SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 20-F
(Mark One)

|_|   REGISTRATION  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
      EXCHANGE ACT OF 1934 OR

|X|   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 For the fiscal year ended April 30, 2005.

                                       OR

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

        For the transition period from               to

                         Commission File Number 0-21978
                                   ----------
                       FUTUREMEDIA PUBLIC LIMITED COMPANY
             (Exact name of registrant as specified in its charter)

                                England and Wales
                 (Jurisdiction of incorporation or organization)

         NILE HOUSE, NILE STREET, BRIGHTON, EAST SUSSEX BNI 1HW, ENGLAND
                    (Address of principal executive offices)

Securities  registered or to be registered pursuant to Section 12(b) of the Act:
None

Securities  registered or to be registered pursuant to Section 12(g) of the Act:
American  Depositary  Shares (each  representing  one Ordinary  Share)  Ordinary
Shares of 1 1/9 p each

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act: None

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital or common stock as of the close of period  covered by the annual report:
91,769,479  Ordinary Shares of 1 1/9 p each.  Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the  Securities  Exchange Act of 1934 during the  preceding 12 months (or for
such shorter  period that the  registrant 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 which financial statement item the registrant has elected
to follow:

Item 17           Item 18      X
          -----              -----


<PAGE>


                                TABLE OF CONTENTS

EXPLANATORY NOTE...............................................................3

COMMUNICATIONS WITH HOLDERS OF ADSS............................................4


WARNINGS REGARDING FORWARD-LOOKING STATEMENTS..................................5

PART I.........................................................................6

ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...................6

ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE.................................6

ITEM 3 KEY INFORMATION.........................................................6

ITEM 4 INFORMATION ON THE COMPANY.............................................15

ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS..........................24

ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.............................35

ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS......................43

ITEM 8 FINANCIAL INFORMATION..................................................47

ITEM 9 THE OFFER AND THE LISTING..............................................48

ITEM 10 ADDITIONAL INFORMATION................................................51

ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............55

ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES................55

PART II.......................................................................56

ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.......................56

ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
  HOLDERS AND USE OF PROCEEDS.................................................56

ITEM 15 CONTROLS AND PROCEDURES...............................................56

ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT.....................................56

ITEM 16B CODE OF ETHICS.......................................................56

ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................57

ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES...........57


                                       1
<PAGE>


ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER
  AND AFFILIATED PURCHASERS...................................................57

PART III......................................................................58

ITEM 17 FINANCIAL STATEMENTS..................................................58

ITEM 18 FINANCIAL STATEMENTS..................................................58

ITEM 19 EXHIBITS..............................................................59

SIGNATURES....................................................................62

CERTIFICATIONS..............................................EXHIBITS 12.1 - 13.2


                                       2
<PAGE>


                                EXPLANATORY NOTE
                                ----------------


As used herein,  except as the context otherwise requires,  the terms "Company",
"Futuremedia" and "Futuremedia PLC" refer to Futuremedia  Public Limited Company
and its  subsidiaries.  The Company is  organized  under the laws of England and
Wales. The Company's offices are located at Nile House,  Nile Street,  Brighton,
East   Sussex   BNI  1HW,   England.   The   Company's   telephone   number   is
011-44-1273-829700. The Company does not have offices in the United States.

Except as the context otherwise  requires,  "Ordinary Shares" or "Shares" refers
to the Ordinary Shares of 1 1/9 pence each of the Company.

The  Company's  American  Depositary  Shares  ("ADSs") have traded since May 29,
1993, on the Nasdaq SmallCap Market under the symbol FMDAY.  Each ADS represents
the right to receive one Ordinary  Share of the Company.  ADSs are  evidenced by
American Depositary Receipts ("ADRs").  ADSs evidenced by ADRs are issued by the
Bank of New York as Depositary (the  "Depositary") of the Company's ADR facility
in accordance with the terms of a deposit  agreement between the Company and the
Depositary.

The Company publishes its Consolidated  Financial Statements expressed in United
Kingdom  ("UK")  pounds  sterling.  Such  financial  statements  are prepared in
conformity  with United States  generally  accepted  accounting  principles ("US
GAAP"). In this document,  references to "US dollars", "US$", "cents" or "$" are
to  United  States  ("US")   currency  and  references  to  "pounds   sterling",
"sterling",  "GBP",  "pence" or "p" are to UK currency.  Solely for convenience,
this Report  contains  translations  of certain pound  sterling  amounts into US
dollars at  specified  rates.  These  translations  should not be  construed  as
representations  that the pound  sterling  amounts  actually  represent  such US
dollar  amounts or could have been or could be converted  into US dollars at the
rates indicated or any other rates. Unless otherwise indicated,  the translation
of pounds  sterling  into US  dollars  have  been made at the rate of  GBP1.00 =
$1.9075,  the Noon  Buying Rate in New York City for cable  transfers  in pounds
sterling as certified for customs  purposes,  by the Federal Reserve Bank of New
York (the  "Noon  Buying  Rate") on April 30,  2005.  On July 25,  2005 the Noon
Buying  Rate was GBP  1=$1.7565.  For  information  regarding  rates of exchange
between pounds sterling and US dollars from fiscal 2000 to the present see "Item
3.A. Selected Financial Data - Exchange Rates."

The  Company's  Fiscal  year ends on April 30 of each year.  References  in this
document to a particular year are to the fiscal year unless otherwise indicated.

References in this annual report to the "Companies Act" are to the Companies Act
1985, as amended,  of Great Britain;  references to the "EU" are to the European
Union.

The Company  furnishes the  Depositary  with annual reports  containing  audited
consolidated   financial  statements  and  an  opinion  thereon  by  independent
auditors.   The  Company  also  furnishes  to  the  Depositary  all  notices  to
shareholders  of the Company.  The  Depositary  makes such notices,  reports and
communications  available for  inspection by record  holders of ADSs and, at the
Company's   request  and  expense,   the  Depositary   mails  such  notices  and
communications  to all record holders of ADSs.  Only persons in whose names ADSs
are registered on the books of the Depositary  will be treated by the Depositary
and the Company as holders of ADSs.

Information  contained on any of the Company's Internet  websites,  or any other
websites referred to herein,  does not constitute part of this report and is not
incorporated by reference herein.


                                       3
<PAGE>


                       COMMUNICATIONS WITH HOLDERS OF ADSs
                       -----------------------------------


In advance of the Company's  General Meeting held on March 17, 2005, the Company
advised  holders of ADSs that,  to  minimize  expenses,  it had  decided  not to
distribute  to holders  of ADSs a hard copy of the  Company's  annual  report to
shareholders.  Instead,  the Annual  Report was made  available on the Company's
website  (www.futuremedia.co.uk)  and, on request, in hard copy from the Company
or from the Depositary. The Annual Report was also filed electronically with the
United  States  Securities  and  Exchange  Commission  ("SEC") on Form 6-K.  The
Company believes that this manner of making information  available to holders of
ADSs is consistent  with its obligations  under  applicable law and the rules of
the NASDAQ  Stock Market and intends to make future  information  available in a
similar manner.


                                       4
<PAGE>


                  WARNINGS REGARDING FORWARD-LOOKING STATEMENTS
                  ---------------------------------------------


Some  of  the  statements   contained  in  this  Report  and  in  the  documents
incorporated  by reference are  forward-looking  statements made pursuant to the
safe harbor  provisions  Section 21E of the Securities  Exchange Act of 1934, as
amended.  In  essence,  forward-looking  statements  are  predictions  of future
events. Although the Company would not make forward-looking statements unless it
believed it had a reasonable  basis for doing so, the Company  cannot  guarantee
the accuracy of such  statements and actual results may differ  materially  from
expectations.

The  Company's  forward-looking  statements  are accurate only as of the date of
this  Report,  or  in  the  case  of  forward-looking  statements  in  documents
incorporated  by  reference,  as of the date of  those  documents.  The  Company
identifies  forward-looking  statements  with  the  words  "plans",   "expects",
"believes", "intends", "anticipates", "estimates", "will", "should", "would" and
similar expressions.  Examples of the Company's  forward-looking  statements may
include statements related to:

      -     the  Company's  plans,  objectives,   expectations  and  intentions,
            including without  limitation the Company's  expectations  regarding
            future working capital requirements and financial results;

      -     the anticipated  growth rate of the markets for outsourced  employee
            benefit  programs  (including  programs based on the UK Government's
            Home Computing Initiatives) and Internet-based learning technologies
            and products in general, and the Company's products and solutions in
            particular;

      -     the timing,  availability,  cost of development and functionality of
            products and solutions under development or recently introduced; and

      -     other  statements  that the Company  makes under the caption  "Trend
            Information" in Item 5.D. below.

All forward-looking  statements in this Report (or in documents  incorporated by
reference  herein)  are  subject  to risks  and  uncertainties,  both  known and
unknown,  that may cause actual results to differ materially from  expectations.
Such factors  include those discussed in the Risk Factors set forth in Item 3.D.
below as well as those discussed elsewhere in this Report. The Company expressly
disclaims  any  obligation  to release  publicly any updates or revisions to any
such statement to reflect any change in  expectations or in information on which
any such statement is based.


                                       5
<PAGE>


PART I


ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.

Not Applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable

ITEM 3. KEY INFORMATION


A.    SELECTED FINANCIAL DATA

The selected  consolidated  financial data as of April 30, 2004 and 2005 and for
the years ended April 30, 2003, 2004 and 2005 have been derived from the audited
consolidated  financial  statements  of the Company  included  elsewhere in this
Report. The selected consolidated  financial data as of April 30, 2001, 2002 and
2003 and for the years ended April 30, 2001 and 2002 have been  derived from the
audited consolidated financial statements of the Company, which are not included
in this Report.

The  information  set forth below  should be read in  conjunction  with,  and is
qualified in its entirety by reference  to, the Company's  audited  consolidated
financial  statements  and notes  thereto and the  discussion  thereof  included
herein.

<TABLE>
<CAPTION>
Income Statement Data                                               Years Ended April 30
                                                      --------------------------------------------------------------
                                                        2005(1)    2005       2004       2003       2002       2001
                                                      -------    -------    -------    -------    -------    -------
                                                                 (in thousands, except per share data)

                                                        $          GBP        GBP        GBP        GBP        GBP
<S>                                                   <C>        <C>        <C>         <C>          <C>        <C>
Net sales ........................................    29,854     15,651     18,661      1,342        911        743
Operating loss ...................................    (7,176)    (3,762)      (705)    (1,041)    (2,028)    (3,812)
Net loss .........................................    (7,550)    (3,958)    (1,662)    (1,088)    (2,012)    (3,697)
Net loss per share - basic and diluted                 (8.53)c    (4.47)p    (1.98)p    (2.34)p    (6.60)p   (12.71)p
</TABLE>


                                       6
<PAGE>


<TABLE>
<CAPTION>
Balance Sheet Data                                                  As of April 30,
                                      -----------------------------------------------------------------------------
                                        2005(1)          2005         2004         2003       2002         2001
                                        -------          ----         ----         ----       ----         ----

                                                        (in thousands, except number of shares)

                                           $             GBP          GBP          GBP         GBP            GBP
<S>                                   <C>           <C>          <C>          <C>          <C>           <C>
Cash and cash equivalents...........       2,068         1,084        4,651          437          445         2,547
Total assets........................      10,699         5,609       10,545        3,156        2,089         4,713
Total current liabilities...........      13,713         7,189        8,813        1,581        1,522         2,208
Long-term debt and capital lease
obligations.........................           -            -            -             -          -             442
Stockholders' (deficit)/equity......      (3,014)       (1,580)       1,732        1,575          567         2,063
Number of shares outstanding........  91,769,479    91,769,479   87,239,486   78,194,457   29,648,374    29,648,374
Stock to be issued..................                         -            -            -   10,346,979             -
</TABLE>

(1)   US dollar amounts have been translated  solely for convenience at the Noon
      Buying Rate on April 30, 2005 of GBP1.00 = $1.9075.

Exchange Rates

The Company publishes its financial statements in pounds sterling.  The majority
of the Company's revenues are denominated in pounds sterling and the majority of
the Company's expenses and debt are denominated in pounds sterling.

The  following  sets forth the  exchange  rate between the  Company's  financial
reporting currency, the pound sterling, and the US dollar, using the Noon Buying
Rate at the month end.

