UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
Commission File Number 001-32300
SMARTPROS LTD.
(Exact name of small business issuer as specified in its charter)
Delaware 13-4100476
--------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12 Skyline Drive, Hawthorne, New York 10532
-------------------------------------------
(Address of principal executive office)
(914) 345-2620 (Issuer's
telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |x| No | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes | | No |x|
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of May 1, 2006, there were 5,060,274
shares of common stock outstanding.
Transitional Small Business Disclosure Format.
Yes | | No |x|
SMARTPROS LTD.
FORM 10-QSB REPORT
March 31, 2006
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Balance Sheets - March 31, 2006 and December 31, 2005 (Audited) 3
Statements of Operations for the three-month periods ended March 31, 2006
and 2005 4
Statements of Cash Flows for the three-month periods ended March 31, 2006 and 2005 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
SIGNATURES 19
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934 regarding the plans and objectives of management for
future operations and market trends and expectations. Such statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving the continued
expansion of our business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved. We undertake
no obligation to revise or update publicly any forward-looking statements for
any reason. The terms "we", "our", "us", or any derivative thereof, as used
herein refer to SmartPros Ltd., a Delaware corporation, and its predecessors.
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMARTPROS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2006 2005
(UNAUDITED) (AUDITED)
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ASSETS
Current Assets:
Cash and cash equivalents $ 6,882,373 $ 7,505,691
Accounts receivable, net of allowance for doubtful accounts
of $39,179 and $40,429 1,389,625 777,122
Prepaid expenses and other current assets 247,902 254,176
--------------------------------
Total Current Assets 8,519,900 8,536,989
--------------------------------
Property and equipment, net 494,758 493,604
Goodwill 53,434 53,434
Other intangibles, net 2,549,244 2,158,593
Other Assets, including restricted cash of $150,000 204,673 150,000
--------------------------------
3,302,109 2,855,631
--------------------------------
Total Assets $11,822,009 $11,392,620
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 256,619 $ 228,629
Accrued expenses 171,889 277,159
Current portion of capital lease and equipment financing obligations 34,595 38,148
Deferred revenue 4,004,103 3,689,486
--------------------------------
Total Current Liabilities 4,467,206 4,233,422
--------------------------------
Long-Term Liabilities:
Capital lease and equipment financing obligations
19,085 25,992
Other liabilities 140,165 160,193
--------------------------------
Total Long-Term Liabilities 159,250 186,185
--------------------------------
Commitments and Contingencies
Stockholders' Equity:
Convertible preferred stock, $.001 par value, authorized 1,000,000 shares, 0
shares issued and outstanding -- --
--------------------------------
Common stock, $.0001 par value, authorized 30,000,000 shares, 5,170,005
issued and 5,060,274 outstanding at March 31, 2006 and 5,145,447 issued
and 5,035,716 outstanding at December 31, 2005
517 514
Additional paid-in capital 16,480,056 16,418,034
Accumulated (deficit) (8,635,920) (8,785,935)
--------------------------------
7,844,653 7,632,613
Common stock in treasury, at cost - 109,731 shares (384,600) (384,600)
Deferred compensation (64,500) (75,000)
Note receivable from stockholder (200,000) (200,000)
--------------------------------
Total Stockholders' Equity 7,195,553 6,973,013
--------------------------------
Total Liabilities and Stockholders' Equity $11,822,009 $ 11,392,620
================================
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3
SMARTPROS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net Revenues $ 2,533,579 $ 2,848,951
Cost of Revenues 986,687 1,082,709
--------------------------------------
Gross Profit 1,546,892 1,766,242
--------------------------------------
Operating Expenses:
Selling, general and administrative 1,367,679 1,435,160
Depreciation and amortization 148,071 141,243
--------------------------------------
1,515,750 1,576,403
--------------------------------------
Operating Income 31,142 189,839
--------------------------------------
Other Income (Expense):
Interest income 73,460 29,554
Interest expense (1,587) (3,301)
--------------------------------------
71,873 26,253
--------------------------------------
Income before benefit for income taxes 103,015 216,092
Income tax benefit (47,000) --
--------------------------------------
Net Income $ 150,015 $ 216,092
======================================
Net Income Per Common Share:
Basic net income per common share $ 0.03 $ 0.04
======================================
Diluted net income per common share $ 0.03 $ 0.04
======================================
Weighted Average Number of Shares Outstanding
Basic 5,040,900 5,082,539
======================================
Diluted 5,057,916 5,117,294
======================================
--------------------------------------------------------------------------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4
SMARTPROS LTD. AND SUBSIDIARIES (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------------------
2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 150,015 $ 216,092
------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 148,071 141,243
Reduction in deferred compensation 10,500 21,000
Stock compensation expense 9,226 --
Deferred income tax benefit (50,000) --
Changes in operating assets and liabilities: (Increase) decrease in operating
assets:
Accounts receivable (346,444) (83,266)
Prepaid expenses and other current assets 6,274 31,875
Other assets -- 17,196
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses (132,618) (156,297)
Deferred revenue 314,617 61,210
Other liabilities (20,028) (1,089)
------------------------------
Total adjustments (60,402) 31,872
------------------------------
Net Cash Provided by Operating Activities 89,613 247,964
------------------------------
Cash Flows from Investing Activities:
Reduction in investment securities available-for-sale -- 1,000,000
Acquisition of property and equipment (18,168) (72,389)
Capitalized course costs (18,855) --
Cash paid for acquisitions (718,247) --
------------------------------
Net Cash (Used in) Provided by Investing Activities (755,270) 927,611
------------------------------
Cash Flows from Financing Activities:
Exercise of stock options 52,799 --
Payments under capital lease obligations (10,460) (16,068)
------------------------------
Net Cash Provided by (Used in) Financing Activities 42,339 (16,068)
------------------------------
Net (Decrease) Increase in Cash and Cash equivalents (623,318) 1,159,507
Cash and Cash Equivalents, beginning of period 7,505,691 1,756,991
------------------------------
Cash and Cash equivalents, end of period $ 6,882,373 $ 2,916,498
==============================
Supplemental Disclosure:
Cash paid for interest $ 1,587 $ 3,301
==============================
--------------------------------------------------------------------------------
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. ("SmartPros" or the "Company") included herein have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 2005 and the notes thereto
included in the Company's Annual Report on Form 10-KSB filed with the United
States Securities and Exchange Commission on March 30, 2006. Results of
consolidated operations for the interim periods are not necessarily indicative
of a full year's operating results. The unaudited condensed consolidated
financial statements herein include the accounts of the Company and its wholly
owned subsidiaries, Working Values, Ltd and Skye Multimedia, Ltd., although in
the latter case only as of March 1, 2006. All material inter-company accounts
and transactions have been eliminated.
