UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.
20549

FORM 10-Q

QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

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
o


Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes o     No
o


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

| |                          |   |                            |  
| | ------------------------ | - | -------------------------- | -
| | Large
 accelerated filer | o | Accelerated
 filer         | o
| |                          |   |                            |  
| | Non-accelerated
 filer   | o | Smaller
 reporting company | x

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

Yes o     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 10, 2009, there were 5,079,351 shares of
common stock outstanding.

---



|                
|----------------
|SMARTPROS LTD.  
|                
|FORM 10-Q REPORT

June 30, 2009

TABLE OF CONTENTS

|                               |          |  |                                                                                                  |     
|------------------------------ | -------- |  | ------------------------------------------------------------------------------------------------ | ----
|                               |          |  |                                                                                                  | PAGE
|PART I  FINANCIAL INFORMATION |         
|                               |          |  |                                                                                                  |     
|                               | Item 1.  |  | Condensed Consolidated Financial Statements (Unaudited)                                          |     
|                               |          |  |                                                                                                  |     
|                               |          |  | Balance Sheets  June 30, 2009 and December 31, 2008 (Audited)                                   | 3   
|                               |          |  |                                                                                                  |     
|                               |          |  | Statements of Operations for the six-month and three-month
 periods ended June 30, 2009 and 2008 | 4   
|                               |          |  |                                                                                                  |     
|                               |          |  | Statements of Cash Flows for the six-month periods ended June 30,
 2009 and 2008                 | 5   
|                               |          |  |                                                                                                  |     
|                               |          |  | Notes to Condensed Consolidated Financial Statements                                             | 6   
|                               |          |  |                                                                                                  |     
|                               | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations           | 9   
|                               |          |  |                                                                                                  |     
|                               | Item 3.  |  | Quantitative and Qualitative Risk Disclosures About Market Risk                                  | 19  
|                               |          |  |                                                                                                  |     
|                               | Item 4T. |  | Controls and Procedures                                                                          | 20  
|                               |          |  |                                                                                                  |     
|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                                                                                | 21  
|                               |          |  |                                                                                                  |     
|                               | Item 6.  |  | Exhibits                                                                                         | 21  
|                               |          |  |                                                                                                  |     
|SIGNATURES                     | 21      

FORWARD-LOOKING
STATEMENTS

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

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

2

---



PART I
FINANCIAL INFORMATION

Item 1. Condensed
Consolidated Financial Statements

SMARTPROS LTD. AND
SUBSIDIARIES
Condensed Consolidated Balance Sheets

|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | ------------------------------ | - | ---------- | -
|                                                                                                                                                                                                 |  | June 30,
 2009 
 (Unaudited) |            | December 31,
 2008 
 (Audited) |  
|                                                                                                                                                                                                 |  |                              |            |                                |  
|ASSETS                                                                                                                                                                                           |  |                              |            |                                |   |            |  
|Current
 Assets:                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Cash and cash equivalents                                                                                                                                                                        |  | $                            | 6,243,895  |                                | $ | 6,626,181  |  
|Accounts receivable, net of allowance for
 doubtful accounts of $39,627 at June 30, 2009 and $39,677 at December 31,
 2008                                                                       |  |                              | 3,370,766  |                                |   | 3,114,139  |  
|Prepaid expenses and other current assets                                                                                                                                                        |  |                              | 192,408    |                                |   | 249,281    |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Total Current Assets                                                                                                                                                                             |  |                              | 9,807,069  |                                |   | 9,989,601  |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Property and
 equipment, net                                                                                                                                                                     |  |                              | 599,692    |                                |   | 607,988    |  
|Goodwill                                                                                                                                                                                         |  |                              | 3,375,257  |                                |   | 3,394,329  |  
|Other
 intangibles, net                                                                                                                                                                          |  |                              | 4,292,790  |                                |   | 4,500,639  |  
|Other
 assets, including restricted cash of $150,000                                                                                                                                             |  |                              | 160,626    |                                |   | 155,613    |  
|Deferred tax
 asset                                                                                                                                                                              |  |                              | 1,144,645  |                                |   | 1,103,923  |  
|Investment
 in joint venture, at cost                                                                                                                                                            |  |                              | 21,566     |                                |   | 23,890     |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|                                                                                                                                                                                                 |  |                              | 9,594,576  |                                |   | 9,786,382  |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Total Assets                                                                                                                                                                                     |  | $                            | 19,401,645 |                                | $ | 19,775,983 |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                             |  |                              |            |                                |   |            |  
|Current
 Liabilities:                                                                                                                                                                            |  |                              |            |                                |   |            |  
|Accounts payable                                                                                                                                                                                 |  | $                            | 653,630    |                                | $ | 779,870    |  
|Accrued expenses                                                                                                                                                                                 |  |                              | 218,015    |                                |   | 1,294,042  |  
|Deferred revenue                                                                                                                                                                                 |  |                              | 5,833,742  |                                |   | 5,576,607  |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Total Current Liabilities                                                                                                                                                                        |  |                              | 6,705,387  |                                |   | 7,650,519  |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|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, 5,562,100 issued and 5,079,351 outstanding at June 30,
 2009; and 5,324,316 issued and 4,841,567 outstanding at December 31, 2008 |  |                              | 556        |                                |   | 532        |  
|Additional paid-in capital                                                                                                                                                                       |  |                              | 17,479,765 |                                |   | 17,155,851 |  
|Accumulated (deficit)                                                                                                                                                                            |  |                              | (3,258,340 | )                              |   | (3,505,196 | )
|Common stock in treasury, at cost  482,749
 shares                                                                                                                                              |  |                              | (1,525,723 | )                              |   | (1,525,723 | )
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Total Stockholders Equity                                                                                                                                                                       |  |                              | 12,696,258 |                                |   | 12,125,464 |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  
|Total Liabilities and Stockholders Equity                                                                                                                                                       |  | $                            | 19,401,645 |                                | $ | 19,775,983 |  
|                                                                                                                                                                                                 |  |                              |            |                                |   |            |  

|                                                                      | 
|--------------------------------------------------------------------- | 
|                                                                      | 
|See Notes to Condensed Consolidated
 Financial Statements (Unaudited) | 

3

---



SMARTPROS LTD. AND
SUBSIDIARIES
Condensed Consolidated Statements of 
Operations (Unaudited)

|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|------------------------------------------------- |  | --------------------------- | --------- | ----------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | 
|                                                  |  | Six Months
 Ended
 June 30, |           | Three
 Months Ended
 June 30, |  
|                                                  |  |                             |           |                               |  
|                                                  |  |                             |           |                               |   |           |   |      |          
|                                                  |  | 2009                        |           | 2008                          |   | 2009      |   | 2008 |          
|                                                  |  |                             |           |                               |   |           |   |      |          
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Net revenues                                      |  | $                           | 9,085,287 |                               | $ | 7,937,534 |   | $    | 4,731,684 |   | $ | 4,061,871 | 
|Cost of
 revenues                                 |  |                             | 4,182,384 |                               |   | 3,555,961 |   |      | 2,181,624 |   |   | 1,673,385 | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Gross profit                                      |  |                             | 4,902,903 |                               |   | 4,381,573 |   |      | 2,550,060 |   |   | 2,388,486 | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Operating
 Expenses:                              |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Selling, general and administrative               |  |                             | 4,132,913 |                               |   | 4,050,167 |   |      | 2,054,693 |   |   | 2,018,911 | 
|Depreciation and amortization                     |  |                             | 497,551   |                               |   | 405,842   |   |      | 250,608   |   |   | 202,954   | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             | 4,630,464 |                               |   | 4,456,009 |   |      | 2,305,301 |   |   | 2,221,865 | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Operating
 income (loss)                          |  |                             | 272,439   |                               |   | (74,436   | ) |      | 244,759   |   |   | 166,621   | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Other Income
 (Expense):                          |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Interest income (net)                             |  |                             | 27,227    |                               |   | 148,593   |   |      | 10,559    |   |   | 28,568    | 
|Loss from joint venture                           |  |                             | (2,324    | )                             |   |          |   |      | (1,491    | ) |   |          | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             | 24,903    |                               |   | 148,593   |   |      | 9,068     |   |   | 28,568    | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Income
 before (provision) benefit for income tax |  |                             | 297,342   |                               |   | 74,157    |   |      | 253,827   |   |   | 195,189   | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|(Provision)
 benefit for income tax               |  |                             | (50,486   | )                             |   | 35,000    |   |      | (36,486   | ) |   | 35,000    | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Net income                                        |  | $                           | 246,856   |                               | $ | 109,157   |   | $    | 217,341   |   | $ | 230,189   | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Net income
 per common share:                     |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Basic net income per common share                 |  | $                           | .05       |                               | $ | .02       |   | $    | .04       |   | $ | .05       | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Diluted net income per common share               |  | $                           | .05       |                               | $ | .02       |   | $    | .04       |   | $ | .05       | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Weighted
 Average Number of Shares Outstanding:   |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Basic                                             |  |                             | 5,007,912 |                               |   | 4,974,721 |   |      | 5,072,913 |   |   | 4,955,678 | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 
|Diluted                                           |  |                             | 5,168,384 |                               |   | 5,027,312 |   |      | 5,239,710 |   |   | 4,990,698 | 
|                                                  |  |                             |           |                               |   |           |   |      |           |   |   |           | 