      (a)   The exchange rate as of July 29, 2005 was GBP1=$1.7565

      (b)   The high and low  exchange  rates for each month during the previous
            six  months  expressed  in US  dollars  per pound  sterling  were as
            follows:

                                                    HIGH             LOW
                                                   ------          ------
       July, 2005...............................   1.7920          1.7364
       June, 2005...............................   1.7920          1.7364
       May, 2005................................   1.9088          1.8203
       April 2005...............................   1.9156          1.8758
       March 2005...............................   1.9270          1.8680
       February 2005............................   1.9192          1.8549


                                       7
<PAGE>


      (c)   For the five most recent  fiscal  years,  the average rates for each
            period, calculated by using the average of the exchange rates on the
            last business day of each month during the period, were as follows:

                  Year Ended April 30,                  Average

                  2001...................               1.4676
                  2002...................               1.4339
                  2003...................               1.5684
                  2004...................               1.7193
                  2005...................               1.8537

B     CAPITALIZATION AND INDEBTEDNESS.

Not Applicable

C     REASONS FOR THE OFFER AND USE OF PROCEEDS.

Not Applicable

D     RISK FACTORS.

This  Report  contains  forward-looking  statements,  which  involve  risks  and
uncertainties.  The Company's actual results could differ  materially from those
anticipated in these forward-looking  statements as a result of certain factors,
including  those set forth in the  following  Risk Factors and elsewhere in this
Report.

      Reliance on Corporate Customers; Lengthy Sales Cycle

A substantial  portion of the  Company's  revenues are derived from sales of its
products  and  services  to  large   corporate   customers   and  public  sector
organizations  that  often  use the  Company's  products  through  the UK's Home
Computing  Initiative  ("HCI") scheme whereby the Company provides  products and
services directly to customers' employees,  in their own homes. Customers demand
highly  reliable  products and services to be provided to their  employees,  and
often implement a lengthy selection process in order to determine the successful
supplier. This process can take up to several months before the customer commits
to  purchase..  Such  selection  processes  are  commonly  based on the  Company
providing access to demonstration  material based on existing solutions produced
for other customers and frequently require significant  pre-sales activity.  The
sales volume of some of the  Company's  hosted and  Learning  For AllTM  ("LFA")
solutions  will be  significantly  dependent on  acceptance  and adoption of the
product by the customer's  employees.  Some of the Company's  customers may also
source third party  e-Learning  content products that compete with the Company's
products.  These  customers  could give higher  priority to the use of competing
products.  Some of the  Company's  customers do not have  exclusive or long-term
purchase  obligations  with the  Company.  The failure of customers to decide to
purchase the Company's products after the Company spends  significant  marketing
resources and the  possibility  that customers may source third party  competing
products could each have a material  adverse  impact on the Company's  business,
financial condition and results of operations.

      Reliance on Significant Customers

For the fiscal year ended April 30, 2005,  the Company's  two largest  customers
together  represented  approximately 82% of gross sales of the Company. The loss
of either of these major customers  could have a material  adverse effect on the
Company's business, financial condition and results of operations.


                                       8
<PAGE>


      Seasonal Demand for Products

The demand for the  Company's  products is generally  expected to be stronger in
the second  half of the fiscal  year  (which ends on April 30) and weaker in the
first half due to seasonal buying patterns in the UK and the rest of Europe,  as
well as the seasonality created by the timing of the  client-internal  marketing
campaigns  for  Learning  For AllTM  products,  which  tend to peak in the third
fiscal quarter, with deliveries scheduled by Christmas. The shifts in demand for
the  Company's  products  may make it difficult  to plan  delivery  capacity and
business operations  efficiently.  If demand is significantly below expectations
the Company may be unable  rapidly to reduce  fixed  costs,  which can  diminish
gross margins and cause losses.  A downturn in demand may also leave the Company
with excess inventory,  which may be rendered obsolete or overvalued as products
evolve  during the  downturn  and demand  shifts to new products or prices fall.
Conversely,  in upturns in demand,  the Company  may incur  expenses to expedite
delivery  of  products,  procure  scarce  components  and  outsource  additional
manufacturing processes. These expenses could reduce the Company's gross margins
and  overall  profitability.  Any of  these  results  could  seriously  harm the
Company's business, financial condition and results of operations.

      Volatility of Stock Price

The market price for the ADSs has been and may  continue to be highly  volatile.
Consequently,  the  current  market  price  of the  Company's  ADSs  may  not be
indicative of its future market prices,  the Company may be unable to sustain or
increase the value of an  investment  in its ADSs.  The Company  believes that a
variety of factors  could cause the price of the  Company's  ADSs to  fluctuate,
perhaps substantially, including:

      -     announcements  and  rumors  of  technological   innovations  or  new
            products by the Company or its competitors;

      -     variations in anticipated or actual operating results;

      -     changes  in  regulations  and  other  factors  relating  to  the  UK
            Government's Home Computing Initiatives;

      -     general conditions in the e-Learning market;

      -     general conditions in the worldwide economy;

      -     conditions  and  general   economic   conditions  that  may  have  a
            significant impact on the market price of the ADSs; and

      -     developments in the Company's  relationships  with its customers and
            suppliers.

      Listing  Maintenance  Criteria for Nasdaq System;  Disclosure  Relating to
Low-Priced Stocks

The Company's  ADSs, as evidenced by ADRs,  which in turn evidence the Company's
Ordinary  Shares,  are  currently  traded  on the  Nasdaq  SmallCap  Market.  No
assurance can be given that an orderly  trading  market will be sustained in the
future.  Also,  Nasdaq  requires  that,  in order for a company's  securities to
continue to be listed on the Nasdaq SmallCap  Market,  the company must maintain
either a minimum  stockholders'  equity  of  $2,500,000,  $35,000,000  in market
capitalization  or net income of $500,000 in the most recently  completed fiscal
year or in two of the last three  most  recently  completed  fiscal  years.  The
Company had unaudited  stockholders'  negative  equity of $1,642,000 at June 30,
2005,  net loss for the financial  year ended April 30, 2005 of $7,550,000 and a
market  capitalization  of $55 million on July 29, 2005. In addition,  effective
May 29, 2006,  the continued  listing of the Company's ADSs will be subject to a
$1.00 minimum bid price.  On July 29, 2005, the last bid price for the Company's
ADSs was $0.611. The failure to meet these listing  maintenance  criteria in the
future  may  result in the  delisting  of the  Company's  ADSs  from the  Nasdaq
SmallCap  Market.  There can be no  assurances  that the Company will be able to
continue to satisfy the applicable standards for continued listing on the Nasdaq
Smallcap  Market.  A failure  to  maintain  such  listing  could have a material
adverse  effect on the  Company's  business and  financial  condition and on the
liquidity and market value of the ADSs.


                                       9
<PAGE>


In  addition,  in the event the  Company's  ADSs are  delisted  from the  Nasdaq
SmallCap  Market,  the Company's ADSs and Ordinary  Shares may become subject to
the "penny stock" rules of the United States Securities and Exchange  Commission
(the  "Commission").  A "penny  stock" is  generally an equity  security  with a
market price of less than $5.00 per share which is not quoted through the Nasdaq
system or a national securities exchange in the US. Due to the risks involved in
an investment in penny stocks, US securities laws and regulations impose certain
requirements  and  limitations on  broker/dealers  who recommend penny stocks to
persons  other  than  their  established  customers  and  accredited  investors,
including making a special written suitability  determination for the purchaser,
providing  purchasers  with a  disclosure  schedule  explaining  the penny stock
market and its risks and  obtaining  the  purchaser's  written  agreement to the
transaction  prior to the sale.  These  requirements  may limit the  ability  of
broker/dealers  to sell penny stocks.  Also,  because of these  requirements and
limitations,  many  broker/dealers may be unwilling to sell penny stocks at all.
In the event the Company's  Ordinary  Shares become subject to the  Commission's
rules relating to penny stock, the trading market for the ADSs may be materially
adversely affected.

      Dependence on UK Government Home Computing Initiative

Most of the Company's  revenues derive from the  implementation of the Company's
Learning For AllTM programs,  which take advantage of the UK  Government's  Home
Computing Initiatives ("HCI"), aimed at raising computer literacy within the UK.
Under such  schemes,  individuals  may purchase tax  deductible  home  computing
equipment,  which not only spreads the cost over three  years,  but also reduces
the  individual's  income tax  liability.  The UK  Government  launched  its HCI
initiative in 1999, with a re-launch in January 2004 to re-energize the program.
Since the re-launch, the market has rapidly grown as the benefits to individuals
and their  employers  become better  understood.  The  government  has similarly
allowed the tax deductible  purchase of bicycles,  childcare vouchers and mobile
phones,  and also clarified the legal  relationship of HCI schemes with existing
consumer  legislation  during the late  summer of 2004.  The  ultimate  success,
however,  of these  schemes is  determined  by the takeup of the offering by the
employees of the client.  These takeup  rates have been  extremely  difficult to
predict,  and  there is no  assurance  that  every  scheme  will be  financially
successful  for the  Company,  though  every  effort  is made  to  evaluate  the
potential level of  participation  before each client is engaged.  The continued
existence  and  development  of HCI is dependent on the strategy and policies of
the UK government. There can be no assurance that such initiatives will continue
at all or in a manner that will enable to the  Company to  successfully  develop
and markets its products and services. Any discontinuation or material change in
HCI or in the UK  Government's  strategy  with respect to  tax-favored  employee
benefit programs could have a material adverse effect on the Company's business,
financial condition and result of operations.

      Dependence on Market for e-Learning

Revenues  derived  from  the  sale  of  e-Learning  solutions  are  directly  or
indirectly   related  to  spending  and  investment  plans  of  large  corporate
businesses and public sector  organizations on net-based  learning  technologies
and associated services.  These large businesses and public sector organizations
may be subject to significant  fluctuations as a consequence of general economic
conditions,  industry  patterns or other  factors  affecting  such  spending and
investment.  Expenditures  for products and services  such as the  Company's are
directly affected by these fluctuations. The Company expects that its operations
will continue to depend on these factors.  Fluctuations,  downturns or slowdowns
in these large  businesses could have a material adverse effect on the Company's
business, financial condition and results of operations.


                                       10
<PAGE>


      Competition

The HCI and net-based learning businesses remain rapidly evolving with a growing
number of competitors and are subject to rapid technological change. The Company
currently  competes  both  with  smaller  UK based  companies  as well as larger
multinational  firms in the development and implementation of net-based learning
products and the offering of programs  under the HCI. Some of these  competitors
are more established,  better capitalized and have a better market position than
the Company.

In addition,  these  competitors may have the ability to respond more quickly to
new or  emerging  technologies,  may adapt more  quickly to changes in  customer
requirements and may devote greater resources to the development,  promotion and
sale of their products and services than the Company.  The Company may also have
a cost disadvantage compared to competitors who have greater direct buying power
from suppliers or who have lower cost structures.

      Early Stage of Market Development

The markets for most of the Company's  products,  particularly its HCI products,
are at a relatively early stage of development and customer acceptance.  Broader
acceptance  of the  Company's  products  will  depend on customer  and  end-user
reaction to those  products and the price and  performance  of the Company's and
its  competitors'  products.  The Company believes that the development of these
markets will, in part,  depend on the success of the Company's efforts to inform
and  demonstrate  to its  customers  the  perceived  efficacy  of the  Company's
products.  According  to  research  undertaken  by the  UK's  Employee  Benefits
Association,   published  in  July  2005,  into  voluntary   benefits   schemes,
approximately 34% of respondents  already offer home computing  schemes,  with a
further 35% still  planning to add home  computers  to their  existing  benefits
offering.  However,  these markets may never  develop  further and the Company's
products may not achieve broader market acceptance,  which could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations

      New Products and Technological Change

The Company's business will be significantly influenced by technological changes
and  innovations.  The market for the  Company's  products is  characterized  by
rapidly  changing   technology,   evolving   industry   standards  and  frequent
introductions  of  new  products.   The  Company  has  historically   derived  a
significant  portion of its revenues from the sale of new and enhanced products.
The  Company's  future  success  will  depend  upon its  ability to enhance  its
existing  products  and to  source,  develop  and  introduce,  on a  timely  and
cost-effective  basis, new competitive products with features that meet changing
customer requirements and address technological developments.

The Company's  products could be rendered obsolete by new customer  requirements
or the  emergence  of new  technologies.  The failure of the Company to develop,
manufacture  and  sell new  products  and  product  enhancements  in  quantities
sufficient to offset a decline in revenues  from existing  products or to manage
product  transitions  successfully  would have a material  adverse effect on the
Company's business, financial condition and results of operations.