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company, a Delaware corporation, was organized in 1981 as Center
for Video Education, Inc. for the purpose of producing educational videos
primarily directed to the accounting profession. SmartPros' primary products
today are periodic video and Internet subscription services directed to
corporate accountants, financial managers and accountants in public practice. In
addition, the Company produces a series of continuing education courses directed
to the engineering profession as well as a series of courses designed for
candidates for the professional engineering exam. Through its Working Values
subsidiary, the Company develops programs on governance, compliance and ethics
for corporations. SmartPros also produces custom videos and rents out its
studios. Finally, as a result of its acquisitions of Sage Online and Skye
Multimedia in February 2006, the Company now also offers educational products
for the banking and pharmaceutical industries.
SmartPros is located in Hawthorne, New York, where it maintains its
corporate offices, new media lab, video production studios and tape duplication
facilities. While the Company's management monitors the revenue streams of the
various products and services, operations are managed and financial performance
is evaluated on a company wide basis. Accordingly, all of the Company's
operations are considered by management to be aggregated in one reportable
segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenues from its subscription services as
earned. Video subscriptions are generally billed on an annual basis, while
on-line subscriptions are paid by credit card at point of sale. Both of these
types of sales are deferred at the time of billing or payment and amortized into
revenue on a monthly basis over the term of the subscription, which is generally
one year. Engineering products are non-subscription based and revenue is
recognized upon shipment or, in the case of on-line sales, payment. Revenues
from non-subscription services provided to customers, such as website design,
video production, consulting services and custom projects are generally
recognized on a proportional performance basis where sufficient information
relating to project status and other supporting documentation is available. The
contracts may have different billing arrangements resulting in either unbilled
or deferred revenue. The Company obtains either signed agreements or purchase
orders from its non-subscription customers outlining the terms and conditions of
the sale or service to be provided. Otherwise, such services are recognized as
revenues after completion and delivery to the customer. Duplication and related
services are
6
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
(CONT'D)
generally recognized upon shipment or, if later, when the Company's obligations
are complete and realization of receivable amounts is assured.
CAPITALIZED COURSE COSTS
Capitalized course costs include the direct cost of internally
developing proprietary educational products and materials that have extended
useful lives. Amortization of these capitalized course costs commences with the
realization of course revenues. The amortization period is three years. Other
course costs incurred in connection with any of the Company's monthly
subscription products or custom work is charged to expense as incurred. Included
in other intangible assets at March 31, 2006, are capitalized course costs of
$258,004, net of accumulated amortization of $140,807. In addition, as a result
of the acquisition of Sage On-Line, the Company acquired an additional $220,000
of course costs which will be amortized over a three-year period as well.
DEFERRED REVENUE
Deferred revenue related to subscription services represents the
portion of unearned subscription revenue, which is amortized on a monthly,
straight-line basis, as earned. Deferred revenue related to website design,
video production or technology services represents that portion of amounts
billed by the Company, or cash collected by the Company, for which services have
not yet been provided or earned in accordance with the Company's revenue
recognition policy.
EARNINGS PER SHARE
Basic earnings or loss per common share is net income or loss, as the
case may be, divided by the weighted average number of common shares outstanding
during the year. Basic earnings or loss per share exclude any dilutive effects
of options, warrants and convertible securities. Diluted earnings per common
share include the dilutive effect of shares of Common Stock issuable under stock
options and warrants. Diluted earnings per share are computed using the weighted
average number of Common Stock and Common Stock equivalent shares outstanding
during the period. Common Stock equivalent shares of 17,016 and 34,755 for the
three-month periods ended March 31, 2006 and 2005 respectively, include the
Company's stock options and warrants that are dilutive.