|                                                                      | 
|--------------------------------------------------------------------- | 
|                                                                      | 
|See Notes to Condensed Consolidated
 Financial Statements (Unaudited) | 

4

---



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

|                                                                                            |  |                             |           |      |   |            |  
|------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | ---- | - | ---------- | -
|                                                                                            |  | Six Months Ended 
 June 30, |          
|                                                                                            |  |                             |          
|                                                                                            |  | 2009                        |           | 2008 |  
|                                                                                            |  |                             |           |      |  
|Cash Flows
 from Operating Activities:                                                      |  |                             |           |      |   |            |  
|Net income                                                                                  |  | $                           | 246,856   |      | $ | 109,157    |  
|                                                                                            |  |                             |           |      |  
|Adjustments to reconcile net income to net
 cash provided by operating activities:          |  |                             |           |      |   |            |  
|Depreciation and amortization                                                               |  |                             | 497,551   |      |   | 405,842    |  
|Deferred compensation                                                                       |  |                             |          |      |   | 11,715     |  
|Stock compensation expense                                                                  |  |                             | 105,151   |      |   | 105,803    |  
|Deferred income taxes                                                                       |  |                             | (40,722   | )    |   | (35,000    | )
|Loss from joint venture                                                                     |  |                             | 2,324     |      |   |           |  
|Changes in operating assets and
 liabilities:                                               |  |                             |           |      |   |            |  
|(Increase) decrease in operating assets:                                                    |  |                             |           |      |   |            |  
|Accounts receivable                                                                         |  |                             | (256,627  | )    |   | 222,883    |  
|Prepaid expenses and other current assets                                                   |  |                             | 56,873    |      |   | 9,737      |  
|Other assets                                                                                |  |                             | (5,013    | )    |   |           |  
|(Decrease) increase in operating
 liabilities:                                              |  |                             |           |      |   |            |  
|Accounts payable and accrued expenses                                                       |  |                             | (283,478  | )    |   | (633,727   | )
|Deferred revenue                                                                            |  |                             | 257,135   |      |   | 714,646    |  
|Other liabilities                                                                           |  |                             |          |      |   | (20,028    | )
|                                                                                            |  |                             |           |      |   |            |  
|Total adjustments                                                                           |  |                             | 333,194   |      |   | 781,872    |  
|                                                                                            |  |                             |           |      |   |            |  
|Net Cash
 Provided by Operating Activities                                                  |  |                             | 580,050   |      |   | 891,028    |  
|                                                                                            |  |                             |           |      |   |            |  
|                                                                                            |  |                             |           |      |   |            |  
|Cash Flows
 from Investing Activities:                                                      |  |                             |           |      |   |            |  
|Acquisition of property and equipment                                                       |  |                             | (88,918   | )    |   | (178,417   | )
|Acquisition of course content                                                               |  |                             |          |      |   | (25,000    | )
|Capitalized software development costs                                                      |  |                             | (153,898  | )    |   | (433,212   | )
|Capitalized course costs                                                                    |  |                             | (38,592   | )    |   | (13,318    | )
|Adjustment to cash paid for goodwill                                                        |  |                             | 19,072    |      |   |           |  
|Additional purchase consideration for
 acquisition of Skye Multimedia Ltd.                  |  |                             | (700,000  | )    |   |           |  
|                                                                                            |  |                             |           |      |   |            |  
|Net Cash
 Used in Investing Activities                                                      |  |                             | (962,336  | )    |   | (649,947   | )
|                                                                                            |  |                             |           |      |   |            |  
|                                                                                            |  |                             |           |      |   |            |  
|Cash Flows
 from Financing Activities:                                                      |  |                             |           |      |   |            |  
|Exercise of stock options                                                                   |  |                             |          |      |   | 20,174     |  
|Purchase of treasury stock                                                                  |  |                             |          |      |   | (329,092   | )
|                                                                                            |  |                             |           |      |   |            |  
|Net Cash
 Used in Financing Activities                                                      |  |                             |          |      |   | (308,918   | )
|                                                                                            |  |                             |           |      |   |            |  
|                                                                                            |  |                             |           |      |   |            |  
|Net decrease
 in cash and cash equivalents                                                  |  |                             | (382,286  | )    |   | (67,837    | )
|Cash and
 cash equivalents, beginning of period                                             |  |                             | 6,626,181 |      |   | 10,072,338 |  
|                                                                                            |  |                             |           |      |   |            |  
|Cash and
 cash equivalents, end of period                                                   |  | $                           | 6,243,895 |      | $ | 10,004,501 |  
|                                                                                            |  |                             |           |      |   |            |  
|                                                                                            |  |                             |           |      |   |            |  
|Supplemental
 Disclosure of Cash Flow Information:                                          |  |                             |           |      |   |            |  
|Cash paid for interest                                                                      |  | $                           |          |      | $ | 140        |  
|                                                                                            |  |                             |           |      |   |            |  
|Cash paid for income taxes                                                                  |  | $                           | 10,000    |      | $ |           |  
|                                                                                            |  |                             |           |      |   |            |  
|                                                                                            |  |                             |           |      |   |            |  
|Supplemental
 Disclosure of Non-Cash Investing Activities:                                  |  |                             |           |      |   |            |  
|Stock issued for additional purchase
 consideration for acquisition of Skye Multimedia Ltd. |  | $                           | 218,783   |      | $ |           |  
|                                                                                            |  |                             |           |      |   |            |  

|                                                                     | 
|-------------------------------------------------------------------- | 
|                                                                     | 
|See Notes to
Condensed Consolidated Financial Statements (Unaudited) | 

5

---



Notes
to Condensed Consolidated Financial Statements (Unaudited)

Note 1.
Basis of Presentation

The
accompanying unaudited condensed consolidated financial statements of SmartPros
Ltd. and subsidiaries (SmartPros or the Company) have been prepared by the
Company in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q. 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, 2008, and the notes thereto included
in the Companys Annual Report on Form 10-K filed with the United States
Securities and Exchange Commission on March 24, 2009. Results of consolidated
operations for the interim periods are not necessarily indicative of a full
years operating results. The unaudited condensed consolidated financial
statements herein include the accounts of the Company and its wholly owned
subsidiaries, SmartPros Legal and Ethics, Ltd. (SLE), Skye Multimedia Ltd.
(Skye) and Loscalzo Associates, Ltd. (Loscalzo). All material inter-company
accounts and transactions have been eliminated. On July 1, 2009 the Company
acquired all of the operating assets of Executive Enterprise Institute (EEI).
EEI provides continuing professional education directed to accountants,
financial professionals and attorneys through live seminars conducted throughout
the United States.