As new products are introduced,  the Company must attempt to monitor closely the
range of its  products  to be  replaced  and to phase out their  production  and
distribution in a controlled manner.  There can be no assurance,  however,  that
such product  transitions will be executed without  adversely  affecting overall
product sales or that the Company will be successful in identifying, developing,
and marketing new products or enhancing its existing products.

The development of new products has required,  and will continue to require, the
Company to spend significant financial and management  resources.  The Company's
business  would be  materially  adversely  affected if the Company were to incur
delays in  developing  new  products  or  enhancements  or if such  products  or
enhancements  did not gain  market  acceptance.  In  addition,  there  can be no
assurance  that  products  or  technologies  developed  by  one or  more  of the
Company's  present  or  potential  competitors  could not render  obsolete  both
present and future products of the Company.


                                       11
<PAGE>


There is no assurance that the useful life of any product will be long enough to
enable the Company to recover  its  development  costs.  In  addition,  sales of
certain of the Company's products generally may tend to decline over time unless
the products are enhanced or repackaged.

      Changing Customer Preferences

Primarily   impacting   the  eLearning   segment,   customer   preferences   for
instructional  learning programs,  entertainment and other software products are
continually changing. There can be no assurance that the Company's products will
receive  and/or  maintain  substantial  market  acceptance.  Changes in customer
preferences  could adversely affect levels of market acceptance of the Company's
products and its operating results.

      Absence of Patent Protection

The Company has no patents  with  respect to its  product  design or  production
processes.

In choosing not to seek patent protection, the Company instead has relied on the
complexity of its technology,  its trade secret protection policies,  common law
trade secret laws,  copyrights,  and  confidentiality  and/or license agreements
entered  into  with  its  employees,  suppliers,  sales  agents,  customers  and
potential customers.

As a part of its trade secret  protection  policies,  the Company tries to limit
access to, and distribution of, its software,  related  documentation  and other
proprietary  information.  There can be no  assurance  that such  strategy  will
prevent or deter others from using the Company's  products to develop equivalent
or superior products or technology, or from doing so independently.

Further,  there can be no assurance  that the Company will seek or obtain patent
protection for future technological developments or that any patents that may be
granted in the future  would be  enforceable  or would  provide the Company with
meaningful protection from competitors.

Moreover,  litigation by the Company to enforce or defend its proprietary rights
could result in significant expense to the Company and divert the efforts of the
Company's  technical and management  personnel,  whether or not such  litigation
results in a favorable  outcome for the Company.  In order to avoid such expense
or  diversion  of  resources,  the  Company  could agree to enter into a license
agreement  or  other  settlement  arrangement,   notwithstanding  the  Company's
continuing belief in its position.

In addition,  there can be no assurance that the Company's  products do not, and
that its proposed  products will not,  infringe any patents or rights of others.
If a patent  infringement claim is asserted against the Company,  whether or not
the Company is successful in defending such claim, the defense of such claim may
be very costly.

While the Company is unable to predict what costs,  if any, would be incurred if
the Company were obliged to devote substantial financial or management resources
to patent  litigation,  its  ability  to fund its  operations  and to pursue its
business goals may be substantially impaired.


                                       12
<PAGE>


      Absence of Dividends

The Company has not paid cash dividends during its history with the exception of
a dividend  paid in 1990.  It is unlikely  that the Company  will declare or pay
cash dividends in the foreseeable future.

      Changes in Exchange Rates

A  majority  of the  Company's  revenues  to date have been  received  in pounds
sterling and the Company maintains its financial  statements in pounds sterling.
However,  revenues and proceeds of funding  activities are sometimes received in
US dollars,  euros and other  European  currencies,  which are  translated  into
pounds sterling as the Company's functional currency.  Fluctuations in the value
of the pound sterling against the US dollar,  euro and other European currencies
have caused, and are likely to cause, amounts translated into pounds sterling to
fluctuate in comparison with previous  periods.  The Company  currently does not
engage in any hedging  transactions that might have the effect of minimizing the
consequences of currency exchange fluctuations.  Such fluctuations may adversely
affect the Company's results of operations.

      Risks of Possible Future Acquisitions

The  Company  may pursue  potential  acquisitions  of  businesses,  products  or
technologies  that could  complement  or expand the Company's  business.  If the
Company identifies an acquisition candidate,  the Company cannot assure that the
Company  would  be able to  integrate  such  acquired  businesses,  products  or
technologies into the Company's existing business and products.  The negotiation
of potential  acquisitions  as well as the  integration of an acquired  business
could  cause  diversion  of  management's  time  and  resources.  Any  potential
acquisition, whether or not consummated, could have a material adverse effect on
the Company's business,  financial  condition and results of operations.  If the
Company consummates one or more significant  acquisitions in which consideration
consists  of  Ordinary   Shares,   stockholders  of  the  Company  could  suffer
significant dilution of their interests in the Company. In addition, the Company
could incur or assume  substantial debt in connection with an acquisition.  Such
debt could  adversely  affect the  Company's  ability  to obtain  financing  for
working capital or other purposes,  make the Company more vulnerable to economic
downturns and  competitive  pressures and have a material  adverse effect on the
Company's business, financial condition and results of operations.

      Possible Issuance of Additional Shares

As at July 29, 2005, the Company  presently has outstanding options  pursuant to
which an  aggregate  of 5,188,899  Ordinary  Shares may be issued upon  exercise
thereof.  The  issuance of any  additional  Ordinary  Shares,  whether  upon the
exercise  of  derivative  securities,  including  options  and/or  warrants,  in
connection with a financing or otherwise,  including  additional Ordinary Shares
issueable as a  consequence  of any  anti-dilution  provisions  set forth in the
instruments   evidencing   such   derivative   securities,   would   reduce  the
proportionate ownership and voting power of then-existing Stockholders.

      Risks Associated with Incorporation in England and Wales

The Company is  incorporated  under  English  law.  The rights of holders of the
Shares are largely  governed by English law,  including  the Companies Act 1985,
and by the Company's Memorandum and Articles of Association. These rights differ
in certain  respects from the rights of stockholders in typical US corporations.
Although certain  provisions of English law resemble  various  provisions of the
corporation laws of the United States and other European  countries,  principles
of law relating to such matters as the fiduciary  duties of  management  and the
rights of the Company's  stockholders  may differ from those that would apply if
the  Company  were  incorporated  in  another  country.  In  addition,   English
employment law imposes substantial severance obligations on companies.


                                       13
<PAGE>


      Service and Enforcement of Legal Process

All of the  Company's  assets are  located in the  United  Kingdom.  Most of the
Company's  executive  officers and  directors,  and certain of the experts named
herein are not residents of the United States,  and all or substantial  portions
of the assets of such  persons  are  located  outside  the United  States.  As a
result,  it may not be possible to effect  service of process  within the United
States upon such  persons or to enforce  against such persons or the Company any
judgments of United States courts predicated upon the civil liability provisions
of the securities or other laws of the United States.


                                       14
<PAGE>


ITEM  4. INFORMATION ON THE COMPANY


A.    HISTORY AND DEVELOPMENT OF THE COMPANY.
      ---------------------------------------

The legal and  commercial  name of the Company is  "Futuremedia  Public  Limited
Company" or "Futuremedia PLC".

The Company was  incorporated  in England and Wales as a private limited company
in 1982 and re-registered in 1993 as a public company.

The Company is domiciled in England and Wales.  It is  incorporated in and under
the  legislation of England and Wales.  The address of the Company's  registered
office is Nile House, Nile Street,  Brighton,  East Sussex, BN1 1HW, England and
the telephone number of the Company's registered office is 011 44 1273 829700.

Since its  inception,  the Company  has striven to ensure its product  offerings
meet market  requirements.  Recognizing  the  potential  impact on the  learning
market of the developments being made in Intranet and Internet environments, the
Company started the  development of its first  proprietary  Learning  Management
System ("LMS") called  SolstraTM in 1997 together with BT Group PLC ("BT").  The
first  version of the product was  launched to the market in February  1998.  In
March 2000, it launched easycando, which was its first Internet learning portal.
Today, the Company offers the following product and services:

Consultancy  Services  -  providing  a wide  range of  technical  and  practical
services to help clients establish their training needs and solutions;

Customer  Designed  Content  Products - specifically  designed content to meet a
customer's individual e-learning needs;

Learning Management Systems - including multiple elements such as: a license for
ActivnaTM,  hosting services,  set up charges,  integration and support services
and  content,  which  together  enable the  delivery  of  previously  identified
learning content to individual needs;

Blended  Learning  Solutions - combining  elements of e-Learning,  together with
physical classroom or workbook based training and

Learning For AllTM  Solutions - comprising a combination  of hardware,  software
and services,  installed at the homes of participating employees of clients that
contract  with  Futuremedia  for the provision of such services and are provided
under the UK governments Home Computing Initiative ("HCI") scheme. Participating
employees  can take  advantage  of tax  incentives  provided  under HCI schemes,
reducing the cost of purchase.

During the year ended April 30, 2005,  investments in capital  expenditure  used
GBP321,000  ($612,000) of cash. The Company  continues to outsource a portion of
its  production  activity and  consequently  the  equipment  now used  comprises
network hardware,  desktop personal  computers,  laptops and servers required to
support the ongoing  business.  Where  appropriate  Futuremedia owns its capital
equipment,  and  endeavors  to  maintain  a program of  upgrading  to ensure the
cost-effective  provision  of desktop  and laptop  tools to its  employees.  All
equipment acquired for this purpose is industry-standard. For servers to support
its Internet  portal  business,  the Company  constantly  reviews the  buy/lease
options available and has in the past used both options when  appropriate.  This
equipment is typically located in secure co-location sites.


                                       15
<PAGE>


Following the product  announcement  in October  2003,  and the  contracting  in
November 2003 of its first  customer,  Royal Mail, the Company has continued the
successful  roll out of its Learning For AllTM  product.  Since  inception,  the
Company  has  engaged  approximately  20  clients,  completed  approximately  30
marketing  campaigns  to their  employees,  resulting  in  approximately  30,000
participants.

During the year ended April 30, 2005,  the UK  government  extended the scope of
the salary sacrifice benefit program to include bicycles and childcare vouchers.
Already  having  the  infrastructure  in  place  to  accommodate  this  process,
Futuremedia has added these extra items to its HCI portfolio.

In  January  2005,  the  UK  government   completed  their  review  of  existing
legislation affecting consumer credit, ending speculation in the market that had
caused delays in potential new customers implementing their own HCI schemes.

Recent Developments

In February  2005,  the Company  acquired  Open  Training AB, one of the leading
e-Learning  companies  in  Sweden,  in  order  to  expand  its  coverage  in the
e-Learning  market and capitalize on synergies  between the two  companies.  The
major benefit arising from the acquisition is the access that  Futuremedia  will
gain to Open Training's Learngate software product, which will form the basis of
a replacement for the Company's own LMS, Aktivna,  which would otherwise have to
be enhanced at considerable  expense to remain  competitive in the  marketplace.
Open Training's customers include: Ericsson, Manpower, Pfizer, Saab, SAS, Scania
and Volvo, making them a high profile e-Learning supplier in Sweden..

Subsequent  to the year end, in May 2005,  recognizing  that the Company had too
large an infrastructure  relative to the revised revenue expectations  announced
in  February  2005,  a series of cost  reductions  were  implemented,  including
headcount reductions, which will yield benefits in fiscal 2006.

Since January 2005,  the Company has added several new members of management and
has  appointed  additional  independent  directors  to the  Board of  Directors.
Leonard M. Fertig,  who joined the Board of Directors in August 2004, became CEO
in January 2005. Mark Wilsher joined the Company as Chief  Financial  Officer in
March 2005. Also in March 2005, John  Schwallie,  Michael  Pilsworth and Michiel
Steel were appointed as members of the Board of Directors.  Please see Item 6 of
this Report for further  information  regarding the Company's Board of Directors
and senior management.

Subsequent  to the year end, in July 2005,  Futuremedia  announced the launch of
its Home Computing 2005 ("HC2005")  product to the UK market.  Designed to bring
additional  benefits  to  corporations  and  institutions  and  provide  greater
flexibility to employees,  HC2005 sets the standard for the delivery of products
and services under the UK government's  Home Computing  Initiative (HCI) and the
full suite of salary sacrifice programs in the UK.