STOCK-BASED COMPENSATION
The Company's 1999 Stock Option Plan (the "Plan") permits the grant of
options covering up to 882,319 shares of common stock to employees, directors
and consultants. As of March 31, 2006 there were 371,494 options outstanding, of
which 317,716 are currently exercisable and 481,365 options are available for
future grants. All stock options under the Plan are granted at the fair market
value of the common stock at the grant date. Employee stock options vest ratably
over a four-year period and generally expire 10 years from the grant date. Stock
options granted to non-employee directors vest in the same manner.
Effective January 1, 2006, the grants under the Plan is accounted for
in accordance with the recognition and measurement provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based
Payment ("SFAS No. 123(R)), which replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. SFAS No. 123(R) requires compensation costs related to
share-based payment transactions, including employee stock options, to be
recognized in the financial statements. In addition, the Company adheres to the
guidance set forth within Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and provides interpretations with respect to the valuation of share-based
payments for public companies.
Prior to January 1, 2006, the Company accounted for similar
transactions in accordance with APB No. 25 which employed the intrinsic value
method of measuring compensation cost. Accordingly, compensation expense was not
recognized for fixed stock options if the exercise price of the option equaled
or exceeded the fair value of the underlying stock at the grant date.
7
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
(CONT'D)
While SFAS No. 123 encouraged recognition of the fair value of all
stock-based awards on the date of grant as expense over the vesting period,
companies were permitted to continue to apply the intrinsic value-based method
of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as
if the fair value approach of SFAS No. 123 had been applied. In December 2002,
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,
an amendment of SFAS No. 123, was issued, which, in addition to providing
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation, required more
prominent pro-forma disclosures in both the annual and interim financial
statements. The Company complied with these disclosure requirements for all
applicable periods prior to January 1, 2006.
In adopting SFAS No. 123(R), the Company applied the modified
prospective approach to transition. Under the modified prospective approach, the
provisions of SFAS No. 123(R) are to be applied to new awards and to awards
modified, repurchased, or cancelled after the required effective date of
December 15, 2005. Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of the
required effective date shall be recognized as the requisite service is rendered
on or after the required effective date. The compensation cost for that portion
of awards shall be based on the grant-date fair value of those awards as
calculated for either recognition or pro-forma disclosures under SFAS No. 123.
As a result of the adoption of SFAS No. 123(R), the Company's results
for the three month period ended March 31, 2006 include share-based compensation
expense totaling approximately $9,200. Such amounts have been included in the
Condensed Consolidated Statements of Operations within general and
administrative expenses. Stock compensation expense recorded under APB No. 25 in
the Consolidated Statements of Operations for the three months ended March 31,
2005 totaled $0.
Stock option compensation expense in 2006 is the estimated fair value
of options granted amortized on a straight-line basis over the requisite service
period for the entire portion of the award.
The weighted average estimated fair value of stock options granted in
the three months ended March 31, 2006 and 2005 was $1.20 and $0, respectively.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. During 2006, the Company took into
consideration guidance under SFAS No. 123(R) and SAB 107 when reviewing and
updating assumptions. The expected volatility is based upon historical
volatility of our stock and other contributing factors. The expected term is
based upon observation of actual time elapsed between date of grant and exercise
of options for all employees. Previously such assumptions were determined based
on historical data.
The assumptions made in calculating the fair values of options for the
three month period ended March 31, 2006 is as follows:
Contractual term (in years) 10
Expected volatility 33%
Expected dividend yield 0%
Risk-free interest rate 4.75%
Expected term (in years) 5.5
The following table addresses the additional disclosure requirements of
SFAS No. 123(R) in the period of adoption. The table illustrates the effect on
net income and earnings per share as if the fair value recognition provisions of
SFAS No. 123 had been applied to all outstanding and unvested awards in the
prior year comparable period.
8
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THREE MONTHS ENDED
MARCH 31, 2005
------------------------
Net income as reported $ 216,092
Add: Stock-based compensation included in reported net income
Deduct: Total stock-based compensation expense determined under fair
value-based method for all awards (no tax effect) (7,606)
------------
Pro forma net income $ 208,486
============
Net income per share:
Basic - as reported $ .04
============
Basic - pro forma $ .04
============
Diluted - as reported $ .04
============
Diluted - pro forma $ .04
============
The Company granted 15,100 options under the Plan during the three
months ended March 31, 2006 at exercise prices ranging from $3.00 per share to
$3.05 per share and 24,558 options were exercised at a price of $2.15.