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

Nature
of Operations

The
Company, a Delaware corporation, was organized in 1981 as Center for Video
Education Inc. for the purpose of producing educational programs primarily
directed to the accounting profession. SmartPros primary products today are
periodic video and internet subscription-based programs and services directed
to corporate accountants and financial managers, accountants in public practice
and CPA exam candidates. In 2008, the Company acquired Loscalzo, a leading
provider of live training to accountants. 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 wholly-owned subsidiary, SLE, the Company produces ethics,
governance and compliance programs for corporate clients, and through SLEs
Cognistar Legal division, produces online and customized training courses for
the legal profession. The Companys other wholly-owned subsidiary, Skye,
produces customized training solutions for a number of industries including the
pharmaceutical and professional services. In addition, the Companys Financial
Campus division owns a library of online training solutions for the banking,
securities and insurance industries, as well as courses designed for live
training. Through our WatchIT division we sell a subscription-based program and
develop custom courses for corporate information technology professionals.
Finally, SmartPros produces custom videos, rents out its studios and provides
multi-media and technology consulting services.

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

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

Use
of Estimates

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

6

---



Notes to
Condensed Consolidated Financial Statements (Unaudited)

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

Revenue
Recognition

The
Company recognizes revenue from its subscription services as earned.
Subscriptions are generally billed on an annual basis, deferred at the time of
billing and amortized into revenue on a monthly basis over the term of the
subscription, generally one year. Engineering products are non-subscription
based and revenue is recognized upon shipment or, in the case of online sales,
upon receipt of payment. Revenues from other non-subscription services, such as
website design, video production, consulting services, and custom projects, are
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 products or services to be provided. Otherwise, revenues are recognized
after completion and/or delivery of services to the customer. Revenue from live
training programs is recognized upon completion of the conference or seminar,
which usually lasts one or two days.

Capitalized
Course Costs

Capitalized
course costs include the direct cost of internally developing proprietary
educational products and materials that have extended useful lives.
Amortization of these capitalized course costs commences when the courses are
available for sale from the Companys catalog. The amortization period is the
estimated useful lives of the courses, which are usually five years. Other
course costs incurred in connection with any of the Companys monthly
subscription products or custom work is charged to expense as incurred. As a
result of recent acquisitions, the Company acquired $800,000 of course costs
that are being amortized over a five-year period. Included in other intangible
assets at June 30, 2009, are capitalized course costs of $210,000, net of
accumulated amortization of $60,000.

Deferred
Revenue

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

Earnings
Per Share

Basic
earnings or loss per common share is net income or loss, as the case may be,
divided by the weighted average number of outstanding shares outstanding of the
Companys common stock, par value $.0001 per share (the Common Stock) during
the period. Basic earnings or loss per share exclude any dilutive effects of
options, warrants and convertible securities. Diluted earnings per common share
include the dilutive effect of shares of Common Stock issuable under stock
options and warrants. Diluted earnings per share are computed using the
weighted average number of Common Stock and Common Stock equivalent shares
outstanding during the period. Common Stock equivalent shares for the six-month
period ended June 30, 2009 and 2008 were 160,472 and 52,591, respectively and
for the three-month period ended June 30, 2009 and 2008 were 166,797 and
35,020, respectively..

Note
3. Stock-Based Compensation

The
Companys 2009 Stock Option Plan (the Plan) permits the grant of options and
restricted stock to employees, directors and consultants. The total number of
shares currently reserved for grants under the 2009 Incentive Compensation Plan
adopted at the Companys annual meeting in June 2009 is 800,000, provided that
restricted stock grants may not exceed 200,000 shares. As of June 30, 2009,
there

7

---



Notes to
Condensed Consolidated Financial Statements (Unaudited)

Note 3.
Stock-Based Compensation (contd)

were 401,671 options outstanding, of which 284,412 are
currently exercisable, and restricted stock grants totaled 136,010, none of
which had vested as of June 30, 2009. All stock options and restricted stock
awards granted under the Plan are granted at the fair market value of the
Common Stock at the grant date. Employee and director stock options generally
expire 10 years from the grant date and have various vesting periods. Unvested
shares are subject to forfeiture unless certain time and/or performance
requirements are satisfied.

SFAS
No. 123R authorizes the use of a valuation model to calculate the fair value of
stock-based awards. The Company has elected to use the BSM option-pricing
model, which incorporates various assumptions including volatility, expected
life, interest rates and dividend yields. The expected volatility is based on
the historic volatility of the Companys Common Stock over the most recent
period commensurate with the estimated expected life of the Companys stock
options, adjusted for the impact of unusual fluctuations not reasonably
expected to recur. The expected life of an award is based on historical
experience and on the terms and conditions of the stock awards granted to
employees and directors. The Company has recorded an incremental stock-based
compensation expense of $105,000 and $106,000 for the six-month periods ended
June 30, 2009 and 2008, respectively.

The
assumptions used for the six-month periods ended June 30, 2009 and 2008, and
the resulting estimates of weighted-average fair value of options granted
during those periods are as follows:

|                                                          |  |                           |      |      |   |          |  
|--------------------------------------------------------- |  | ------------------------- | ---- | ---- | - | -------- | -
|                                                          |  | Six months ended June 30, |     
|                                                          |  | 2009                      |      | 2008 |  
|                                                          |  |                           |      |      |  
|Expected life (years)                                     |  |                           | 5.1  |      |   | 5.5      |  
|Risk-free interest rate                                   |  |                           | 1.99 | %    |   | 2.8%-3.0 | %
|Volatility                                                |  |                           | 45.0 | %    |   | 45.0     | %
|Dividend yields                                           |  |                           |     |      |   |         |  
|Weighted-average fair value of options during the
 period |  | $                         | 2.54 |      | $ | 2.29     |  

The
Company granted 55,750 options under the Plan during the six months ended June
30, 2009 at an exercise price of $2.54 per share. In addition, the Company
granted 10,000 options on July 1, 2009 immediately exercisable at a price of
$3.50 in conjunction with the acquisition of EEI.

The
following table represents our stock options granted, exercised and forfeited
for the six months ended June 30, 2009:

|                                |  |                   |         |                                             |   |                                               |  |      |  | 
|------------------------------- |  | ----------------- | ------- | ------------------------------------------- | - | --------------------------------------------- |  | ---- |  | 
|Stock Options                   |  | Number
 of Shares |         | Weighted Average
 Exercise Price per
 Share |   | Weighted Average
 Remaining
 Contractual Term | 
|                                |  |                   |         |                                             |   |                                               | 
|                                |  |                   |         |                                             |   |                                               |  |      |  | 
|Outstanding at January 1,
 2009 |  |                   | 365,144 |                                             | $ | 4.71                                          |  | 5.7  |  | 
|Granted                         |  |                   | 55,750  |                                             | $ | 2.54                                          |  | 10.0 |  | 
|Exercised                       |  |                   |        |                                             |   |                                              |  |     |  | 
|Forfeited/expired               |  |                   | (19,223 | )                                           | $ | 4.74                                          |  |     |  | 
|                                |  |                   |         |                                             |   |                                               |  |      |  | 
|Outstanding at June 30,
 2009   |  |                   | 401,671 |                                             | $ | 4.43                                          |  | 5.7  |  | 
|                                |  |                   |         |                                             |   |                                               |  |      |  | 
|Exercisable at June 30,
 2009   |  |                   | 284,412 |                                             | $ | 4.56                                          |  | 5.9  |  | 
|                                |  |                   |         |                                             |   |                                               |  |      |  | 

8

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Note 4.
Income Tax Benefit

The
Company recognizes a deferred income tax asset available from its net operating
loss carryforwards, which begin to expire in 2023. This benefit is offset by
any corporate alternative minimum income tax. The Company is currently
utilizing its available net operating loss carryforwards to offset current
taxable income and as such has recognized a net income tax expense of
approximately $50,000 for the six-months ended June 30, 2009. The Company has
approximately $1.1 million of remaining deferred income tax assets as of June
30, 2009 primarily on account of net operating loss carryforwards. The Company
does not believe that it takes any uncertain income tax positions that would
require disclosure under Financial Interpretation No. 48, Accounting for
Uncertainty in Income Taxes.