In addition to providing  convenient access to HCI, as well the tax-free bicycle
and childcare  voucher programs in the UK, HC2005's  enhancements  include a new
online shopping portal,  optional  broadband  access,  home visits from personal
computer trainers and optional self-installation.  HC2005's new online shop will
offer additional computer hardware and software products,  as well as stationery
and other related goods.  Participating employees will be given a GBP50 voucher,
with the chance to save even more in the  Futuremedia  virtual  shop.  Employees
will have the  flexibility  to sign-up  for HC2005 24 hours a day,  seven days a
week.  HC2005 will be included in the Learning for All segment of the  Company's
business for management and review purposes.

In  conjunction  with the launch of HC2005,  Futuremedia  also  unveiled its new
corporate branding around the theme Work Smart Live Smart. The revitalized brand
positions Futuremedia as a learning and lifestyle company that enables consumers
to improve  their  lives  both at home and at work,  and is  reflected  in a new
Futuremedia logo, Web site (www.futuremedia.co.uk) and marketing materials.


                                       16
<PAGE>


Subsequent to the year end, on July 21, 2005, the Company entered into a private
placement with M.A.G.  Capital,  LLC (formerly  Mercator  Advisory Group,  LLC),
through its designated funds,  Monarch Pointe Fund, Ltd, Mercator Momentum Fund,
LP and  Mercator  Momentum  Fund III, LP  (collectively,  "M.A.G."),  to provide
financing to the Company in the amount of $4 million.  The  investment  was made
via a  convertible  loan  that is  convertible  (subject  to  certain  terms and
conditions) into Ordinary Shares of the Company. The conversion rate is based on
the volume  weighted  average price of the  Company's  ADSs for the five trading
days prior to July 13, 2005, the date that the Company entered into a term sheet
with M.A.G. for the investment.  The loan bears interest at an annual rate equal
to the  greater  of 8.5% or Wall  Street  Journal  Prime Rate plus 3%, but in no
event  greater  than 10%.  The  Company  also issued  warrants to the  investors
covering an aggregate of 6.2 million  Ordinary  Shares with an exercise price of
$0.61 per share.  The  agreement  with M.A.G also  provides for an additional $2
million of funding that may be available at Futuremedia's  request provided that
Futuremedia achieves certain performance benchmarks. Net proceeds to the Company
from the M.A.G.  investment were  approximately  $3.8 million.  The Company also
issued warrants to purchase 411,692 Ordinary Shares to its financial  adviser on
the  investment on  substantially  the same terms as the warrants  issued to the
investors.


B.    BUSINESS OVERVIEW.
      ------------------

The Interactive Learning and Communications Industry.

e-Learning is the industry term for Internet- and Intranet- or  web-enabled  and
technology developed and distributed education and training.  The key components
of e-Learning are content, technology and services.

e-Learning  content ranges from basic Hyper Text Markup Language  ("HTML") pages
and documents to fully interactive events and simulations.  It includes customer
specific content development and off the shelf courseware.  There is currently a
major  drive  to  web-enable  existing  content  from  various  formats  such as
Instructor  led  classes,   paper  based  materials,   CD  ROM's,  and  existing
intellectual assets.

e-Learning  technologies  have  emerged  to enable the  creation,  distribution,
tracking  and  administration  of  training  and  learning  content.  e-Learning
technologies  also include  compelling  collaborative  tools.  The core piece of
e-Learning  infrastructure  is known as the Learning  Management System ("LMS").
The LMS  supports  and  delivers  the  e-Learning  content  and can  incorporate
assessment  and  competency  frameworks.  The LMS provides the ability to track,
manage  and  report  on  learning  activity  and it  can  integrate  with  other
enterprise  systems  such as  Enterprise  Resource  Planning  ("ERP")  and Human
Resources applications.

The Internet  and  Intranet  allow many forms of  communication  and  e-Learning
facilitates multiple forms of collaboration between peers, instructors,  mentors
and  experts.   Collaboration  can  be  self-paced  using  threaded   discussion
capabilities  and  email,  or they can be  real-time  using  the live  web-based
delivery of events and  collaborative  learning provided by leading suppliers of
such technology.

e-Learning  services are available to support and improve the  effectiveness  of
e-Learning. Consulting services are used to understand learning requirements, to
prepare   e-Learning   solutions  and  strategies   and  to  ensure   successful
implementation.  Content  development  services are available to convert  legacy
content for optimal  delivery over the Internet or Intranets.  Hosting  services
are  provided  to  reduce  the  technological  hurdles  to  e-Learning.  Service
providers can host technology and content on an ASP model, removing any hardware
or software requirements for the clients' organization.

The e-Learning  market has established  itself as a major segment of the overall
learning and training market.

The  Company  has  expanded  its  products  and  service  range so as to offer a
complete e-Learning solution including consulting,  e-Learning customer specific
content production,  distribution of standard  off-the-shelf  e-Learning content
courses  from  leading  third  party  content  providers,  software  integration
services, and hosting and management of e-Learning systems.


                                       17
<PAGE>


The main  objective  behind  this  expansion  has been to allow the  Company  to
provide  customers with a complete  solution to selected  business  issues,  and
consequently  to increase  the total  amount of revenue and profit  derived from
each  customer.  As the adoption of e-Learning has grown apace among both public
and  private  sector  organizations,  new  areas of client  need  have  emerged,
creating new opportunities for Futuremedia to advance this aim.

Whilst delivering  significant cost benefits,  adoption of an e-Learning program
can require a  fundamental  cultural  change for the  learning  and  development
function within many organizations. Large-scale e-Learning implementations often
have  strategic  impact,  and go far beyond the  traditional  bounds of training
departments.  Even projects of a more tactical nature often require a shift away
from traditional patterns of planning, budgeting and procuring.

As an example of the challenges e-Learning presents to training departments: the
cost structure of an e-learning  program is completely  different from that of a
face-to-face   training   program.   With   e-Learning,   costs  are   generally
front-loaded, requiring large allocations of annual budget and therefore careful
preparation of business cases. With face-to-face programs the major area of cost
is in delivery,  and there is traditionally  less scrutiny of results and return
on investment.

Due to this and other important  factors,  customers  expose  themselves to risk
when they venture into the field of online learning  through their relative lack
of appropriate skills and knowledge.

The  opportunity,  which  Futuremedia  is now  seizing,  is to  forge  strategic
partnerships with customers that allow them to mitigate these risks. The Company
has moved to position itself as delivering complete business  solutions,  rather
than an  inventory  of discrete  components  from which the client  company must
construct its own learning program.  Such  relationships best enable Futuremedia
to leverage its wide range of products,  services and  capabilities  in ensuring
repeat  business  and driving  down the cost of gaining  sales,  and to throw up
barriers to competition.

Not only can the Company  maximize  cross-selling  and  upselling  opportunities
within client accounts by following this route,  but also  differentiate  itself
more effectively in the market,  protecting  itself against the potential threat
of commoditization in the content market.

In October 2003, Futuremedia established the Learning For All(TM) business unit,
which is focused on helping  organizations  derive the maximum  strategic  value
from the UK's Home  Computing  Initiative  (HCI) and other  similar  schemes  in
continental  Europe.  HCI is a government  scheme that gives tax breaks to allow
employers to provide PCs for their  employees at low cost.  The Company has been
successful in this  fast-growing  market,  where it  differentiates  itself from
other HCI  providers by  maximizing  the  opportunities  such schemes  offer for
employee engagement and organizational  transformation.  Learning For AllTM is a
fully  managed  service that  includes the  provision  of PC,  Internet  access,
delivery and installation, e-Learning courses, and a personal focused e-Learning
environment managed by the Company.

During the year ended April 30, 2005,  the UK  government  extended the scope of
the salary sacrifice benefit program to include bicycles and childcare vouchers.
Already  having  the  infrastructure  in  place  to  accommodate  this  process,
Futuremedia has added these extra items to its HCI portfolio.

The Company's prime targets include the: Manufacturing, Financial and Government
Sectors.  On a  regional  basis,  this can be broken  down  into:  London,  East
Midlands,  Yorkshire  regions plus the southeast due to proximity to its base in
Brighton.

It  complements  Futuremedia's  existing  work-focused  solutions by providing a
learning   environment   outside  the  workplace  (i.e.  in  the  home)  and  is
particularly applicable to:


                                       18
<PAGE>


      o     Large-scale  employers  (1,000+) who suffer from a lack of IT skills
            within the general labor pool;

      o     Industries  impacted  by  technological  changes  requiring a higher
            level of IT skills throughout the organization; and

      o     Employers who need to build a greater  engagement with e-Learning in
            their workforce.

Initially,  operations were  reorganized  into two main business  segments:  the
Learning  For AllTM  segment  and the  Futuremedia  e-Learning  segment,  but in
February  2005,  the whole  company  was  re-organised  on a  functional  basis,
eliminating certain duplication of effort.  Following this re-organisation,  the
business is still viewed as comprising a Learning for AllTM segment,  focused on
HCI and benefit schemes, and an e-Learning segment.

The success of the Learning For AllTM service has brought new capabilities  into
Futuremedia's  organization  which the Futuremedia  e-Learning segment will also
benefit from, beyond the obvious cross-selling opportunities. Learning For AllTM
is a managed service,  covering every area of program management from tax law to
Business-to-Enterprise ("B2E") marketing and call centre management. Having this
internal capability now allows the Company to offer its customers other types of
managed programs around performance and workforce development issues,  operating
as true strategic  partners.  Futuremedia  now has the ability to respond to the
scale of client need with an appropriate scale of learning solution,  leveraging
its wide range of e-Learning  products and services and its unique experience as
first movers in the HCI market.

At the same time, however, the Company's  organization has been changed with the
need in mind to sell this increased product and service range both as a complete
solution and as independent modules.

New Products and Technological Changes.

The markets for Futuremedia's  products and services are highly  competitive and
subject to rapid change.  The Company's  success will depend upon its ability to
continue to enhance its existing  products and services and to  source/introduce
new   competitive   products  with  features  that  continue  to  meet  customer
requirements and  differentiate  Futuremedia  from its competitors.  Futuremedia
address the  challenges of a competitive  market to a significant  extent by its
partnership approach.

A significant portion of the Company's business is built on an aggregation model
that continually  attempts to bring to the solution the best available  content,
technology and services from the best vendors.  There is associated risk in this
strategy, as a significant  proportion of Futuremedia's  proposition is based on
the strength of its  partnership  structure but the Company feels confident that
it  will be able  to  maintain  the  required  ongoing  relationships  with  its
partners.

Futuremedia  continues  to  invest  in  the  enhancement  and  expansion  of its
products.

The Company will continue to address key business-to-business  markets
including  corporate and  governmental  markets.  In terms of geographic  market
scope,  Futuremedia's  direct sales  efforts  will  continue to focus on the UK,
Sweden, through Open Training AB and, gradually, continental Europe. The Company
is also committed to broader worldwide  penetration  through existing  customers
and positioning in specific niche markets.

Subsequent  to the year end, in July 2005,  Futuremedia  announced the launch of
its Home Computing 2005 ("HC2005")  product to the UK market.  Designed to bring
additional  benefits  to  corporations  and  institutions  and  provide  greater
flexibility to employees,  HC2005 sets the standard for the delivery of products
and services under the UK government's  Home Computing  Initiative (HCI) and the
full suite of salary sacrifice programs in the UK.

In addition to providing  convenient access to HCI, as well the tax-free bicycle
and childcare  voucher programs in the UK, HC2005's  enhancements  include a new
online shopping portal,  optional  broadband  access,  home visits from personal
computer trainers and optional self-installation.  HC2005's new online shop will
offer additional computer hardware and software products,  as well as stationery
and other  related  goods.  Participating  employees  will be given a  (pound)50
voucher,  with the  chance to save even more in the  Futuremedia  virtual  shop.
Employees will have the  flexibility to sign-up for HC2005 24 hours a day, seven
days a week.  HC2005  will be included  in the  Learning  for All segment of the
Company's business for management and review purposes.


                                       19
<PAGE>


In  conjunction  with the launch of HC2005,  Futuremedia  also  unveiled its new
corporate branding around the theme Work Smart Live Smart. The revitalized brand
positions Futuremedia as a learning and lifestyle company that enables consumers
to improve  their  lives  both at home and at work,  and is  reflected  in a new
Futuremedia logo, Web site (www.futuremedia.co.uk) and marketing materials.

As of July 29, 2005, the Company employed 19 sales and marketing people out of a
total of 89 employees.

License Agreements.