The following table represents our stock options granted, exercised and
forfeited during the first quarter of 2006:
WEIGHTED AVERAGE WEIGHTED AVERAGE AGGREGATE
NUMBER OF EXERCISE PRICE REMAINING INTRINSIC
STOCK OPTIONS SHARES PER SHARE CONTRACTUAL TERM VALUE
---------------------------- -------------- ------------------ ------------------- ---------------
Outstanding at January 1,
2006 406,531 $4.67 5.8
Granted 15,100 $3.03
Exercised (24,558) $2.15
Forfeited/expired (25,579) $5.25
--------------
Outstanding at March 31,
2006 371,494 $4.73 6.0 $58,062
============== ================== =================== ===============
Exercisable at March 31,
2006 317,716 $4.85 5.5 $53,227
============== ================== =================== ===============
INCOME TAX EXPENSE
Commencing January 1, 2006, the Company is recognizing the benefit of
its deferred income tax asset available from its net operating loss
carryforwards. This resulted in an estimated income of $50,000 for the quarter
ended March 31, 2006, offset by an estimated accrual for corporate alternative
minimum income tax of $3,000.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
CERTAIN STATEMENTS IN THIS DISCUSSION AND ELSEWHERE IN THIS REPORT CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
AND EXCHANGE ACT OF 1934. SEE THE "FORWARD LOOKING STATEMENT" IMMEDIATELY
FOLLOWING THE TABLE OF CONTENTS. BECAUSE THIS DISCUSSION INVOLVES RISK AND
UNCERTAINTIES, OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO REVISE OR
UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON.
We provide learning solutions for accounting/finance and engineering
professionals. We also provide learning solutions and training materials for
people who work in the banking and pharmaceutical industries. In addition, we
also provide ethics and compliance training for the general corporate community.
We commenced operations in 1981. Our initial product line was educational videos
for accounting and finance professionals that were designed to meet the
continuing professional education requirements of the various state licensing
agencies and professional associations. Since then, we have gradually expanded
our product offerings to address the ongoing educational needs of other
professional groups and corporate executives.
In 2000 we acquired Virtual Education Corporation, or VEC, a provider
of license preparation and continuing professional development programs for
engineers. In May 2001, we acquired substantially all of the assets of Pro2Net.
In so doing, we acquired a library of "how to" accounting and finance programs
to augment our existing accounting courses, a functional learning content
management system that we could market with our programs, customer lists, trade
names and computer hardware.
In April 2003, we acquired a library of custom-designed integrity-based
courses and other assets from Working Values Group Ltd., a company that
specialized in building custom-designed learning solutions for the general
corporate community using traditional and alternative instructional techniques.
As part of the transaction, we also hired the development team from Working
Values Group. With the increased focus on corporate governance and ethics and
the passage of the Sarbanes-Oxley Act of 2002 along with new rules and
regulations adopted by the national stock exchanges and markets, we believe that
there is a significant growth opportunity in supplying training that addresses
corporate culture as a significant risk factor.
In February 2006, we acquired substantially all of the operating assets
and assumed certain liabilities of Skye Multimedia Inc. for approximately
$520,000. In addition, the selling shareholders of Skye are entitled to an
additional payment based on the average earnings of Skye between March 1, 2006
and December 31, 2008 less adjustments for use of capital and other costs. In no
event will the total additional payment exceed $1.2 million. The additional
payment may be paid 50% in cash and 50% in SmartPros common stock at our
discretion. If the additional payment is paid partly in stock, the price of the
stock will be determined by the average price for the twenty business days
subsequent to December 31, 2008. Skye's sales for the year 2005 were in excess
of $1 million. As a result, through our new subsidiary, Skye Multimedia Ltd, we
develop custom interactive marketing and training applications for CD, DVD,
Internet and learning management systems. Skye offers a broad range of services
including content design, animation, audio/video production and application
development. Skye's clients are a diverse group of companies from
pharmaceutical, financial, technology and other industries.
Also in February 2006, we acquired substantially all of the operating
assets and assumed certain liabilities from Sage International Group, Inc. As a
result, we acquired a library of 58 nationally certified online training
solutions for the banking, securities and insurance industries. We offer
"off-the-shelf" courses and custom designed programs with delivery methods
suited to the specific needs of our clients. Our customers include approximately
half of the Fortune 500 companies and a large number of midsize and small
companies.
Initially, our accounting/finance programs were delivered on videotape.
In 1998, we recognized that, to remain competitive, we would have to make our
products available in digital format for distribution over the Internet and
corporate intranets. Towards that end we hired information technology
professionals to build a new media department that, among other things, would
convert our programs to digital format for online delivery. Today, online
subscription sales are the fastest growing part of our business. In addition,
10
as part of the Pro2Net acquisition, we acquired a fully-developed learning
management system. As a result, we were able to terminate a contract with a
third party to develop a learning content management system, saving us
approximately $2 million in development costs. Our ability to provide the
value-added services represented by the learning management system is, we
believe, key to our recent revenue growth and future success.
We measure our operations using both financial and other metrics. The
financial metrics include revenues, gross margins, operating expenses and income
from continuing operations. Other key metrics include (i) revenues by sales
source, (ii) on-line sales, (iii) cash flows and (iv) EBITDA.
Some of the most significant trends affecting our business are the
following:
o The increasing recognition by professionals and corporations that they
must continually improve their skills and those of their employees in
order to remain competitive.
o The plethora of new laws and regulations affecting the conduct of
business and the relationship between a corporation and its employees.
o The increased competition in today's economy for skilled employees and
the recognition that effective training can be used to recruit and
train employees.
o The development and acceptance of the Internet as a delivery channel
for the types of products and services we offer.