Note 5.
Stockholders Equity

In
February 2009 the Company issued an additional 18,116 shares of our common
stock as part of the 2008 bonus paid in 2009. These shares vest over a
three-year period. The remaining bonuses were paid in cash. The Companys
Compensation Committee awarded 98,500 shares of our common stock to various
officers and employees from our Incentive Stock Plan to align the stockholders
interest with those of management and senior level employees and as an
inducement for those employees to remain with the Company. Of these grants,
50,000 shares vest ratably over a four-year period and the remaining 48,500
shares vest at the end of three years.

In
April 2009 the Company issued 83,825 shares of our common stock in satisfaction
of the earn-out contingent purchase price for the Skye assets.

Note 6.
New Accounting Pronouncements

In
May 2009, the FASB issued SFAS No. 165, Subsequent
Events, which provides guidance on managements assessment of
subsequent events. This standard establishes the accounting and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for
that date. SFAS 165 is effective for interim and annual periods ending after
June 15, 2009. In accordance with SFAS 165, the Company reviewed the events for
inclusion in the financial statements through the filing date. The
implementation of this standard did not have a material impact on the Companys
consolidated financial statements.

In
July 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, (the Codification). The Codification will be
the single source of authoritative U.S. nongovernmental generally accepted
accounting principles. The Codification does not change generally accepted accounting
principles, but is intended to make it easier to find and research issues and
will change the way GAAP is referenced. The Codification is effective for
interim and annual periods ending after September 15, 2009. The Company will
begin to use the new Codification when referring to GAAP in its financial
statements for the third quarter of 2009.

*     *     *

Item 2.  Managements Discussion and Analysis of
Financial Condition and Results 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 Forward-Looking Statements following the Table
of Contents of this 10-Q. Because this discussion involves risk and
uncertainties, our actual results may differ materially from those anticipated
in these forward-looking statements.

Overview

We
provide learning solutions for accounting/finance, legal, insurance, securities
and engineering professionals  five large vertical markets with mandatory
continuing education requirements. In addition, we provide training solutions
for the banking, insurance, information technology industries and others. We

9

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also provide
information technology, corporate governance, ethics and compliance training
for the general corporate market. We offer off-the-shelf courses and
custom-designed programs with delivery methods suited to the specific needs of
our clients. Through our wholly-owned subsidiary, Loscalzo Associates Ltd.,
acquired in July 2008, we are a leading provider of live training to
accountants. These courses are delivered through various state CPA societies,
accounting firms, corporations or through seminars and conferences that they
conduct. Our customers include professional firms of all sizes, and a large
number of midsize and small companies.

We
measure our operations using both financial and other metrics. The financial
metrics include revenues, gross margins, operating expenses and income from
continuing operations. Other key metrics include (i) revenues by sales source,
(ii) online sales, (iii) cash flows and (iv) EBITDA.

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

| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
 increasing recognition by professionals and corporations that they must
 continually improve their skills and those of their employees in order to
 remain competitive;
| |   |                                                                                                                                                                             
| |  | Continuing
 professional education requirements by governing bodies, including states and
 professional associations;                                                       
| |   |                                                                                                                                                                             
| |  | The plethora
 of new laws and regulations affecting the conduct of business and the
 relationship between employers and their employees;                                    
| |   |                                                                                                                                                                             
| |  | The
 increased competition in todays economy for skilled employees and the
 recognition that effective training can be used to recruit and train
 employees; and           
| |   |                                                                                                                                                                             
| |  | The
 development and acceptance of the Internet as a delivery channel for the
 types of products and services we offer.                                                     

Over
the last four years, our annual revenues have grown from $10.2 million to $18.3
million and our annual net operating income has grown from $739,000 to $1.3
million. This growth is due in large part to eight acquisitions that we have
completed in this period. Our most recent acquisition was in July 2009, when we
acquired Executive Enterprise Institute (EEI), which provides continuing
professional education directed to accountants, financial professionals and
attorneys through live seminars conducted throughout the United States. In
addition, the president of EEI received 10,000 options that vested immediately
at an exercise price of $3.50. In conjunction with the recent acquisition of
EEI, we anticipate increased operating costs in the second half of the year as
we build EEIs business. EEI has historically earned the majority of its
revenues in the second and fourth calendar quarters of each year. Marketing and
related costs associated with these seminars produced by EEI will be expensed
in the quarter in which the seminars take place. However, other operating
costs, such as payroll, will be recorded as incurred. This will likely have an
adverse effect on our operating results in the third quarter of 2009.

In
August 2009 we hired a senior executive to assist one of our division heads who
we believe will be reducing their time significantly in the second half of
2010.

We
intend to continue to focus primarily on acquisitions that will allow us to
increase the breadth and depth of our current product offerings. We will also
consider acquisitions that will give us access to new markets and products. We
prefer acquisitions that are accretive within the first year of ownership, 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, some of which are discussed in Item
1 of Part 1 under the caption Certain Risk Factors That May Affect Our Growth
and Profitability of our annual report on Form 10-K for the fiscal year ended
December 31, 2008. 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 that we will
be able to identify appropriate acquisition opportunities or negotiate
reasonable terms or that any acquired business or assets will deliver the
shareholder value that we anticipated at the outset.

10

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Our
common stock and warrants are traded on the NASDAQ Capital Market under the
symbols SPRO and SPROW, respectively.

Critical Accounting Policies and Estimates

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

Revenue

A
large portion of our revenue is in the form of subscription fees for our
monthly accounting update programs or access to our library of accounting, financial
services training and legal courses. Other sources of revenue include direct
sales of programs or courses on a non-subscription basis or from various forms
of live training, fees for Web site design, software development, video
production, video conversion, course design and development, ongoing
maintenance of the PEC, 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. Larger transactions are usually
dealt with by contract, the financial terms of which depend on the services
being provided. 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.

Revenue
from subscription services are recognized as earned; deferred at the time of
billing or payment and amortized into revenue on a monthly basis over the term
of the subscription. Engineering products are non-subscription based and
revenue is recognized upon shipment of the product or, in the case of online
sales, payment. Revenue from non-subscription services provided to customers,
such as Web site design, video production, consulting services and custom
projects is 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. We obtain either
a signed agreement or purchase order from our non-subscription customers
outlining the terms and conditions of the sale or service to be provided.
Otherwise, these services are recognized as revenue 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.

Revenue
from live training is recognized when the seminar or conference is completed.
These are usually one or two day events.

Impairment
of long-lived assets

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

Stock-based
compensation

Compensation
costs are now recognized in the financial statements for stock options or
grants awarded to employees and directors. 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 stock-based instrument granted.

11

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Segment
accounting

All
of our operations constitute a single segment, that of educational services.
Revenues from non-educational services, such as video production are not a
material part of our operating income.

Results of Operations

Comparison
of three months ended June 30, 2009 and 2008

Our
operating results for the quarter ended June 30, 2009 were significantly
improved compared to the quarter ended June 30, 2008:

| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | net
 revenues increased 16.5%;                                                             
| |   |                                                                                            
| |  | gross profit increased by $168,000 or 6.8%; and                                            
| |   |                                                                                            
| |  | operating income increased from $167,000 in 2008 to $244,000 in
 2009, an increase of 46.9%
| |   |                                                                                            
| |  | pre-tax net income was approximately $254,000 compared to
 $195,000 in the earlier period. 