In  addition  to  the  Company's  own  products,   the  Company  markets,  as  a
distributor, a number of products under license from several suppliers and under
varying terms of exclusivity and tenure. While management is confident that such
licensing  arrangements  will continue and, if considered in the Company's  best
interest,  will be renewed,  there can be no  assurance  that  licenses  will be
extended  on  terms  satisfactory  to  Futuremedia,  if at all.  While it is the
management's  opinion  that the failure to extend  licensing  arrangements  with
respect to one or a small number of products would not substantially  affect the
Company, the failure to renew a significant number of the present licenses could
have an adverse effect on its future profitability.

Revenue Streams.

During fiscal 2005, the Company derived  approximately 88% of its gross revenues
from product sales,  approximately  8% from the sale of consultancy and services
and  approximately  4% of its gross  revenues  from its  interactive  production
capability.  The Learning For AllTM segment  derived 90% of the total  revenues,
and the e-Learning segment the remaining 10%.

Revenues from the  Company's  operations  analyzed by geographic  region were as
follows:


<TABLE>
<CAPTION>
                                                    Year Ended April 30,
                 ---------------------------------------------------------------------------------
                               2005                           2004                    2003
                 ---------------------------------   ---------------------   ---------------------

                    ($000)    (GBP000)         %      (GBP000)         %      (GBP000)         %

<S>                 <C>         <C>           <C>       <C>          <C>         <C>          <C>
United Kingdom      29,371      15,398        98.4      18,661       100.0       1,340        99.9
Rest of Europe         483         253         1.6        --          --             2         0.1
TOTALS              98,854      15,651       100.0      18,661       100.0       1,342       100.0
                 =========   =========   =========   =========   =========   =========   =========
</TABLE>

Certain  orders placed by UK companies  have been for products that will be used
worldwide.

Seasonality.

The demand for the  Company's  products is generally  expected to be stronger in
the second  half of the fiscal  year  (which ends on April 30) and weaker in the
first half due to seasonal buying patterns in the UK and the rest of Europe,  as
well as the  seasonality  created  by the  timing of  client-internal  marketing
campaigns  for  Learning  For AllTM  programs,  which  tend to peak in the third
fiscal quarter, with deliveries scheduled by Christmas.


                                       20
<PAGE>


Marketing and Sales.

Futuremedia  markets its products  primarily to local authorities and commercial
end users in a diverse and growing range of industries mainly through its direct
sales force. Futuremedia provides technical assistance and support to purchasers
of  its  products.  The  technical  assistance  involves  providing  answers  to
questions  ranging from  specifications  and  installation  to  availability  of
supporting  software,  as well as a help  line  and  call  center  for  users of
Learning For AllTM. In fiscal 2005, the two largest customers  accounted for 79%
and 3% of revenues,  representing  an aggregate of 82% of revenues  (compared to
93%  and 4% for an  aggregate  of 97% in  fiscal  2004  and  59%  and 10% for an
aggregate of 69% in fiscal 2003).

The  Company's  sales process for its products and services  usually  involves a
team drawn from sales,  marketing,  development and senior management to provide
planning and product customization and to ensure open communications and support
throughout the selling process and after a sale is made. Futuremedia's marketing
activities  include  participation  in trade shows,  publication  of articles in
trade  journals,  participation  in industry  forums and  distribution  of sales
literature.

The Company  provides  support for its  products  through its own support  staff
operating out of its office in the UK. Futuremedia has entered into contracts in
the normal course of its business  with certain of its customers and  suppliers,
on some of which its financial  results are  materially  dependent.  The Company
believes that it has complied and  continues to comply in all material  respects
with the terms,  and that it has  performed  and will  continue  to perform  its
obligations in respect of all such contracts.

Competition.

The HCI market targeted by the company with its LFATM benefits product has grown
rapidly in the past eighteen months,  attracting ever more  competition,  as the
barriers  to entry are  perceived  to be low. A large  number of  companies  are
trying to break into the HCI  market  and these can be grouped  into a number of
different  sectors   including:   computer  hardware   manufacturers,   computer
retailers, flexible benefit providers and HCI resellers.

Futuremedia  differentiates itself from the above by being hardware independent,
buying direct from the pc manufacturers, using the flexible benefit providers as
a channel to market and by offering a fully  managed  service for  employer  and
employee.  It is unlikely that all of the newcomers to this market will survive;
however,  it is also likely that  combinations  and strategic  alliances will be
formed that may threaten the Company's position in the market.

e-Learning  is a market  that has shown a huge  growth in market  entrants  as a
result of low perceived  barriers to entry.  Although the competitive  landscape
remains fragmented there are clear signs of consolidation.  Market leadership is
still not clearly defined,  but significant  merger and acquisition  activity is
occurring,  notably  in  the US and  several  vendors  are  beginning  to  build
prominent  brands  and  market  share.  Futuremedia's  stated aim is to come the
largest e-Learning provider in Europe.

Developments  in the market since April 30, 2001 have clearly  demonstrated  the
limited  viability of the  business-to-consumer  e-Learning  opportunity at this
time. The Company remains wholly focused on the business-to-business opportunity
and therefore competition specific to this sphere is a critical concern.

Leading  e-Learning  companies,  notably  in the US,  include  Skillsoft,  NETg,
Laureate Education,  SumTotal and Saba Software. Major consulting companies such
as Accenture and KPMG are developing and  integrating  e-Learning  solutions and
some are creating separate branded initiatives, e.g. Ernst & Young (Intellinex).
Global  technology  companies  such as IBM and  Hewlett-Packard  are moving into
e-Learning from a major customer base in  classroom-based  training.  Enterprise
Resource Planning ("ERP") vendors in the upper and middle segments,  such as SAP
and Microsoft,  are adding learning  management system modules and e-Learning to
their overall  solutions or to support the  implementation  of their  solutions.
Major  publishers,  in possession of large content  libraries  such as Thompson,
Wolters Kluwers and Pearson Education are developing e-Learning strategies,  and
will over time bring significant  resources to this arena.  These companies tend
to be more  established,  better  capitalized  and  possessing  a larger  market
position than  Futuremedia.  Because such companies  have greater  financial and
marketing resources than Futuremedia,  as well as substantially  larger research
and  development  facilities,  they  represent  significant  competition  to the
Company.  Many of these companies at present focus mainly on the US marketplace,
but some are beginning to build a European and worldwide presence,  with varying
degrees of success.


                                       21
<PAGE>


Whereas the above mentioned leading  e-Learning  companies mainly are focused on
the  US  market,  Futuremedia  differentiates  itself  by  offering  a  complete
e-Learning  solution to the UK and European  market,  which the Company believes
clearly  distinguishes it from its local competitors.  The Company also plans to
continue to broaden its product and service range to address  specific  markets,
for example industry specific content aggregation and technology  integration to
meet industry compliance requirements.  The Company expects that its emphasis on
a  complete  solution,  incorporating  technology,  content  and  services  will
mitigate  the  risk  associated  with  focusing  solely  on one  segment  of the
e-Learning market, such as technology.

The Company also sells foreign-produced  products, which are generally purchased
from EU subsidiaries  of foreign  suppliers.  The ability to remain  competitive
with  respect  to the  pricing of the  imported  components  could be  adversely
affected by increases in tariffs or duties,  changes in trade treaties,  strikes
in air or sea  transportation,  and possible  future European  legislation  with
respect  to  pricing  and  import  quotas on  products  from  non-EU  countries.
Futuremedia's  ability  to be  competitive  in, or with,  the sales of  imported
components could also be adversely  affected by other government actions related
to, among other things,  anti-dumping  legislation  and  international  currency
fluctuations.  While the Company does not believe  that such  factors  adversely
impact its business at present, there can be no assurance that such factors will
not materially adversely affect it in the future.

Intellectual Property.

The Company's ability to compete  successfully will depend to some degree on its
ability  to  protect  its  proprietary   technology,   and  on  the  ability  of
Futuremedia's suppliers to protect the technology of the products distributed by
the Company on their behalf.  Although the Company  believes that its technology
is  proprietary,  it has no  patents  with  respect  to its  product  design  or
production processes.

In choosing not to seek patent protection, Futuremedia has instead relied on the
complexity of its technology, trade secret protection policies, common law trade
secret laws,  copyrights,  and confidentiality and/or license agreements entered
into with its  employees,  suppliers,  sales  agents,  customers  and  potential
customers.  As part of its trade secret protection policies,  the Company limits
access to, and distribution of, its software,  related  documentation  and other
proprietary  information.  There  can  be no  assurance,  however,  that  such a
strategy  will  prevent or deter  others  from using the  Company's  products to
develop  equivalent  or  superior  products  or  technology,  or from  doing  so
independently.  Further, there can be no assurance that Futuremedia will seek or
obtain patent  protection for future  technological  developments,  nor that any
patents that may be granted in the future would be  enforceable or would provide
the Company with meaningful protection from competitors.

The "SolstraTM" trade name is a registered trademark owned by BT and licensed to
Futuremedia, who, jointly with BT, registered the solstra.com domain name on the
World  Wide Web.  Futuremedia  has also  registered  the  futuremedia.co.uk  and
easycando.com  domain  names on the World Wide Web.  The  Learning  For All(TM),
Aktivna(TM)  and Learngate  registered  trademarks  and trade names are owned by
Futuremedia.

The Company has licenses to access and certain  software on a normal  commercial
basis.  This software is used variously for its normal business purposes and for
product development. Certain elements of the Company's products are dependent on
such  licenses.  The Company  believes that it has complied and will continue to
comply in all material respects with the terms of all such licenses.


                                       22
<PAGE>


C.    ORGANIZATIONAL STRUCTURE.
      -------------------------

Futuremedia Plc is the principal  operating  business of the Futuremedia  Group,
which also had the  following  wholly owned  subsidiaries,  none of which traded
operationally at July 29, 2005:

            NAME                                     COUNTRY OF INCORPORATION
            ----                                     ------------------------
            Lasermedia UK Ltd                        England
            Lasermedia International Ltd.            England
            Futuremedia Interactive Ltd.             England
            Futuremedia America Inc.                 United States
            Easycando.com Ltd.                       England
            Futuremedia  (BVI) Ltd                   British Virgin Islands
            C2W Ltd.                                 England
            Activna Objects Ltd.                     England
            Temp Ltd                                 England
            Futuremedia Sverige AB                   Sweden
            Open Training AB                         Sweden

D.    PROPERTY, PLANT AND EQUIPMENT.
      ------------------------------

The  Company's  offices in  Brighton,  England  and Sweden are  subject to lease
agreements.  The Company  believes  that these  premises  are  adequate  for its
foreseeable needs.


                                       23
<PAGE>


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS


The following discussion, Operating and Financial Review and Prospects, contains
forward-looking statements, which involve risks and uncertainties. The Company's
actual  results  could  differ   materially  from  those  anticipated  in  these
forward-looking  statements as a result of certain factors,  including those set
forth under "Risk Factors" in Item 3.D. and elsewhere in this Report.

A.    OPERATING RESULTS.
      ------------------

Critical Accounting Policies.

The  Company   considers  certain   accounting   policies  relating  to  revenue
recognition to be critical to its business  operations,  since the gross margins
attributable to the different  revenue  elements  identified in the LFA business
segment are markedly  different  and thus can  significantly  impact  short-term
results. In determining these different  elements,  estimates of fair values are
made which determine  whether  revenues are recognized as delivered or deferred.
The Company  may choose to adopt a fixed  85%/15%  ratio for  delivered/deferred
revenues  in future  programs,  based on its  experiences  with those  campaigns
launched to date.  This ratio will be  examined  periodically,  and  adjusted if
necessary.

Revenue Recognition.

Net sales represent the value of goods and services  delivered,  excluding value
added tax, and for the year ended April 30, 2005 can be  categorized by activity
into one of five sources.

      Consultancy Service.

Consultancy  revenues fall into the  Futuremedia  e-Learning  Services  segment.
These revenues are invoiced at the completion of each work package, and revenues
recognized at that time.

      Custom Designed Content Products.

Custom designed content product revenues are managed within Futuremedia  Content
Studio and  reported in the  e-Learning  segment.  These are  products  that are
specifically  designed to meet a customer's  individual e-learning needs. Due to
the  customization  and  modification  required,  revenue  for  these  long-term
contracts are recognized on a percentage cost to completion basis.

      Learning Management Systems.