In 2004, we raised approximately $6 million of net proceeds in an
initial public offering. To date, we have used approximately $1.2 million of
those proceeds; $500,000 to repay debt and $700,000 in connection with the
acquisitions of Sage and Skye. We intend to use the remaining $4.8 million net
proceeds from the offering and our publicly-traded common stock to execute our
growth strategy, which contemplates acquiring other companies that provide
learning solutions or their assets. We intend to focus on acquisitions that will
allow us to increase the breadth and depth of our current product offerings,
including the general corporate market for compliance, governance and ethics. We
will also consider acquisitions that will give us access to new market segments
such as law, insurance, health care and financial services. We prefer
acquisitions that are accretive, as opposed to those that are dilutive, but
ultimately the decision will be based on maximizing shareholder value rather
than short-term profits. The size of the acquisitions will be determined, in
part, by our size, the capital available to us and the liquidity and price of
our stock. We may use debt to enhance or augment our ability to consummate
larger transactions.
There are many risks involved with acquisitions. These risks include
integrating the acquired business into our existing operations and corporate
structure, retaining key employees and minimizing disruptions to our existing
business. We cannot assure you that we will be able to identify appropriate
acquisitions opportunities or negotiate reasonable terms or that any acquired
business or assets will deliver the shareholder value that we anticipated at the
outset.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements that have been
prepared according to accounting principles generally accepted in the United
States. In preparing these financial statements, we are required to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosures of contingent assets and
liabilities. We evaluate these estimates on an ongoing basis. We base 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.
11
REVENUES
Most of our revenue is in the form of subscription fees for one of our
monthly accounting update programs or our course library. Other sources of
revenue include direct sales of programs on a non-subscription basis, fees for
various services, including website design, software development, tape
duplication, video production, video conversion, course design and development,
ongoing maintenance of our clients' online learning content management system
and licensing fees. Subscriptions are billed on an annual basis, payable in
advance and deferred at the time of billing. Sales made over the Internet are by
credit card only. Renewals are usually sent out 60 days before the subscription
period ends. We usually obtain either a signed agreement or purchase orders from
our non-subscription customers outlining the terms and conditions of the sale or
service to be provided. Larger transactions are usually dealt with by contract,
the financial terms of which depend on the services being provided. The
contracts may have different billing arrangements resulting in either unbilled
or deferred revenue. Contracts for development and production services typically
provide for a significant upfront payment and a series of payments based on
deliverables specifically identified in the contract.
Revenues from subscription services are recognized as earned, deferred
at the time of billing or payment and amortized into revenue on a monthly basis
over the term of the subscription. Engineering products are non-subscription
based and revenue is recognized upon shipment of the product or, in the case of
on-line sales, payment. Revenues from non-subscription services provided to
customers, such as website design, video production, consulting services and
custom projects, are generally recognized on a proportional performance basis
where sufficient information relating to project status and other supporting
documentation is available. Otherwise, these services are recognized as revenues
after completion and delivery to the customer. Duplication and related services
are generally recognized upon shipment or, if later, when our obligations are
complete and realization of receivable amounts is assured. Both Working Values
and Skye Multimedia recognize revenue on a proportional performance basis.
EQUIPMENT, INTANGIBLE ASSETS AND LEASEHOLD IMPROVEMENTS
Fixed and intangible assets are carried at cost less their respective
accumulated depreciation/amortization and are depreciated/amortized using the
straight-line method over their estimated useful lives, which range from three
to ten years. Leasehold improvements are amortized over the lesser of their
estimated lives or the life of the lease. Major expenditures for renewals and
improvements are capitalized and amortized over their useful lives.
IMPAIRMENT OF LONG-LIVED ASSETS
We review long-lived assets and certain intangible assets annually for
impairment whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recovered.
STOCK-BASED COMPENSATION
Effective January 1, 2006, we adopted SFAS No. 123R. As a result,
compensation costs are now recognized for stock options granted to employees.
Options and warrants granted to employees and non-employees are recorded as an
expense at the date of grant based on the then estimated fair value of the
security in question.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2006 AND 2005
The following table compares our statement of operations data for the
three months ended March 31, 2006 and 2005. The trends suggested by this table
may not he indicative of future operating results, which will depend on various
factors including the relative mix of products sold (accounting/finance,
engineering or corporate training) and the method of sale (video or online).
12
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------
2005 2006
---------------------------- -----------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE CHANGE
------------ ------------ -------------- ----------- ------------
Net revenues $ 2,848,951 100.0% $ 2,533,579 100.0% (11.1%)
Cost of revenues 1,082,709 38.0% 986,687 38.9% (8.9%)
----------- ----------- ----------- -----------
Gross profit 1,766,242 62.0% 1,546,892 61.1% (12.4%)
----------- ----------- ----------- -----------
Selling, general and administrative 1,435,160 50.4% 1,367,679 54.0% (4.7%)
Depreciation and amortization 141,243 5.0% 148,071 5.8% (4.8%)
----------- ----------- ----------- -----------
Total operating expenses 1,576,403 55.4% 1,515,750 59.8% (3.8%)
----------- ----------- ----------- -----------
Operating income 189,839 6.6 % 31,142 1.3% (83.6%)
Other (expense), net 26,253 .9 % 71,873 2.8% 173.9%
----------- ----------- ----------- -----------
Net income before income tax benefit 216,092 7.5% $ 103,015 4.1% (52.3%)
Income tax benefit -- -47,000 -1.9% 100.00%
----------- ----------- ----------- -----------
Net income $ 216,092 7.5% $ 150,015 6.0% (30.6%)
----------- ----------- ----------- -----------
NET REVENUES
Net revenues for the quarter ended March 31, 2006 decreased
approximately $315,000 or 11.1% compared to net revenues for the three months
ended March 31, 2005. This was primarily due to decreased revenues from our
video production and technology divisions. Online sales continue to be an
important factor contributing to our overall revenue growth, a trend that began
in 2003. In the 2006 period, net revenues from online sales accounted for
approximately $687,000, or 27% of net revenues. In the 2005 period, net revenues
from online sales accounted for $606,000, or 21% of net revenues.