However, our
gross profit margin decreased from 58.8% in 2008 to 53.9% in 2009 and selling,
general and administrative expenses increased 1.8%.

Results
for the 2008 period do not include the operations of Loscalzo, which we acquired
in July 2008.

Online
revenues, which previously were primarily derived from the sales of
accounting/finance products, continue to be an important factor contributing to
our overall revenue growth. However, many of our other products, including our
Cognistar law library, our Financial Campus and banking courses and our
technology training products are also delivered online and also contribute to
our revenue growth.

The
following table compares our statement of operations data for the three-months
ended June 30, 2009 and 2008. The trends suggested by this table may not be
indicative of future operating results, which will depend on various factors
including the relative mix of products sold (accounting/finance, law,
engineering, financial services, sales training  product, technology or
compliance and ethics) and the method of sale (video or online) as well as the
timing of custom project work, which can vary from quarter to quarter. In
addition, our operating results in future periods may also be affected by
acquisitions.

|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|---------------------------------------------------- |  | --------------------------- | --------- | ---------- |  | ------ | -- | ---------- | --------- | ------ |  | ----- | - |  | ------ | --
|                                                     |  | Three months ended June 30, |          
|                                                     |  |                             |          
|                                                     |  | 2009                        |           | 2008       |  |        |    |           
|                                                     |  |                             |           |            |  |        |    |           
|                                                     |  | Amount                      |           | Percentage |  | Amount |    | Percentage |           | Change | 
|                                                     |  |                             |           |            |  |        |    |            |           |        | 
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Net revenues                                         |  | $                           | 4,731,684 |            |  | 100.0  | %  | $          | 4,061,871 |        |  | 100.0 | % |  | 16.5   | % 
|Cost of revenues                                     |  |                             | 2,181,624 |            |  | 46.1   | %  |            | 1,673,385 |        |  | 41.2  | % |  | 30.4   | % 
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Gross profit                                         |  |                             | 2,550,060 |            |  | 53.9   | %  |            | 2,388,486 |        |  | 58.8  | % |  | 6.8    | % 
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Selling, general and administrative                  |  |                             | 2,054,693 |            |  | 43.4   | %  |            | 2,018,911 |        |  | 49.7  | % |  | 1.8    | % 
|Depreciation and amortization                        |  |                             | 250,608   |            |  | 5.3    | %  |            | 202,954   |        |  | 5.0   | % |  | 23.5   | % 
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Total operating expenses                             |  |                             | 2,305,301 |            |  | 48.7   | %  |            | 2,221,865 |        |  | 54.7  | % |  | 3.8    | % 
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Operating income                                     |  |                             | 244,759   |            |  | 5.2    | %  |            | 166,621   |        |  | 4.1   | % |  | 46.9   | % 
|Other income, net                                    |  |                             | 9,068     |            |  | 0.2    | %  |            | 28,568    |        |  | 0.7   | % |  | (68.3  | %)
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Net income before (provision) benefit for income tax |  |                             | 253,827   |            |  | 5.4    | %  |            | 195,189   |        |  | 4.8   | % |  | 30.0   | % 
|(Provision) benefit for income tax                   |  |                             | (36,486   | )          |  | (0.8   | %) |            | 35,000    |        |  | 0.9   | % |  | (204.2 | %)
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   
|Net income                                           |  | $                           | 217,341   |            |  | 4.6    | %  | $          | 230,189   |        |  | 5.7   | % |  | (5.6   | %)
|                                                     |  |                             |           |            |  |        |    |            |           |        |  |       |   |  |        |   

12

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Net revenues

Net
revenues for the three months ended June 30, 2009, increased approximately
$670,000, or 16.5%, compared to net revenues for the three months ended June
30, 2008. This increase was primarily due to: (i) the Accounting/Finance
division whose net revenues increased $828,000; (ii) Skye whose net revenues
increased $194,000; (iii) the Consulting division, whose net revenues increased
$38,000; and (iv)a net increase of $23,000 in video production net revenues.
These increases were offset by: (i) a $127,000 decrease in net revenues from the
Financial Services division; (ii) a $175,000 decrease in net revenues from the
Ethics and Compliance division; (iii) a $43,000 decrease in net revenues from
the Cognistar Legal division; (iv) a $13,000 decrease in net revenues from the
Engineering division; and (v) a $56,000 decrease in net revenues from the
Technology Training division. Under our long-standing policy, revenue is
credited to the originating department regardless of the type of service that
is performed. For example, a contract to convert videotapes to digital format
is credited to the Accounting/Finance division if that is where the sale
originated, even if the project has nothing to do with accounting.

In
the second quarter of 2009, net revenues from the Accounting/Finance division
were $3.19 million, or 67% of net revenues, compared to $2.36 million, or 58%
of net revenues, in the comparable 2008 period. The 2009 period included
$875,000 of net revenues generated by Loscalzo. Historically, Loscalzos
revenues are lowest in the first quarter of the year and grow throughout the
year. Operating expenses, on the other hand, are relatively consistent from
quarter-to-quarter and cost of revenues fluctuates directly in relation to
revenues. As a result, Loscalzo historically shows a significant operating loss
in the first quarter of the year and increasing profitability in the subsequent
quarters. We expect this trend to continue and we further expect that it will
have an impact on our quarterly operating results. Net revenues from subscription-based
products and direct sales of course material on a non-subscription basis,
decreased from $2.19 million in the 2008 period to $2.11 million in the
corresponding 2009 period. Net revenues from other projects in our
Accounting/Finance division that are not subscription based increased $34,000
from 2008 to 2009. Non-subscription-based revenues fluctuate from period to
period and are not indicative of any trends. In the 2009 period, net revenues
from online sales of accounting products accounted for approximately $1.11
million, or 23% of net revenues, compared to $1.12 million, or 28% of net
revenues, in the comparable 2008 period.

For
the three months ended June 30, 2009, Skye generated net revenues of $626,000
compared to $432,000 in the second quarter of 2008. Skyes income is derived
primarily from consulting projects that vary from quarter to quarter.
Therefore, quarterly results will vary and revenues are not necessarily
indicative of long-term trends.

Our
Financial Services Training division generated $433,000 of net revenues in the
quarter ended June 30, 2009. For the quarter ended June 30, 2008, this division
generated $560,000 of net revenues. This decrease is a result of timing
differences in the billings of renewals and other projects.

Our
Technology Training division generated $61,000 of net revenues in the 2009
period, as compared to $117,000 in the second quarter of 2008.

For
the quarter ended June 30, 2009, SLE had net revenues of $149,000 compared to
net revenues of $367,000 for the quarter ended June 30, 2008. For the 2009
period, $56,000 of SLEs net revenues was generated by the Ethics and
Compliance division and $93,000 was generated by the Cognistar Legal division.
Net revenues generated by the Ethics and Compliance division are derived
primarily from custom consulting work. Custom work is non-repetitive and
subject to market conditions and can vary from quarter to quarter. The
Cognistar Legal division derives its revenue primarily from prepaid usage and
direct sales of its courses.

Our
Engineering division generated $148,000 of net revenues in the second quarter
of 2009 compared to $161,000 in the second quarter of 2008. This decrease is
not necessarily indicative of any trends, but is a result of timing differences
in the placement of orders from customers. Sales of our engineering products
are not subscription based.

Net
revenues generated by the Video Production division were $82,000 and from the
Consulting division were $46,000 for the second quarter of 2009 compared to
$59,000 and $8,000 respectively for the second quarter of 2008. We believe the
decline in video production net revenues reflects an overall trend in the
business.

13

---



Cost of
revenues

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

Our
gross profit margin decreased for the three months ended June 30, 2009 to 54.0%
compared to 59% for the three months ended June 30, 2008. This decrease is
attributable, in part, to costs related to Loscalzo, that we did not incur in
the second quarter of last year, as we did not acquire Loscalzo until July
2008. In addition, there were decreased revenues from certain divisions without
any significant decreases in payroll. We also devoted a significant amount of
internal resources to develop new products and to re-tool existing products and
technology.