A Learning  Management System is specifically  designed for the customer to meet
all of their e-learning  needs. The revenues are managed through the Futuremedia
Courseware  Services and Futuremedia Service Delivery units, and reported in the
e-Learning  segment.  These  systems can include  multiple  elements  such as: a
license for AktivnaTM, hosting services, set up charges, integration and support
services and content.  For these contracts,  the Company recognizes revenue over
the period of the license.

      Blended Learning Solution.

Blended  Learning  solutions are those which  combine an element of  e-Learning,
together with  physical  classroom or workbook  based  training The revenues are
managed  through  the  Futuremedia  Software  Services,  Futuremedia  Courseware
Services and Futuremedia  Service Delivery units, and reported in the e-Learning
segment.  It can  include  multiple  solutions  such  as  supply  of  e-Learning
materials,  workbooks and classroom-based  instruction.  The Learning Management
System  element is recognized  over the period of the license  agreement and the
remaining   element  is   recognized   on  the   delivery  of  the  service  for
classroom-based  instruction  and  on  the  delivery  of  the  product  for  the
workbooks.


                                       24
<PAGE>


      Learning For AllTM

Learning for AllTM  solutions are those that comprise a combination of hardware,
software  and  services,  installed at the homes of  participating  employees of
clients that  contract  with  Futuremedia  for the  provision of such  services.
Revenues are categorized as being either 'delivered' or 'deferred'  depending on
the nature of each element of the installed  package.  Typically,  all hardware,
operating software together with any software programs delivered on local media,
either CD-rom or loaded on the hard disc, are treated as  'delivered'  revenues,
whilst the remaining  services,  which typically  comprise  telephone and e-mail
support,  the provision and hosting of a Learning  Management System and various
online  software  programs,  are  treated as  'deferred'  revenues.  For revenue
recognition  purposes,  the package  price is allocated by element in accordance
with  fair  values of each  element.  'Delivered'  revenues  are  recognized  on
customer  acceptance,  'deferred' revenues are recognized over the period of the
agreement, typically three years.

During the year ended April 30, 2005,  the UK  government  extended the scope of
the salary sacrifice benefit program to include bicycles and childcare vouchers.
Already  having  the  infrastructure  in  place  to  accommodate  this  process,
Futuremedia has added these extra items to its HCI portfolio.  Revenues  arising
from the sale of bicycles and childcare  vouchers recognize only the commissions
and  service  charges  that  Futuremedia  earns on the sale of these  items,  on
acceptance by the participant.

Overview of Operating Results.

For the fiscal years ended April 30, 2005,  2004 and 2003, the Company  reported
net  losses  of  GBP3,958,000   ($7,550,000),   GBP1,662,000  and  GBP1,088,000,
respectively,  on revenues of  GBP15,651,000  ($29,854,000),  GBP18,661,000  and
GBP1,342,000,  respectively.  As a  consequence  of its operating  results,  the
Company has encountered  significant  cash  constraints on its  operations.  The
Company's  Learning For AllTM  product,  launched in October 2003,  continues to
make the major contribution to the income statement, generating GBP 14.0 million
($26.7  million) of revenues and GBP1.0 million ($1.91  million) of gross margin
contribution in fiscal 2005,  compared to GBP17.4 million of revenues and GBP2.2
million of gross margin contribution in fiscal 2004.  Operationally,  management
regards the business as falling into one of two  business  streams:  Futuremedia
Learning for AllTM and  Futuremedia  e-Learning.  The summary  income  statement
analyzed into the two segments is as follows for the year ended April 30:


                                       25
<PAGE>


<TABLE>
<CAPTION>
                                2005                              2005                               2004
                             $ millions                       GBP millions                       GBP millions
                  Revenues     Cost of    Margin    Revenues     Cost of    Margin     Revenues     Cost of   Margin
                               Sales                             Sales                              Sales
<S>                  <C>         <C>        <C>        <C>        <C>         <C>         <C>        <C>         <C>
Learning
For AllTM            26.7        24.8       1.9        14.0       13.0        1.0         17.4       15.2        2.2

e-Learning            3.1         2.7       0.4         1.6        1.4        0.2          1.3        1.3          -
                   ------      ------    ------      ------     ------     ------       ------     ------     ------
Total                29.8        27.5       2.3        15.6       14.4        1.2         18.7       16.5        2.2
Operating
expenses                                    9.5                               5.0                                2.9

Operating loss                             (7.2)                             (3.8)                              (0.7)
</TABLE>


Subsequent to the year end, on July 21, 2005, the Company entered into a private
placement with M.A.G.  Capital,  LLC (formerly  Mercator  Advisory Group,  LLC),
through its designated funds,  Monarch Pointe Fund, Ltd, Mercator Momentum Fund,
LP and  Mercator  Momentum  Fund III, LP  (collectively,  "M.A.G."),  to provide
financing to the Company in the amount of $4 million.  The  investment  was made
via a  convertible  loan  that is  convertible  (subject  to  certain  terms and
conditions) into Ordinary Shares of the Company. The conversion rate is based on
the volume  weighted  average price of the  Company's  ADSs for the five trading
days prior to July 13, 2005, the date that the Company entered into a term sheet
with M.A.G. for the investment.  The loan bears interest at an annual rate equal
to the  greater  of 8.5% or Wall  Street  Journal  Prime Rate plus 3%, but in no
event  greater  than 10%.  The  Company  also issued  warrants to the  investors
covering an aggregate of 6.2 million  Ordinary  Shares with an exercise price of
$0.61 per share.  The  agreement  with M.A.G also  provides for an additional $2
million of funding that may be available at Futuremedia's  request provided that
Futuremedia achieves certain performance benchmarks.

Based on the  continuing  improvement  in levels of order intake and sales since
the end of the fiscal year ended April 30,  2005,  notably the recent  order for
the Company's  Learning For All(TM) product from various new customers,  and the
securing of  additional  funding of up to $4.0  million in  Convertible  Secured
Debentures,  management believes that revenues and cash flows will be sufficient
to the extent  that the  Company's  requirements  for  working  capital  for the
remainder  of the current  fiscal year are  required to be met from  trading and
financing activities.  Accordingly, the directors have prepared the accounts for
the year ended April 30, 2005 on a going concern basis.

2005 Compared with 2004

Revenues

The Company  achieved  sales of  GBP15,651,000  ($29,854,000)  in the year ended
April 30,  2005,  a decrease  of 16.1% when  compared  to  GBP18,661,000  in the
previous year. The reduction in revenues  occurred  primarily  during the latter
half of fiscal  2005,  as a result of the  uncertainty  introduced  into the LFA
segment  whilst  the UK  government  completed  its  review of  Consumer  Credit
legislation.   Further  delays  also  occurred  while  clients  deferred  scheme
implementations  in anticipation of the inclusion of Child Care vouchers,  which
were eventually introduced in February 2005. The takeup for the Royal Mail Phase
4 and  Compass  Phase 1  campaigns  were lower than  expected,  which  adversely
affected  revenues.  At April 30, 2005, the Company's  forward  customer  orders
amounted  to  approximately   GBP4.6  million  ($8.8  million),   that  will  be
substantially  fulfilled in the  following  twelve to 36 months,  compared  with
GBP4.3 million at April 30, 2004.  The increase in the value of the  outstanding
order book reflects the nature of the revenue recognition methodology associated
with the Learning For All(TM) product, whereby approximately 85% of the revenues
are  recognized  on  delivery,  with  the  remaining  15%  recognized  over  the
three-year  period of the contract.  The revenues  arising from the  traditional
e-Learning  business showed an increase of GBP320,000  ($610,000) over the prior
fiscal year, of which GBP253,000 ($483,000) were generated by the newly-acquired
Open Training AB company for the period February 15 2005 to April 30, 2005.


                                       26
<PAGE>


Cost of Sales

The Company's  cost of sales for the current  fiscal year includes a stock write
off of GBP568,000  ($1,083,000) arising from the disposal of excess Learning for
All stocks of  hardware  inventory,  which had been  purchased  in advance a) to
ensure security of supply and b)in expectation of higher takeup in primarily the
Royal Mail follow-up campaigns. After adjusting for this item, the cost of sales
as a percentage of revenues  remained  unchanged at 88.4%, the same as for 2004,
despite the increase in proportion of  higher-margin  deferred  Learning for All
revenues earned in 2005.  Certain of the cost elements  charged to cost of sales
include fixed salaries of support,  administration and management staff which do
not vary with  revenue  volumes.  The  downturn  in Learning  for All  delivered
revenues for 2005 therefore was not  accompanied by a proportional  reduction in
direct  costs,  but this was balanced by the reduced costs  associated  with the
delivery of Learning for All deferred  revenues.  In the traditional  e-Learning
activity,  which  now  includes  the  results  for Open  Training  AB since  its
acquisition,  the cost of sales as a  percentage  of  revenues  improved  to 87%
compared to 100% in fiscal 2004. Again, there is a significant  element of fixed
costs  in  cost of  sales  representing  permanent  production,  management  and
administration staff in this segment.

Gross Profit.

The gross profit for the current fiscal year was again adversely impacted by the
GBP568,000  ($1,083,000)  stock write off discussed  above.  After adjusting for
this item,  the gross profit as a percentage of revenues  remained  unchanged in
2005 at 12% gross  profit,  as in fiscal  2004,  of which the Learning For AllTM
activity was a gross profit of 13% and e-Learning a gross profit of zero%. Under
the revenue recognition rules applicable to the Learning For AllTM product line,
revenues are recognized as either  delivered or deferred.  The cost structure of
these elements is such that the margin earned on the deferred  element is higher
than the delivered element.  The overall gross margin will therefore be affected
by the  ratio of  delivered  to  deferred  revenues  in any  year.  Of the total
revenues  recorded  in the  Learning  for All segment in fiscal  2005,  92% were
categorized as delivered revenues, and 8% were categorized as deferred revenues,
compared with 99% and 1% respectively for fiscal year 2004. This has resulted in
an overall  gross margin  percentage,  excluding the stock write off, of 12% for
2005,  compared with 12% for fiscal 2004.  The gross profit  percentage  for the
e-Learning  segment was 13% for the current  fiscal year,  compared to zero% for
fiscal 2004.

Operating Expenses.

Operating  expenses  increased  significantly  in 2005 to  approximately  GBP5.0
million ($9.5  million) or 32% of revenue from  approximately  GBP3.5 million or
19% of total  revenues in 2004.  The increase,  however,  is net of a GBP199,000
($380,000) gain arising from an exceptional  adjustment of UK National Insurance
calculated  as due on  outstanding  options,  and  also  a  gain  of  GBP306,000
($584,000)  arising  from  stock  compensation   arising  from  variable  option
accounting,  following the reduction in trading price of the Company's  ADR's at
April 30, 2005  compared to April 30, 2004.  After  removing the impact of these
two adjustments from both fiscal years, the resultant increase of GBP2.7 million
in cost when  compared  to 2004  reflects  the full  year  effect in 2005 of the
investments  Futuremedia  made  towards the end of the  previous  fiscal year in
sales and marketing  activities to promote the Learning For AllTM product and to
launch each separate sales campaign, together with an increase in the numbers of
sales and marketing  staff required to grow the two segments in accordance  with
the strategic plan, amounting to GBP1.2 million ($2.3 million). Additional costs
amounting to GBP1.0  million  ($1.9  million)  were  incurred as a result of the
necessary strengthening of the Company's management,  finance and administration
functions.  Further increased costs for professional  fees,  accounting fees and
facilities  costs  accounted for the  remaining  GBP0.4  million ($0.8  million)
increase year on year.


                                       27
<PAGE>


Subsequent  to the year end, in May 2005,  recognizing  that the Company had too
large an infrastructure  relative to the revised revenue expectations  announced
in  February  2005,  a series of cost  reductions  were  implemented,  including
headcount reductions, which will yield benefits in fiscal 2006.

 Interest Income and Expense.

Net  interest  income  for  2005 was  GBP119,000  ($131,000)  compared  to a net
interest income for 2004 of GBP22,000, as a result of the tactical investment of
cash  surpluses  generated by the Learning for All activity in the early part of
the year.

Foreign Currency Gains/Losses.

There  was a  foreign  currency  loss  in  fiscal  2005 of  GBP10,000  ($19,000)
resulting from  movements in exchange  rates between GBP and USD,  compared to a
currency losses from similar causes of GBP6,000 in fiscal 2004.