In the first quarter of 2006, net revenues from our accounting/finance
and related products were $1.96 million or 77% of sales, compared to $2.05
million or 72% of sales in the comparable 2005 period. Sales of our subscription
based products increased from $1.7 million in 2005 to $1.83 million in 2006.
This increase is due to various factors, including converting a number of our
existing video customers to our online services, partnering with more
professional organizations and our continued marketing efforts to increase
sales. Revenue from other projects in our accounting division, which are not
subscription based decreased from $350,000 in 2005 to $131,000 in 2006. As in
our technology and other areas these sales fluctuate from period to period are
not indicative of any trends.
Net revenues from sales of our engineering products, which are not
subscription-based, were $216,000 in the first quarter of 2006 compared to
$246,000 in the first quarter of 2005. This decrease is not indicative of any
trends in this division, but is a result of timing differences in the placement
of orders from certain customers.
Net revenues from video production, duplication, consulting and
e-commerce services for the first quarter of 2006 were $268,000 compared to
$546,000 for the first quarter of 2005. This decrease is primarily attributable
to the continual decline in our video duplication business, and a decline in the
video production business as a result of a change in management in that
department. We recently hired a new vice president of video production. In
addition, we have included the results of our new subsidiary, Skye Multimedia
Ltd. that began operations on March 1, 2006. Skye generated $60,000 in revenue
for the quarter. Revenue from our consulting area declined as a result of the
completion of large contracts in the first quarter of 2005. Under our
long-standing policy, revenue is credited to the originating department
regardless of the type of service that is performed. For example, a contract to
convert videotapes to digital format is credited to the accounting education
department if that is where the sale originated, even if the project has nothing
to do with accounting. Custom work is non-repetitive and subject to market
conditions and can vary from quarter to quarter.
For the first quarter of 2006, Working Values contributed $158,000 to
net revenues compared to $70,000 in the first quarter of 2005. This income is
derived primarily form custom consulting work. We acquired Working Values in
2003 with the intent of developing off-the-shelf ethics training course content
for the general corporate market that we could either license or sell on a
subscription basis. Initially, Working Values primary focus was on developing
customized products for specific clients. Beginning in the second quarter of
2005, Working Values renewed its focus on developing and licensing standardized
training modules. Working Values released its first courses in the first quarter
of 2006.
13
COST OF REVENUES
Cost of revenues includes production costs - I.E., the salaries,
benefits and other costs related to personnel, whether our employees or
independent contractors, who are used directly in production, including
producing our educational programs; royalties paid to third parties; the cost of
materials, such as videotape and packaging supplies; and shipping costs. There
are many different types of expenses that are characterized as production costs
and many of them vary from period to period depending on many factors.
Compared to the first quarter of 2005, cost of revenues in the first
quarter of 2006 decreased by $96,000. The decrease was primarily attributable to
both reduced personnel and sub-contracted labor costs related to various
projects in the technology department. Costs of revenues for the 2006 period
included approximately $10,000 of costs directly related to developing Working
Values' ethics courses and approximately $18,000 related to integrating Sage's
banking courses into our technology systems. Of the latter amount, $10,000 are
personnel costs and $8,000 reflect payments to third party consultants and other
expenses. The expenses that showed the greatest variations from 2005 to 2006 and
the reasons for those variations were as follows:
o OUTSIDE LABOR AND DIRECT PRODUCTION COSTS. Outside labor includes the
cost of hiring actors and production personnel such as directors,
producers and cameramen and the out-sourcing of non-video technology.
The cost of such outside labor, which is primarily video production
and technology personnel, decreased $102,000. This decrease is
directly related to the completion of a number of custom technology
and video projects in 2005. The decrease in video production revenue
also resulted in lower outside personnel costs. Direct production
costs, are costs related to producing videos other than labor costs,
such as the cost of renting equipment and locations, decreased
$16,000. These variations are related to the type of video production
and other projects and do not reflect any trends in our business. As
our business grows we may be required to hire additional production
personnel, increasing our cost of revenues.
o ROYALTIES. Royalty expense increased in the 2006 period compared to
the 2005 period by $41,000. This increase is due to a growth of sales
in our accounting products and the mix of products in the engineering
area which have different royalty arrangements.
o SALARIES. Overall, payroll and related costs attributable to
production personnel decreased by $12,000. Although we have reduced
salaries and related costs in our video production department by
$47,000 as a result of decreased business, that savings is offset by
the salaries in our new Skye subsidiary of approximately $31,000.