Cost
of revenues increased by $508,000 in the current quarter from the comparable
period last year. The increase is attributable to a number of factors: (i)
salaries and related costs attributable to Loscalzo were approximately
$401,000; (ii) outside labor and productions costs related to custom projects
increased approximately $129,000; and (iii) other costs decreased by approximately
$22,000 primarily from a $51,000 decrease in royalty expense. Beginning in
2008, we started to reduce our labor costs by outsourcing a substantial amount
of technology projects to countries where labor costs are lower than they are
in the United States. Our outsourcing strategy has been driven, in part, by
increased business generated from Skye and internal projects. We have
determined that it is more efficient to outsource certain projects rather than
hire additional personnel.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Outside labor
 and direct production costs. Outside labor includes
 the cost of hiring actors and production personnel such as directors,
 producers and cameramen and the outsourcing of non-video technology. It also
 includes the costs of instructors for live training and the production of
 those courses. The cost of such outside labor, which is primarily video
 production and technology personnel and instructors, increased $177,000 after
 capitalizing a portion of these costs. This increase is directly related to
 Loscalzo and the completion of a number of custom projects. Direct production
 costs, which are costs related to producing videos, courses, custom projects
 or live instruction other than labor costs, such as the cost of renting
 equipment and locations and the use of outsourced labor in the technology
 area, decreased $45,000. The variation in direct production costs are related
 to the type of production and other projects and do not reflect any trends in
 our business. As our business grows we may be required to hire additional
 production personnel, increasing our cost of revenues.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Royalties.
 Royalty expense decreased in the three months ended June 30, 2009, compared
 to the comparable 2008 period by $51,000. This is a result of timing
 differences in payments to our partners in our engineering courses and to our
 organizational partners in the accounting education area for which we often
 have to make estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Salaries.
 Overall, payroll and related costs attributable to production personnel
 increased by $168,000 after capitalizing a portion of these costs during the
 current quarter. We have reduced salaries and related costs in our consulting
 and video production departments as a result of decreased business in our
 duplication business and outsourcing of technology services. This decrease
 was offset by increased salaries and related costs as a result of normal
 salary increases and additional personnel as a result of our acquisition of
 Loscalzo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 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 $259,000 from
 2008 to 2009. This is primarily a direct result of travel-related expenses,
 most of which is reimbursed by the customer on whose behalf those expenses
 were incurred; purchases of materials used by Loscalzo for classroom
 instruction; offset by a reduction in our production and shipping costs as a
 result of switching to DVD from videotape for our subscription based products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

14

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Selling,
general and administrative expenses

Selling,
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. Selling, general and administrative expenses for the three
months ended June 30, 2009 increased $36,000, or 1.8%, compared to the three
months ended June 30, 2008. The increase in selling, general and administrative
expenses is primarily attributable to the Loscalzo acquisition.

Compensation
expense in the 2009 period increased $32,000 over compensation expense for the
2008 period. Our total number of full time general and administrative employees
at June 30, 2009 was 57 compared to 54 at June 30, 2008. Compensation expense
includes stock based compensation expense of $75,000 for the 2009 period and
$52,000 for the 2008 period.

Our
other selling, general and administrative costs, exclusive of compensation
costs, only increased $4,000. These costs include rent, insurance and other
expenses. We continue to look for other opportunities to reduce our overhead.
Although, we make every effort to control our costs, we anticipate that
selling, general and administrative expenses will continue to increase as a
result of general increases in costs such as rent, insurance, travel and recent
acquisitions.

Depreciation
and amortization

Depreciation
and amortization expenses increased by $48,000 in the second quarter of 2009
compared to the second quarter of 2008 as a result of increased amortization
expense from our capitalized course costs, intangibles acquired through
acquisitions and from the depreciation of fixed assets acquired from our
various acquisitions and/or purchased in 2007 and 2008. We expect our
depreciation and amortization expense on our fixed and intangible assets to
continue to increase as we replace computer equipment, capitalize internal
costs for the development of new courses and other technology and begin to
amortize intangibles acquired through acquisitions. We continually replace and
add to our computer and other equipment as it ages and as additional equipment
is needed to accommodate growth.

Operating
income (loss)

For
the three months ended June 30, 2009, net income from operations was $245,000
compared to $167,000 in the comparable period of 2008.

Other income, net

Other
income and expense items consist of interest earned on deposits and the net
loss from our iReflect joint venture. We have no debt other than trade payables
and accrued liabilities. However, interest rates are substantially lower than
they were in 2008. For the second quarter of 2009 we had other income of $9,000
compared to $29,000 in the second quarter of 2008, mostly as a result of higher
cash balances in the 2008 period and lower interest rates in 2009. In July
2008, we paid approximately $4.2 million in cash for Loscalzo. The loss from
our iReflect joint venture for the quarter ended June 30, 2009 was $1,500. We
anticipate comparable interest income in future periods.

Income tax provision

We
account for deferred tax assets available principally from our net operating
loss carryforward pursuant to SFAS No. 109. To date we have recognized a total
of approximately $1,144,000 in such assets. We recorded an expense of $36,000
for the quarter from state and local income taxes.

Net income

For
the three months ended June 30, 2009, we recorded a net income of $ 217,000, or
$0.04 per share, basic and diluted, compared to a net income of $230,000 or
$0.05 per share, basic and diluted, for the three months ended June 30, 2008.

15

---



Comparison
of six months ended June 30, 2009 and 2008

Our
operating results for the six-months ended June 30, 2009 were mixed compared to
the comparable period of 2008:

| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | net revenues
 increased 14.5%;                                                           
| |   |                                                                                          
| |  | gross profit
 increased by $521,000, or 11.9%                                            
| |   |                                                                                          
| |  | selling,
 general and administrative expenses only increased 2.0%; and                   
| |   |                                                                                          
| |  | pre-tax net
 income was approximately $297,000 compared to $74,000 in the earlier period.

Online
revenues, which previously were primarily derived from the sales of
accounting/finance products, continue to be an important factor contributing to
our overall revenue growth. However, many of our other products, including our
Cognistar law library, our Financial Campus and banking courses and our
technology training products are also delivered online and also contribute to
our revenue growth.

The
following table compares our statement of operations data for the six months
ended June 30, 2009 and 2008. The trends suggested by this table may not be
indicative of future operating results, which will depend on various factors
including the relative mix of products sold (accounting/finance, law,
engineering, financial services, sales training  product, technology or
compliance and ethics) and the method of sale (video or online) as well as the
timing of custom project work, which can vary from quarter to quarter. In
addition, our operating results in future periods may also be affected by
acquisitions.