Income/loss from Equity investment

Under equity  accounting  rules with regard to its  investment  in Luvit AB, the
Company has taken a charge of GBP343,000  ($654,000) in the current  fiscal year
as a result of  impairment  testing of the remaining  goodwill  arising from the
investment.  During the year ended  April 30,  2005,  the  Company  sold all its
remaining shares in Luvit AB, generating a gain on sale of GBP54,000 ($103,000)

Stock compensation arising from Variable options accounting

In February,  2002, 1,075,000 existing options to purchase ordinary shares under
the  Unapproved  Executive  Share Option Scheme at prices  varying from $0.59 to
$3.00 per Ordinary  share were  cancelled  and replaced with options to purchase
556,417  Ordinary shares at $0.10 per Ordinary share and 518,083 Ordinary shares
at $0.15 per Ordinary share, vesting between July 2002 and March 2003. These are
now  accounted for as variable  options.  During the fiscal year ended April 30,
2004, a total of 143,333  options were exercised and traded.  As a result of the
difference  between the exercise  price of the variable  options and the trading
price of the Company's  stock at the time of trading and at the year end for the
931,667 variable options that remained,  a compensation  expense was recorded in
the year ended April 30, 2004  amounting to  GBP686,000  . In September  2004, a
total of 845,000  variable  options were excercized and sold. As a result of the
difference  between the exercise  price of the variable  options and the trading
price of the Company's  stock at the time of trading and at the year end for the
86,667  remaining  variable  options,  a  compensation  gain was recorded in the
current fiscal year of GBP306,000 ($584,000).

Income Tax Expense.

There was no income tax charge to the Company in fiscal 2005 and in fiscal 2004.
The Company  possesses  significant  tax losses in the UK that are available for
offset  against future  profits  without limit of time,  provided no substantial
change in the nature of trade. At April 30, 2005,  potential deferred tax assets
amounted  to  GBP5,434,000  ($10,365,000),  of  which  GBP47,000  ($90,000)  was
recognized,  compared to  GBP4,411,000  at April 30,  2004,  of which GBPnil was
recognized in expectation of the results for the year to April 30, 2005.


                                       28
<PAGE>


2004 Compared with 2003.

Revenues.

The Company achieved sales of GBP18,661,000 in the year ended April 30, 2004, an
increase of 1290% when  compared  to  GBP1,342,000  in the  previous  year.  The
improvement  in revenues  occurred  during the latter half of fiscal 2004,  as a
result of the  introduction of the new Learning for AllTM product.  At April 30,
2004,  the  Company's   forward   customer  orders  amounted  to   approximately
GBP4,327,000,  that would be substantially  fulfilled in the following twelve to
36 months, compared with GBP873,000 at April 30, 2003. The increase in the value
of the  outstanding  order book reflected the nature of the revenue  recognition
methodology   associated  with  the  Learning  For  All(TM)   product,   whereby
approximately 85% of the revenues are recognized on delivery, with the remaining
15% recognized over the three-year period of the contract.  The revenues arising
from the traditional  e-Learning  business  remained at  approximately  the same
levels as the previous year.

Cost of Sales.

The Company's  cost of sales as a percentage  of revenues  increased to 89% from
83% in 2003.  The change in percentage for the year to April 30, 2004 arose from
two sources. Primarily it reflected the introduction of the Learning For All(TM)
product with cost of sales of 88% as a percentage of revenues,  together with an
increase  in cost of  sales  as a  percentage  of  revenues  in the  traditional
e-Learning  activity  from 83% in  fiscal  2003 to 100% in  fiscal  2004,  where
investment  had been made for the  future in  specific  skills  to  improve  the
quality of bids for new business and subsequent  delivery  customer products and
services.

Gross Profit.

Gross Profit as a  percentage  of revenues  deteriorated  in 2004 to a 11% gross
profit from 17% gross profit in 2003,  of which the Learning For AllTM  activity
was a gross  profit of 12% and  e-Learning  a gross  profit of zero%.  Under the
revenue  recognition  rules  applicable  to the Learning For AllTM product line,
revenues are recognized as either  delivered or deferred.  The cost structure of
these elements is such that the margin earned on the deferred  element is higher
than the delivered element.  The overall gross margin will therefore be affected
by the ratio of  delivered  to deferred  revenues  in any year.  As 2004 was the
first year of the Learning For AllTM  product  lifecycle,  the margin was biased
towards the lower,  delivered  element.  The  deterioration  in the  traditional
e-Learning business reflected the additional  investment costs made in that area
during the year.

 Operating Expenses.

Operating   expenses   increased   significantly   in  2004   to   approximately
GBP3.5million or 19% of revenue from approximately GBP1.3 million ($2.1 million)
or 95% of total revenues in 2003.  The increase,  however  included  exceptional
adjustments for UK National Insurance  calculated as due on outstanding  options
of GBP242,000,  and compensation expense arising from variable option accounting
of GBP686,000,  arising from the increased  trading price of the Company's ADR's
at April 30, 2004, . After deducting the above, the resultant operating expenses
for 2004 were  GBP2,592,000 . The increase of GBP1,323,000 in cost when compared
to 2003  reflected  the  investment  Futuremedia  made in  sales  and  marketing
activities to promote the Learning For AllTM product and to launch each separate
sales campaign,  together with an increase in the numbers of sales and marketing
staff  required to grow the two segments in accordance  with the strategic  plan
amounting to GBP405,000 .  Additional  costs  amounting to GBP111,000  were also
been incurred as a result of the move to Brighton.  Further increases  amounting
to GBP807,000 were incurred in the area of general and  administrative  expenses
for additional administrative staff, depreciation of intangible assets, external
professional   consultancy,   accounting  and  legal  fees  and  provisions  for
unrecoverable debts.


                                       29
<PAGE>


Interest Income and Expense.

Net interest  income for 2004 was GBP22,000  compared to a net interest  expense
for  2003  of  GBP47,000,  as a  result  of the  discharge  of  the  outstanding
Convertible loan on which interest was paid in 2003 and interest income received
in 2004 arising from the tactical  investment  of surplus funds  generated  from
theLearning For AllTM activity, which was strongly cash flow positive.

Foreign Currency Gains/Losses.

There was a foreign  currency  loss in fiscal  2004 of GBP6,000  resulting  from
minor movements in exchange rates between GBP and USD,  compared to no financial
gains or losses from exchange rate movements in fiscal 2003.

Income/loss from Equity investment

Under equity  accounting  rules with regard to its  investment  in Luvit AB, the
Company  took a charge of  GBP187,000  in the fiscal year ended April 30 2004 in
respect of its share of losses incurred by that company, together with a further
charge of GBP100,000 as a result of impairment testing of the remaining goodwill
arising from the investment.  Due to the date of the investment,  April 2003, no
inclusion  was necessary in the year to April 30, 2003, in respect of profits or
losses arising from the investment, nor was any impairment test necessary.

Stock compensation arising from Variable options accounting

In February,  2002, 1,075,000 existing options to purchase ordinary shares under
the  Unapproved  Executive  Share Option Scheme at prices  varying from $0.59 to
$3.00 per Ordinary  share were  cancelled  and replaced with options to purchase
556,417  Ordinary shares at $0.10 per Ordinary share and 518,083 Ordinary shares
at $0.15 per Ordinary  share,  vesting  between July 2002 and March 2003.  These
were accounted for as variable  options.  As a result of the difference  between
the  exercise  price  of the  variable  options  and the  trading  price  of the
Company's  stock at the year end, a  compensation  expense  was  recorded in the
fiscal year ended April 30, 2004 amounting to GBP686,000  ($1,217,000)  compared
to GBPNil in the year to April 30, 2003.

Income Tax Expense.

There was no income tax charge to the Company in fiscal 2004 and in fiscal 2003.
The Company  possessed  significant tax losses in the UK that were available for
offset  against future  profits  without limit of time,  provided no substantial
change in the nature of trade. At April 30, 2004,  potential deferred tax assets
amounted to  GBP4,411,000  ($7,825,000),  of which GBPnil ($nil) was recognized,
compared to  GBP4,323,000  at April 30, 2003, of which GBPnil was  recognized in
expectation of the results for the year to April 30, 2005.

RECENT ACCOUNTING PRONOUNCEMENTS

FIN No. 46,  Consolidation  of Variable  Interest  Entities

In January 2003,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation  of ARB No. 51" ("FIN No. 46").  The guidance  expanded  upon and
clarified  existing  accounting  guidance that  addresses  when a company should
include in its financial  statements the assets,  liabilities  and activities of
variable interest entities,  including  special-purpose  entities or off-balance
sheet  structures.  In December  2003,  the FASB issued a revision to FIN No. 46
("FIN No. 46R") that modified some of the provisions and effective  dates of FIN
No. 46, and provided exemptions to certain entities from the original guidance.


                                       30
<PAGE>


FIN No. 46R sets forth criteria to be used in determining  whether an investment
in a  variable  interest  entity  should  be  consolidated,  and is based on the
general  premise that  companies that control  another entity through  interests
other than voting  interests  should  consolidate  the  controlled  entity.  The
consolidation  requirements of FIN No. 46 apply immediately to variable interest
entities  created  after  January  31,  2003.  As  amended,   the  consolidation
requirements  apply to older entities in the first fiscal year or interim period
ending after March 15, 2004. Certain of the disclosure requirements apply in all
financial  statements  issued after  December 31, 2003,  regardless  of when the
variable  interest  entity was  established.  There was no impact to the Company
upon the adoption of FIN No. 46 and FIN No. 46R.

SFAS No. 123 (revised 2004), Share-Based Payment

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS No.  123(R)").  SFAS No. 123(R) is a revision of FASB Statement
No. 123, "Accounting for Stock-Based  Compensation" ("FASB No. 123"), supersedes
APB No. 25, "Accounting for Stock Issued to Employees" and amends FASB Statement
No. 95,  "Statement  of Cash Flows." SFAS No.  123(R)  requires  that  companies
recognize all share-based  payments to employees,  including  grants of employee
stock options, in the financial statements. The recognized cost will be based on
the fair  value  of the  equity  or  liability  instruments  issued.  Pro  forma
disclosure of this cost will no longer be an alternative  under SFAS No. 123(R).
The  Statement is effective  for public  companies at the beginning of the first
annual reporting period that begins after June 15, 2005.

As permitted by FASB No. 123, the Company currently accounts for its stock-based
compensation  plans  under APB No.  25's  intrinsic  value  method and, as such,
generally   recognizes  no   compensation   cost  for  employee  stock  options.
Accordingly,  the adoption of SFAS No. 123(R)'s fair value method will have some
impact on the Company's  results of operations,  although it will have no impact
on the  Company's  overall  financial  position  or cash  flows.  The  impact of
adopting SFAS No. 123(R) cannot be predicted at this time because it will depend
on levels of  share-based  payments  granted  in the  future.  However,  had the
Company  adopted  SFAS No.  123(R)  in prior  periods,  the  impact  would  have
approximated  the  amounts  in its pro  forma  disclosure  as  described  in the
disclosure of pro forma net income and earnings per share in Note 1 of the Notes
to Consolidated Financial Statements. Based on SFAS No. 123(R), the Company will
transition to the new requirements by using the modified prospective  transition
method.  This transition method requires  compensation cost to be recognized for
all share-based payments granted after the date of adoption and for all unvested
awards existing on the date of adoption.

SFAS No.  123(R)  also  requires  the  benefits of tax  deductions  in excess of
recognized  compensation  cost be reported as a financing cash flow, rather than
as an operating cash flow as required under current standards.  This requirement
will reduce net operating  cash flows and increase net  financing  cash flows in
periods after  adoption.  The Company cannot estimate what those amounts will be
in the future because they are dependant on, among other things,  when employees
exercise stock options.

The  Company  plans to adopt  SFAS No.  123(R)  as of the first day of the first
quarter of Fiscal 2007, or May 1, 2006, as required.


B.    LIQUIDITY AND CAPITAL RESOURCES.
      --------------------------------

Internal and External Sources of Liquidity.

During the year ended April 30,  2005,  the Company  issued a further  1,385,389
Ordinary  Shares in reliance  of  Regulation  S,  representing  aggregate  gross
proceeds of  GBP489,000  ($933,000),  all of which had been received by the year
end.

Also during the year ended April 30, 2005, a number of staff  exercised  options
for the  purchase  of an  aggregate  of  1,408,758  Ordinary  Shares  under  the
Unapproved Executive Share Option Scheme,  representing aggregate gross proceeds
of GBP141,000  ($269,000),  of which all but GBP18,000 ($34,000) was received by
the end of the year.