There was a small increase in the combined areas of technology and
Working Values of approximately $4,000.
o OTHER PRODUCTION RELATED COSTS. These are other costs directly related
to the production of our products such as purchases of materials,
travel, shipping and other. These costs decreased slightly by $6,000
from 2005 to 2006. This is a direct result of the shift from video to
online delivery of our subscription products.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include corporate overhead such as
compensation and benefits for administrative, sales and marketing and finance
personnel, rent, insurance, professional fees, travel and entertainment and
office expenses. General and administrative expenses in the first quarter of
2006 decreased by $67,000 from the comparable period in 2005. As a percentage of
net revenues they decreased by 4.7% and as a percentage of sales they increased
from 50.4% to 54.0% from the prior year. These costs consist of a number of
different types of expenses. A few of the key elements of these expenses are,
personnel costs that increased by $12,000 from 2005 to 2006. This small increase
is a result of a number of factors including additional personnel costs of
approximately $40,000 as a result of our recent acquisitions offset by savings
in salary due to the resignation of our president during the quarter. Although
we have increased salaries in our sales and marketing and finance departments,
these were offset by reductions in other personnel costs. Selling costs, which
includes advertising, promotion, travel and entertainment, decreased by $9,000.
Our other operating costs decreased by approximately $70,000, including a $9,000
charge for recording the expense of stock options as now required by SFAS 123R.
We have reduced the costs of our being a public company by lowering our investor
relations expense by $11,000 from the prior year, and we are always seeking ways
to reduce our overhead. Although, we make
14
every effort to control our costs, we anticipate that general and administrative
expenses will continue to increase primarily as a result of our recent
acquisitions.
DEPRECIATION and AMORTIZATION
Depreciation and amortization expenses increased by $7,000 in the first
quarter of 2006 compared to the first quarter of 2005 as a result of increased
amortization expense from our recent acquisitions and capitalized course costs.
We expect our depreciation and amortization expenses on our current assets to
continue to increase. Although many of our older assets are either fully or
almost fully depreciated and we do not anticipate replacing them at the same
rate, this is offset by the amortization of the intangibles acquired in these
acquisitions.
INCOME FROM OPERATIONS
For the three months ended March 31, 2006, net income from operations
was $31,000 compared to $190,000 in the comparable period of 2005. This decrease
is primarily attributable to the decline in revenues from our video production
and consulting divisions; internal costs incurred in integrating our new product
acquisitions; and from decreased general and administrative costs. Our quarterly
earnings are affected by the mix of custom projects compared to subscription and
education-based sales.
OTHER INCOME/EXPENSES
Other income and expense items consist of interest paid on indebtedness
and interest earned on deposits. As a result of the successful completion of our
initial public offering, we were able to retire all of our debt (other than
capital lease obligations), reducing our interest expense. At the same time,
since we have not yet used the balance of the net proceeds from our initial
public offering, our interest income has increased. As a result, for the first
quarter of 2006 we had net interest income of $72,000 compared to net interest
income of $26,000 in the first quarter of 2005 after expending approximately
$690,000 for acquisitions in February 2006. This is to due to the increase in
interest rates from 2005 to 2006.
PROVISION FOR INCOME TAXES
The Company has begun to account for deferred tax benefits available
from its net operating loss carryforward pursuant to FASB 109. It is anticipated
that the Company will recognize approximately $200,000 in such benefits this
year, offset by any charges for the corporate alternative minimum tax.
NET INCOME
For the three months ended March 31, 2006, we recorded a net profit of
$150,015, or $.03 per share, basic and diluted, compared to a net income of
$216,092 or $.04 per share, basic and diluted, for the three months ended March
31, 2005. The decrease in net profit is attributable to decreased revenues
offset by a decrease in operating costs. Earnings per share before the benefit
of the deferred tax asset would have been $.02 per share
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Historically, we have financed our working capital requirements through
internally generated funds, sales of equity and debt securities and proceeds
from short-term bank borrowings. In October 2004, we completed our initial
public offering, which resulted in net proceeds to us of approximately $6
million. In the first quarter of this year we used approximately $700,000 of
these funds to make acquisitions.
Our working capital as of March 31, 2006 was approximately $4.05
million compared to $4.3 million at December 31, 2005. Our current ratio at
March 31, 2006 was 1.90 to 1 compared to 2.02 to 1 at December 31, 2005. The
current ratio is derived by dividing current assets by current liabilities and
is a measure used by lending sources to assess our ability to repay short-term
liabilities. The largest component of our current liabilities, $4.0 million at
March 31, 2006 compared to $3.7 million at December 31, 2005, was deferred
revenue, which is revenue collected or billed but not yet earned under the
principles of revenue recognition. Most of this revenue is in the form of
subscription fees and will be earned over the next 12 months. The cost of
fulfilling our monthly subscription obligation does not exceed this revenue and
is booked to expense as incurred. For some of our products, there are no
additional costs, other than shipping costs, required to complete our
obligations, as the material already exists.
15
The primary components of our operating cash flows are net income
adjusted for non-cash expenses, such as depreciation and amortization, and the
changes in accounts receivable, accounts payable and deferred revenues. For the
three months ended March 31, 2006, net cash provided by operating activities was
$90,000 and we had a net cash decrease of $623,000, which included an outlay of
approximately $718,000 for acquisitions. Included in the decrease is
approximately $37,000 for asset purchases and course capitalization. We also
received $53,000 from the exercise of stock options.