|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|------------------------------------------------- |  | ------------------------- | --------- | ---------- |  | ------ | -- | ---------- | --------- | ------ |  | ----- | -- |  | ------ | --
|                                                  |  | Six months ended June 30,
|                                                  |  |                           |          
|                                                  |  | 2009                      |           | 2008       |  |        |   
|                                                  |  |                           |           |            |  |        |   
|                                                  |  | Amount                    |           | Percentage |  | Amount |    | Percentage |           | Change | 
|                                                  |  |                           |           |            |  |        |    |            |           |        | 
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Net revenues                                      |  | $                         | 9,085,287 |            |  | 100.0  | %  | $          | 7,937,534 |        |  | 100.0 | %  |  | 14.5   | % 
|Cost of revenues                                  |  |                           | 4,182,384 |            |  | 46.0   | %  |            | 3,555,961 |        |  | 44.8  | %  |  | 17.6   | % 
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Gross profit                                      |  |                           | 4,902,903 |            |  | 54.0   | %  |            | 4,381,573 |        |  | 55.2  | %  |  | 11.9   | % 
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Selling, general and administrative               |  |                           | 4,132,913 |            |  | 45.5   | %  |            | 4,050,167 |        |  | 51.0  | %  |  | 2.0    | % 
|Depreciation and amortization                     |  |                           | 497,551   |            |  | 5.5    | %  |            | 405,842   |        |  | 5.1   | %  |  | 22.6   | % 
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Total operating expenses                          |  |                           | 4,630,464 |            |  | 51.0   | %  |            | 4,456,009 |        |  | 56.1  | %  |  | 3.9    | % 
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Operating income (loss)                           |  |                           | 272,439   |            |  | (1.0   | %) |            | (74,436   | )      |  | (0.9  | %) |  | 466.0  | % 
|Other income, net                                 |  |                           | 24,903    |            |  | 0.3    | %  |            | 148,593   |        |  | 1.9   | %  |  | (83.2  | %)
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Income before (provision) benefit for
 income tax |  |                           | 297,342   |            |  | 3.3    | %  |            | 74,157    |        |  | 1.0   | %  |  | 301.0  | % 
|(Provision) benefit for income tax                |  |                           | (50,486   | )          |  | (1.2   | %) |            | 35,000    |        |  | 0.4   | %  |  | (244.2 | %)
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   
|Net income                                        |  | $                         | 246,856   |            |  | 2.7    | %  | $          | 109,157   |        |  | 1.4   | %  |  | 126.1  | % 
|                                                  |  |                           |           |            |  |        |    |            |           |        |  |       |    |  |        |   

Net revenues

Net
revenues for the six months ended June 30, 2009, increased approximately $1.15
million or 14.5%, compared to net revenues for the six months ended June 30,
2008. This increase was primarily due to: (i) the Accounting/Finance division
whose net revenues increased $863,000; (ii) Skye whose net revenues increased
$618,000; (iii) the Consulting division, whose revenues increased $109,000; and
(iv) Video Production whose net revenues increased $8,000. These increases were
offset by: (i) a $5,000 decrease in net revenues from the Financial Services
division; (ii) a $189,000 decrease in net revenues from the Ethics and
Compliance division; (iii) a $88,000 decrease in net revenues from the
Cognistar Legal division; (iv) a $112,000 decrease in net revenues from the
Engineering division; and (v) a $57,000 decrease in net revenues from the
Technology Training division. Under our long-standing policy, revenue is
credited to the originating department regardless of the type of service that
is performed. For example, a contract to convert videotapes to digital format
is credited to the Accounting/Finance division if that is where the sale
originated, even if the project has nothing to do with accounting.

In
the first six months of 2009, net revenues from the Accounting/Finance division
were $5.37 million, or 59% of net revenues, compared to $4.51 million, or 57%
of net revenues, in the comparable 2008 period. The 2009 period included
$979,000 of net revenues generated by Loscalzo. Net revenues from
subscription-based products and direct sales of course material on a
non-subscription basis, decreased from $4.15 million in the 2008 period to
$4.03 million in the corresponding 2009 period. Net revenues derived from other
projects in our Accounting/Finance division that are not subscription based
increased

16

---



from $359,000
in 2008 to $360,000 in 2009. Non-subscription-based revenues fluctuate from
period to period and are not indicative of any trends. In the 2009
period, net revenues from online sales of accounting products accounted for
approximately $2.03 million, or 22% of net revenues, compared to $1.93 million,
or 24% of net revenues, in the comparable 2008 period. This represents a 5%
increase in absolute dollars. However, total online sales were $3.4 million in
the 2009 period, or 38% of net revenues, as compared to $3.3 million in the
comparable 2008 period, an increase of 5%.

For
the six months ended June 30, 2009, Skye generated net revenues of $1.67
million compared to $1.05 million in the comparable period of 2008. Skyes
income is derived primarily from consulting projects that vary from quarter to
quarter. Therefore, quarterly results will vary and revenues are not necessarily
indicative of long-term trends.

Our
Financial Services Training division generated $956,000 of net revenues in the
six months ended June 30, 2009. For the six months ended June 30, 2008, this
division generated $961,000 of net revenues.

Our
Technology Training division generated $90,000 of net revenues in the 2009
period, as compared to $147,000 in the comparable 2008 period.

For
the six months ended June 30, 2009, SLE had net revenues of $421,000 compared
to net revenues of $698,000 for the six months ended June 30, 2008. For the
2009 period, $217,000 of SLEs net revenues was generated by the Ethics and
Compliance division and $204,000 was generated by the Cognistar Legal division.
Net revenues generated by the Ethics and Compliance division are derived
primarily from custom consulting work. Custom work is non-repetitive and
subject to market conditions and can vary from quarter to quarter. The
Cognistar Legal division derives its revenue primarily from prepaid usage and
direct sales of its courses.

Our
Engineering division generated $349,000 of net revenues in the six months of
2009 compared to $461,000 in the first six months of 2008. This decrease is not
necessarily indicative of any trends, but is a result of timing differences in
the placement of orders from customers. Sales of our engineering products are
not subscription based.

Net
revenues generated by the Video Production division were $107,000 and from the
Consulting division were $121,000 for the first six months of 2009 compared to
$99,000 and $12,000 respectively for the first quarter of 2008. We believe the
decline in video production and duplication net revenues reflects an overall
trend in the business.

Cost of
revenues

Our
gross profit margin decreased for the six months ended June 30, 2009 to 54.0%
compared to 55.2% for the six months ended June 30, 2008. This decrease is
attributable, in part, to the seasonality of the Loscalzo business whose income
is derived primarily in the second half of the year. We also devoted a
significant amount of internal resources to develop new products and to
re-tooling existing products and technology.

Cost
of revenues increased by $626,000 in the current period from the comparable
period last year. The increase is attributable to a number of factors including
the following: (i) salaries and related costs increased by approximately
$171,000; (ii) outside labor and productions costs related to custom projects
increased approximately $238,000; (iii) costs directly related to Loscalzo,
other than payroll, that we did not have in the comparable 2008 period were
$380,000; and (iv) other costs decreased by approximately $163,000.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Outside
 labor and direct production costs. The cost of
 outside labor increased $471,000 after capitalizing a portion of these costs.
 This increase is directly related to the completion of a number of custom
 projects and Loscalzo. Direct production costs decreased $25,000. The
 variation in direct production costs are related to the type of production
 and other projects and do not reflect any trends in our business. As our
 business grows we may be required to hire additional production personnel,
 increasing our cost of revenues.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Royalties.
 Royalty expense decreased in the six months ended June 30, 2009, compared to
 the comparable 2008 period by $65,000. This is a result of timing differences
 in payments to our                                                                                                                                                                                                                                                                                                                                                                 

17

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | partners in
 our engineering courses and to our organizational partners in the accounting
 education area for which we often have to make estimates.                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Salaries.
 Overall, payroll and related costs attributable to production personnel
 increased by $171,000 as a result of Loscalzo, after capitalizing a portion
 of these costs during the current period. We have reduced salaries and
 related costs in our consulting and video production departments as a result
 of decreased business in our duplication business and outsourcing of
 technology services.                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 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 $74,000 from
 2008 to 2009. This is primarily a direct result of travel-related expenses
 incurred by Loscalzo, SLE and Skye, most of which is reimbursed by the
 customer on whose behalf those expenses were incurred and a reduction in our
 material and shipping costs as a result of switching to DVD from videotape
 for our subscription based products.

Selling,
general and administrative expenses

Selling,
general and administrative expenses for the six months ended June 30, 2009
increased $83,000, or 2.0%, compared to the six months ended June 30, 2008. The
increase in selling, general and administrative expenses is primarily
attributable to the Loscalzo acquisition.

Compensation
expense in the 2009 period increased $11,000 over compensation expense for the
2008 period. This increase includes additional personnel acquired in the
Loscalzo acquisition. Compensation expense includes stock based compensation
expense of $107,000 for the 2009 period and $106,000 for the 2008 period.

