$657,000 for the first six months of 2004. Of this increase, approximately
$61,000 was attributable to video production and duplication. Consulting
revenues increased by $254,000 over the comparable period of last year as a
result of completing two custom projects. In addition to doing custom work for
clients, the technology department provides services to the entire company.

    COST OF REVENUES

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

    o   OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. While the cost of actors
        decreased by $5,000, the cost of outsourced production personnel related
        to custom video and technology projects increased by $339,000. Direct
        production costs, other than labor, decreased $24,000.

    o   SALARIES. Overall, payroll and related costs attributable to production
        personnel increased by $200,000. Most of this increase was attributable
        to the fact that we added additional personnel to Working Values and to
        our consulting group to meet the demands of a number of custom projects
        and to design new products. In addition, the technology group has been
        redesigning and making continual improvements to our learning management
        system.

    o   ROYALTIES. Royalty expense for both periods was constant at $297,000. If
        sales volume increases, we expect the actual royalty payments in 2005
        will be higher than they were in 2004.


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

    GENERAL AND ADMINISTRATIVE EXPENSES

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

    DEPRECIATION and AMORTIZATION

        Depreciation and amortization expenses were lower in the six months
ended June 30, 2005 than they were in the comparable 2004 period, and as a
percentage of net revenues they decreased from 7.5% to 5.1%. The decrease is
attributable to the fact that although we continue to purchase additional
computer hardware many of our older assets are now fully depreciated. Through
June 2005 we acquired $141,000 of depreciable and amortizable assets compared to
$37,000 in the same period of 2004. In addition, many of our older assets are
either fully or almost fully depreciated. We expect our depreciation and
amortization

                                       15
<PAGE>


expenses to decrease as we realize the full effect of the asset acquisitions and
capitalized costs that were made before 2004.

    INCOME FROM OPERATIONS

        For the first six months of 2005 net income from operations was $318,000
compared to $204,000 in the comparable period of 2004. This increase is
primarily attributable to approximately $1 million increase in sales in the 2005
period, offset by the additional costs (i) for outside labor and personnel
necessary to complete custom projects and (ii) related to being a public
company.

    OTHER INCOME/ EXPENSES

        Other income and expense items consist of interest paid on indebtedness
and interest earned on deposits. The decrease in our net interest expense is due
primarily to the reduction in debt in the fourth quarter of 2004 following the
completion of our public offering. In addition, the approximately $5.5 million
of net proceeds from the offering (after repaying debt) and cash generated from
operations are invested in various money market funds and interest bearing
securities. This resulted in $72,000 of net income for the first six months of
2005 as compared to a net expense of $29,000 in the same period of 2004.

    NET INCOME

        For the six months ended June 30, 2005, we recorded a net profit of
$390,000 compared to $174,000 for the six months ended June 30, 2004. This
increase is attributable to increased revenues of almost $1 million, net
interest income of $72,000 and our continuing efforts to control our costs and
expenses.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

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

        Our working capital as of June 30, 2005 was approximately $3.95 million
compared to $3.39 million at December 31, 2004. Our current ratio at June 30,
2005 was 1.92 to 1 compared to 1.75 to 1 at December 31, 2004. The current ratio
is derived by dividing current assets by current liabilities and is a measure
used by lending sources to assess our ability to repay short-term liabilities.
The largest component of our current liabilities, $3.63 million at June 30, 2005
compared to $3.74 million at December 31, 2004, was deferred revenue, which is
revenue collected or billed but not yet earned under the principles of revenue
recognition. Most of this revenue is in the form of subscription fees and will
be earned over the next 12 months. The cost of fulfilling our monthly
subscription obligation does not exceed this revenue and is booked to expense as
incurred. For some of our products, there are no additional costs, other than
shipping costs, required to complete our obligations, as the material already
exists.

        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, 2005, net cash generated by operating activities was
$389,000 and we had a net cash increase of $1.47 million, which includes a $1.25
million transfer from investment securities held for sale. Exclusive of that
transfer, net cash increased by $221,000 after purchasing $141,000 of fixed
assets and debt reduction of $33,000 during the first half of the year.

        Capital expenditures for the six months ended June 30, 2005 were
approximately $141,000, which consisted primarily of computer equipment
purchases and the capitalization of internally produced courses for Working
Values. Although, we continually upgrade our technology hardware, we do not
anticipate any significant capital expenditures relating to equipment purchases
over the next 12 months.

        At June 30, 2005 our only indebtedness consisted of capital lease
obligations, the balance of which was $88,000 compared to $121,000 at December
31, 2004. We have three leases with IDB Leasing, which had an aggregate
outstanding balance at June 30, 2005 of $63,000. 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

                                       16
<PAGE>


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 addition, we have outstanding
balances on other capital leases of approximately $10,000. 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, 2005, the balance
on the loan was $21,000.

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

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

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


ITEM 3. CONTROLS AND PROCEDURES

        EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management, with the
participation of the chief executive officer and the chief financial officer,
carried out an evaluation of the effectiveness of our "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"). Based upon that
evaluation, the chief executive officer and the chief financial officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures are effective, providing them with material information relating to
us as required to be disclosed in the reports that we file or submit under the
Exchange Act on a timely basis.

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


                                     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

                                       17
<PAGE>


per share. We sold all 600,000 Units covered by the Registration Statement.
Paulson Investment Company, Inc. was the representative of the underwriters of
the offering. The gross proceeds to us from the offering were $7.65 million and
the net proceeds were $6.0 million. As of the date hereof, we used $490,000 of
the net proceeds to repay indebtedness. The remaining $5.5 million will be used
for working capital and general corporate purposes, including acquisitions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        None.

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

        On Thursday, June 9, 2005 at 10:00 A.M. eastern time we held our 2005
Annual Meeting of Stockholders for the purposes of electing two (2) Class I
directors and obtaining advisory approval of the appointment of our independent
registered public accounting firm for the fiscal year ending December 31, 2005.

        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 were re-elected for three-year terms. Each director-nominee
received at least 3,790,068 votes, which represented 75% of the shares voted. In
addition, advisory approval of the appointment of Holtz Rubenstein Reminick LLP
as our independent registered public accounting firm for the fiscal year ended
December 31, 2005 was ratified with 3,778,677 votes in favor, representing 74%
of the shares voted.

ITEM 5. OTHER INFORMATION.

        None.

ITEM 6. EXHIBITS.

a.      Exhibits:

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

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

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

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


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<PAGE>


                                   SIGNATURES

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


                                           Smartpros Ltd.
                                           --------------
                                           (Registrant)

Date:   August 12, 2005                    /s/ Allen S. Greene
                                           -------------------
                                           Chief Executive Officer

Date:   August 12, 2005                    /s/ Stanley P. Wirtheim
                                           -----------------------
                                           Chief Financial Officer
                                           (Principal Financial Officer)


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