Capital expenditures for the three months ended March 31, 2006 were
approximately $37,000, which consisted primarily of computer equipment purchases
and the capitalization of internally produced courses for Working Values.
Although, we continually upgrade our technology hardware, we do not anticipate
any significant capital expenditures relating to equipment purchases over the
next 12 months.
At March 31, 2006, our only indebtedness consisted of capital lease
obligations, the balance of which was $54,000 compared to $64,000 at December
31, 2005. We have three leases with IDB Leasing, which had an aggregate
outstanding balance at March 31, 2006 of $35,000. One lease has a 48-month term
that expires in 2007, an imputed interest rate of 7.0% and monthly payments of
$2,055. A second lease has a 36-month term that expires in 2006, an imputed
interest rate of 7.5% and monthly payments of $996. The third lease has a
36-month term that expires in 2007, an imputed interest rate of 6.05% and a
monthly payment of $313. In August 2004, we financed the purchase of a van. The
loan is for a term of 36 months, bears interest at 4.99% per annum and requires
35 monthly payments of $358 and a final payment of approximately $13,800 due in
August 2007. The lender has agreed to repurchase the vehicle at our option for
the amount of the final payment less any applicable expenses, at the end of the
term. At March 31, 2006, the balance on the loan was $18,500.
As of March 31, 2006, we had commitments under three operating leases -
the leases for executive offices in Hawthorne, New York, the Working Values
executive offices in Sharon, Massachusetts and the Skye Multimedia Ltd.
executive offices in Bridgewater New Jersey - aggregating $1.4 million through
February 2010.
We believe that the net proceeds of our initial public offering in
October 2004 together with cash flow from operations will be sufficient to meet
our working capital and capital expenditure requirements from the next 12
months.
In the future, we may issue additional debt or equity securities to
satisfy our cash needs. Any debt incurred or issued may be secured or unsecured,
at a fixed or variable interest rates and may contain other terms and conditions
that our board of directors deems prudent. Any sales of equity securities may be
at or below current market prices. We cannot assure you that we will be
successful in generating sufficient capital to adequately fund our liquidity
needs.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management, with the
participation of the chief executive officer and the chief financial officer,
carried out an evaluation of the effectiveness of our "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"). Based upon that
evaluation, the chief executive officer and the chief financial officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act (i) is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms and (ii) is accumulated and communicated to our
management, including our chief executive and chief financial officers, as
appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no
changes in our internal controls over financial reporting 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.
16
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
We are not currently a party to any legal proceeding that we deem
material.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
RECENT SALES OF UNREGISTERED SECURITIES
There were no sales of unregistered securities during the period
covered by this Report.
USE OF PROCEEDS
On October 19, 2004, our registration statement on Form SB-2,
commission file number 333-115454 (the "Registration Statement") registering the
offer and sale of units (each a "Unit" and collectively the "Units"), each Unit
consisting of three shares of our common stock, par value $.0001 per share, and
one and one-half common stock purchase warrants, was declared effective by the
U.S. Securities and Exchange Commission. The warrants included in the Units have
a term of five years and an exercise price of $7.125 per share. We sold all
600,000 Units covered by the Registration Statement. Paulson Investment Company,
Inc. was the representative of the underwriters of the offering. The gross
proceeds to us from the offering were $7.65 million and the net proceeds were
$6.0 million. As of the date hereof, we used $490,000 of the net proceeds to
repay indebtedness and approximately $700,000 for acquisitions. The remaining
$4.8 million will be used for working capital and general corporate purposes,
including acquisitions.
COMPANY PURCHASES OF ITS EQUITY SECURITIES
On December 15, 2005, the Board of Directors approved a stock buy back
program under which $750,000 of company funds was allocated to purchase shares
of our common stock on the American Stock Exchange. Due to the fact that we were
in active negotiations with both Skye and Sage Online Learning during the months
of January and February 2006, we self-imposed a temporary freeze on the buyback.
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
(c)
TOTAL NUMBER OF (d)
SHARES (OR MAXIMUM NUMBER (OR
(a) (b) UNITS) PURCHASED APPROXIMATE DOLLAR
TOTAL NUMBER AVERAGE AS PART OF VALUE) OF SHARES (OR
OF SHARES PRICE PAID PUBLICLY UNITS) THAT MAY YET
(OR UNITS) PER SHARE ANNOUNCED PLANS BE PURCHASED UNDER
PERIOD PURCHASED (OR UNIT) OR PROGRAMS THE PLANS OR PROGRAMS
--------------------------- ------------------ ----------------- ------------------ ----------------------
Month #1
(January 1-31, 2006) -- -- -- --
Month #2
(February 1-28, 2006) -- -- -- --
Month #3
(March 1-31, 2006) $ $
------------------ ----------------- ------------------ ----------------------
Total $ $
================== ================= ================== ======================
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
a. Exhibits:
Exhibit No. Description
------------ -------------
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
18
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: May 12, 2006 /s/ Allen S. Greene
-------------------
Chief Executive Officer
Date: May 12, 2006 /s/ Stanley P. Wirtheim
-----------------------
Chief Financial Officer
(Principal Financial Officer)
19