In
February 2009 we granted 55,750 options to various employees. The closing price
of the stock on the dates of issuance was $2.54. Using the BSM model we
determined that these options had a cost of $59,000 that is being amortized
over a three-year period. The value of the options was determined by using a
volatility factor of 45%, a risk-free interest rate of 1.99% and expected life
of 5.1 years.

Our
other selling, general and administrative costs, exclusive of compensation
costs, increased $81,000. These costs include rent, insurance and other
expenses. We continue to look for other opportunities to reduce our overhead.

Depreciationand amortization

Depreciation
and amortization expenses increased by $92,000 in the first six months of 2009
compared to the first six months of 2008 as a result of increased amortization
expense from our capitalized course costs, intangibles acquired through
acquisitions and from the depreciation of fixed assets acquired from our
various acquisitions and/or purchased in 2007 and 2008. We expect our
depreciation and amortization expense on our fixed and intangible assets to continue to increase as we
replace computer equipment, capitalize internal costs for the development of
new courses and other technology and begin to amortize intangibles acquired
through acquisitions.

Operating
income (loss)

For
the six months ended June 30, 2009, net income from operations was
$272,000 compared to an operating loss of $74,000 in the comparable period of
2008.

Other income, net

For
the six months ended June 30, 2009 we had net other income of $25,000 compared
to net other income of $149,000 in the first six months of 2008. The loss from
our iReflect joint venture for the six months ended June 30, 2009 was $2,300.
We anticipate comparable interest income in future periods.

18

---



Income tax (provision) benefit

We
account for deferred tax assets available principally from our net operating
loss carryforward pursuant to SFAS No. 109. To date we have recognized a total
of approximately $1,144,000 in such assets, after applying a deferred tax
expense of $14,000 for the six months ended June 30, 2009, as compared to a
benefit of $35,000 in the comparable 2008 period. In addition, state and local
taxes accounted for $36,000 of the current period expense.

Net income

For
the six months ended June 30, 2009, we
recorded a net income of $ 247,000, or $0.05 per share, basic and diluted,
compared to a net income of $109,000 or $0.02 per share, basic and diluted, for
the six months ended June 30, 2008.

Liquidity and Capital
Resources

At
June 30, 2009, we had no indebtedness for borrowed money.

Our
working capital as of June 30, 2009 was approximately $3.1 million compared to
$2.3 million at December 31, 2008. Our current ratio at June 30, 2009 was 1.46
to 1 compared to 1.31 to 1 at December 31, 2008. The current ratio is derived
by dividing current assets by current liabilities and is a measure used by
lending sources to assess our ability to repay short-term liabilities. The
largest component of our current liabilities is deferred revenue, which was
$5.8 million at June 30, 2009 compared to $5.6 million at December 31, 2008.
This increase is attributable to renewals and new business from
subscription-based products that took place in the second quarter of 2009.

At
June 30, 2009, we had cash and cash equivalents of $6.2 million. For the six
months ended June 30, 2009, we reported a net decrease in cash of $ 382,000,
which includes $580,000 of cash provided by operating activities offset by
$962,000 of cash used in investing activities. The primary components of our
operating cash flows are net income adjusted for non-cash expenses, such as
depreciation and amortization stock-based compensation and deferred
compensation, and the changes in our operating assets and liabilities, such as
accounts receivable, accounts payable and deferred revenues.

For
the 2009 period, net cash used in investing activities was $962,000, which
included capital expenditures of $89,000, consisting primarily of computer
equipment and software purchases, $154,000 for software development costs
relating to new products and $39,000 for course development. In addition, we
expended $700,000 as additional purchase consideration for Skye Multimedia Ltd.
This was offset by a $19,000 decrease in goodwill relating to a closing
adjustment in connection with the Loscalzo acquisition and an adjustment to the
estimated contingent purchase price for Skye. We continually upgrade our
technology hardware and, as such, we anticipate additional capital expenditures
relating to equipment purchases over the next 12 months.

In
April 2009 we paid $700,000 in cash to the former shareholders of Skye and
their designees and issued to them 83,825 shares of our common stock valued at
$219,000 in satisfaction of the earn-out contingent purchase price for the
Skye assets. This liability was accrued at December 31, 2008.

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

In
the future, we may issue additional debt or equity securities to satisfy our
cash needs. Any debt incurred may be secured or unsecured, bear interest at a
fixed or variable rate and may contain other terms and conditions that we deem
are reasonable under the circumstances existing at the time. Any sales of
equity securities may be at or below current market prices. We cannot assure
you that we will be successful in generating sufficient capital to adequately
fund our liquidity needs.

Item 3. Quantitative and
Qualitative Risk Disclosures About Market Risk

As a
smaller reporting company we are not required to provide the information
required by this Item.

19

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Item 4T. Controls and
Procedures

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

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

PART IIOTHER INFORMATION

Item 1. Legal Proceedings

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

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

Recent Sales of
Unregistered Securities

In
April 2009 we issued 83,825 shares of our common stock to the former
shareholders of Skye in partial satisfaction of the earn-out contingent
purchase price for the Skye assets. The issuance of these shares is exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the Act). The stock certificates representing these shares were imprinted
with a legend restricting transfer unless pursuant to an effective registration
statement or an exemption from registration under the Act.

Company Purchases
of its Equity Securities

On
November 11, 2008, the Board of Directors approved an extension of the stock
buy back program and replenished the funds reserved to purchase shares of our
common stock on the NASDAQ Capital Market to $750,000. From November 11, 2008
through December 31, 2008, we repurchased an additional 85,424 shares of our
common stock for $252,308 under this program. During the six months ended June
30, 2009, no additional shares were repurchased, and as of such date
approximately $497,692 was available under this program.

Item 3. Defaults Upon Senior
Securities

None.

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

On
Tuesday, June 16, 2009, at 10:00 a.m. New York City time we held our 2009
Annual Meeting of Stockholders for the purposes of (i) electing one (1) Class
II director; (ii) considering and approving the SmartPros 2009 Incentive
Compensation Plan; and (iii) obtaining advisory approval of the appointment of
our independent registered public accounting firm for the fiscal year ending
December 31, 2009.

In
connection with the 2009 Annual Meeting, proxies were solicited pursuant to
Regulation 14A under the Exchange Act and there was no solicitation in
opposition to the sole director-nominee. At the 2009 Annual Meeting, the sole
director-nominee, Jack Fingerhut was re-elected for a three-year term, with
3,951,382 votes in favor and 34,992 abstentions. The other directors, whose
term of office continued after

20

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the election, are Allen S.
Greene, Leonard J. Stanley, Martin H. Lager and John J. Gorman. The SmartPros
2009 Incentive Compensation Plan was approved with 2,255,533 votes in favor,
88,590 votes against, 15,825 abstentions. Broker non-votes of 1,626,626 were
not counted as votes for or against this item. 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, 2009 was ratified
with 3,932,222 votes in favor, 9,786 votes against and 44,366 abstentions.

Item 5. Other Information

None.

Item
6. Exhibits

Exhibits:

| |              |  |                                                                                                                                  
| | ------------ |  | ---------------------------------------------------------------------------------------------------------------------------------
| | Exhibit
 No. |  | Description                                                                                                                      
| |              |  |                                                                                                                                  
| |              |  |                                                                                                                                  
| | 31.1         |  | Certification
 of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002.                            
| |              |  |                                                                                                                                  
| | 31.2         |  | Certification
 of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002.                            
| |              |  |                                                                                                                                  
| | 32.1         |  | Certification
 of Chief Executive Officer and Chief Financial Officer pursuant to Section
 906 of the Sarbanes-Oxley Act of 2002.

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
 11, 2009 | /s/ Allen S.
 Greene                                   
|                       |                                                        
|                       | Chief
 Executive Officer                               
|                       |                                                        
|Date: August
 11, 2009 | /s/ Stanley
 P. Wirtheim                               
|                       |                                                        
|                       | Chief
 Financial Officer
 (Principal Financial Officer)

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