                                       31
<PAGE>


Subsequent to the year end, on July 21, 2005, the Company entered into a private
placement with M.A.G.  Capital,  LLC (formerly  Mercator  Advisory Group,  LLC),
through its designated funds,  Monarch Pointe Fund, Ltd, Mercator Momentum Fund,
LP and  Mercator  Momentum  Fund III, LP  (collectively,  "M.A.G."),  to provide
financing to the Company in the amount of $4 million.  The  investment  was made
via a  convertible  loan  that is  convertible  (subject  to  certain  terms and
conditions) into Ordinary Shares of the Company. The conversion rate is based on
the volume  weighted  average price of the  Company's  ADSs for the five trading
days prior to July 13, 2005, the date that the Company entered into a term sheet
with M.A.G. for the investment.  The loan bears interest at an annual rate equal
to the  greater  of 8.5% or Wall  Street  Journal  Prime Rate plus 3%, but in no
event  greater  than 10%.  The  Company  also issued  warrants to the  investors
covering an aggregate of 6.2 million  Ordinary  Shares with an exercise price of
$0.61 per share.  The  agreement  with M.A.G also  provides for an additional $2
million of funding that may be available at Futuremedia's  request provided that
Futuremedia achieves certain performance benchmarks. Net proceeds to the Company
from the M.A.G.  investment were  approximately  $3.8 million.  The Company also
issued warrants to purchase 411,692 Ordinary Shares to its financial  adviser on
the  investment on  substantially  the same terms as the warrants  issued to the
investors.

At July 25, 2005, the Company's cash resources and available borrowings amounted
to  approximately  GBP2.9  million  ($5.5  million).  Based  on  the  continuing
improvement in levels of order intake and sales since the end of the fiscal year
ended April 30, 2005,  notably the recent order for the  Company's  Learning For
All(TM)  product from  various new  customers,  and the  securing of  additional
funding of up to $4.0 million from M.A.G., management believes that revenues and
cash flows will be sufficient to the extent that the Company's  requirements for
working  capital for the remainder of the current fiscal year are required to be
met from trading and  financing  activities.  Accordingly,  the accounts for the
year ended April 30, 2005 have been prepared on a going concern basis.

Sources and Amounts of Cash Flows

On July 29, 2005, the latest date available at time of filing,  the total amount
of cash and cash  equivalents  on hand was  approximately  GBP2.9  million ($5.5
million) compared with a total of cash and cash equivalents at April 30, 2005 of
GBP 1,084,000.  This increase primarily  represents losses incurred in the three
months to July 29, 2005, offset by the receipt of $4.0 million,  net $3.8million
resulting from the new investment secured in July 2005.

On April 30,  2005,  the total amount of cash and cash  equivalents  on hand was
GBP1,084,000   ($2,068,000)  as  compared  to  cash  and  cash   equivalents  of
GBP4,651,000  as at April 30, 2004. The reduction  arises  primarily from losses
incurred in the year, net of some positive  cashflows  generated by the Learning
For AllTM revenue stream,  where all fees for delivered  hardware,  software and
services  are  payable  in  total  on   installation   of  the  product  in  the
participants' homes,  including those fees in respect of services to be provided
over the three years of the service contract.

The Company's  ratio of current  assets to current  liabilities  stood at 0.6 at
April 30, 2005,  compared with 1.1 at April 30, 2004. As at June 30, 2005,  this
ratio was 0.51.

On April 30,  2004,  the total amount of cash and cash  equivalents  on hand was
GBP4,651,000 ($8,250,000) as compared to cash and cash equivalents of GBP437,000
as at April 30, 2003. The substantial  improvement  resulted  primarily from the
positive cashflows generated by the Learning For AllTM revenue stream, where all
fees for  delivered  hardware,  software and  services  were payable in total on
installation of the product in the participants' homes,  including those fees in
respect of services to be provided over the three years of the service contract.


                                       32
<PAGE>


The Company's  ratio of current  assets to current  liabilities  stood at 1.1 at
April 30, 2004,  compared with 0.9 at April 30, 2003, the numbers for April 2003
included the entire balance outstanding on the short-term mortgage.

As of April 30,  2005,  the Company had no long-term  obligations.  At April 30,
2005, the Company had no material commitment for capital expenditure. As of July
26, 2005, the Company had no material commitments for capital expenditures.

Commitments.

The Company  entered into a contract with IX Europe Limited for the provision of
the hosting and support elements of its ISP  requirements,  and with MIS Limited
for the firewall and  security  elements.  Both  contracts  are  renewable on an
annual  basis.  The contract  with Royal Mail,  for the  provision of a learning
management system comprising a hosted service was renewed for a period of twelve
months  from April 1, 2005,  at an annual  value of  GBP300,000  ($572,000).  In
October  2003,  the Company  launched its LFA product.  It is expected  that the
Company will continue to make significant commitment to third party suppliers in
the delivery of these  products and services.  Following  the Company's  move to
Brighton, it entered into a lease arrangement for office facilities for a period
of nine years, with a break clause after four years, up to which time the rental
charge is fixed.  Initially,  this  arrangement was for a serviced area of 4,700
square feet, but, in June 2004, due to the rapid expansion of the business,  the
occupied  space  was  increased  to 7,700  square  feet,  on  similar  terms and
conditions.  The  annual  cost,  including  service  charges,  is  approximately
GBP164,000  ($313,000).  Open Training AB occupies three sites in Sweden, all of
which are leasehold  premises,  with an annual cost of GBP89,000  ($170,000) per
annum.

C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
      ----------------------------------------------------

Company Sponsored Research and Development.

The Company is committed to appropriate ongoing product research and development
in an effort to  continually  upgrade,  modify and improve its  products to meet
changing  market and consumer  needs.  The Company has been a beta test site for
hardware  products and software  developed by a number of companies and has also
developed  software and hardware  itself for internal  purposes and for the open
market.  Research and  development  work is undertaken by the  development  team
whose focus has been on the  AktivnaTM  product range and the Learning For AllTM
program, supported by other members of production staff as required.

During the fiscal year ended April 30, 2005, a total of GBP261,000 ($498,000) of
research and development costs was expensed. During the fiscal years ended April
30, 2004 and 2003,  GBP196,000 and GBP131,000,  respectively,  of research costs
were  expensed.  An  average  of  four  staff  were  employed  on  research  and
development activities in the year ended April 30, 2005.

Strategic Relationships.

The Company,  when it determines it to be  advantageous,  enters into agreements
with others for joint  financing of products.  The Company  believes  that these
relationships  can help to widen the Company's  product range.  The Company also
intends to develop  commercial  arrangements  with providers of on-line learning
courses for the re-sale of their products  through its client portals.  To date,
the Company has contracted with Dell (UK), Fujitsu Siemens (UK), Hewlett Packard
(US),   Microsoft   Corporation  (US),   KnowledgePool  Ltd.  (UK),   Intellexis
International Ltd. (UK), Xebec McGraw-Hill, (UK), and SkillSoft (US).


                                       33
<PAGE>


D.    TREND INFORMATION.
      ------------------

The fiscal year 2005  demonstrated  the advantages of the Company's  strategy of
establishing and maintaining  partnerships with its customers and of continually
investing in product  development and support. At June 30, 2005, the Company had
a  forward  order  book  of  customer  orders  of   approximately   GBP6,542,000
($12,479,000) of which GBP6,130,000  ($11,693,000) represents Learning For AllTM
deferred  revenues,  compared  with GBP4.6  million at April 30, 2005,  of which
GBP3.2 million represented Learning For AllTM deferred revenues.  As a result of
the  increase  in  deferred  revenue  forward  orders in the first few months of
fiscal 2006, Futuremedia believes that it has gained market share.

Therefore,  Futuremedia has entered fiscal 2006 with a great deal of confidence.
The Company expects that market-driven  growth will come on top of other factors
including  continued  market  share  gains,  and  revenues  from new products in
existing and emerging markets.

The Company's  forward  order book reflects  orders for products or services for
which the  Company has  accepted  purchase  orders or  contracts  with  assigned
delivery  dates within 36 months.  The level of orders in the Company's  forward
order book at any particular time is not necessarily indicative of the Company's
future operation  performance.  Delivery  schedules may be extended and purchase
order or contracts may be canceled at any time for reasons  beyond the Company's
control.

E.    OFF-BALANCE SHEET ARRANGEMENTS.
      -------------------------------

The Company does not have any off-balance  sheet  arrangements  that have or are
reasonably  likely to have a current or future  material effect on its financial
condition,  revenues or  expenses,  results of  operations,  liquidity,  capital
expenditures or capital resources.

F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.
      ----------------------------------------------

The  following  is a  summary  of  the  Company's  contractual  obligations,  as
specified below, as of April 30, 2005:

<TABLE>
<CAPTION>
                                                     Payments due by Period

Contractual Obligations             Total      Less than 1 year    1-3 years       3-5 years       More than 5
GBP000's                                                                                              years
<S>                                  <C>             <C>              <C>             <C>               <C>
Long-Term Debt Obligations
                                      -               -                -               -                -
Capital (Finance) Lease
Obligations                           -               -                -               -                -

Purchase Obligations                 170             170               -               -                -

Operating lease obligation           762             255              370             137               -

Other Long-Term Liabilities
Reflected on the Company's
Balance Sheet under the GAAP
of the primary financial              -               -                -               -                -
statement

Total                                932             425              370             137               -
</TABLE>


As of April 30,  2005,  the  Company  had no  material  contractual  obligations
outstanding with respect to capital expenditure.


                                       34
<PAGE>


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    DIRECTORS AND SENIOR MANAGEMENT.
      --------------------------------

The  Company's  directors  and  senior  management,  and any  employees  such as
scientists or designers  upon whose work the Company is dependent as of the date
of this Report are as follows:


            Name          Age         Since      Position with the Company
            ----          ---         -----      --------------------------
Board Members:

Leonard M Fertig           58          2004       Director and Chief
                                                   Executive Officer
Michael Pilsworth (1)(2)   54          2005       Director
John Schwallie(1)(2)       42          2005       Director
Michiel Steel (2)          62          2005       Director
Jan Vandamme(1)            46          1998       Director and Chairman of the
                                                   Board of Directors

Senior Management:
Mark Wilsher               43          2005       Chief Finance Officer
Peter Machin               56          2000       Company secretary

(1) Member of the Audit Committee.
(2) Member of the Compensation Committee

Mr. Leonard Fertig joined the board as a non-executive  independent  director in
August 2004.  On January 24, 2005,  Mr.  Fertig was  appointed  Chief  Executive
Officer following the resignation of the previous Chief Executive  Officer,  Mr.
Mats Johansson.  Mr. Fertig holds  Batchelor's and Masters Degrees in Industrial
engineering  and  Operations  Research from Columbia  University,  New York, and
holds a Certification as a Registered  Investment  Advisor and Financial Planner
from Adelphi University, New York.

Mr.  Michael  Pilsworth  was  appointed  to the  board on March 17,  2005,  as a
non-executive  independent  director.  Mr.  Pilsworth is Chairman of  AIM-listed
media company Motive  Television PLC. Mr.  Pilsworth  holds Master's  degrees in
both Psychology and Screenwriting and has worked in the international television
industry for 25 years as both a producer and as an executive.  From 1993 to 2002
Mr.  Pilsworth  was CEO of  Chrysalis  TV  Group,  at the time the UK's  biggest
independent television production company.

Mr.  John  Schwallie  was  appointed  to the  board  on  March  17,  2005,  as a
non-executive  independent director. Mr. Schwallie is a seasoned operational and
financial   executive   with  more  than  15  years   experience   building  and
restructuring businesses, both private and publicly-traded.  Mr. Schwallie holds
a Batchelor's  degree from Skidmore  College,  New York, and a Masters Degree in
Business  Administration from Cornell  University,  New York, and is a Certified
Public Accountant, New York.

Mr.  Michiel  Steel  was  appointed  to  the  board  on  March  17,  2005,  as a
non-executive  independent  director.  Mr. Steel  serves also as an  independent
director on the Board of the Vincotte Group, a global  solution  provider in the
field of quality,  safety,  certification and environment.  Previously Mr. Steel
was a member of the Management  Committee of the Belgian Post. Prior to that Mr.
Steel was a vice  president  at Gemini  Consulting,  one of the world's  leading
management  consulting firms, and held senior management  positions at the Union
Carbide Corporation and Procter & Gamble.

Mr. Jan Vandamme  serves as Chairman of the Board of  Directors of  Futuremedia
Plc. Mr. Vandamme  previously  served as a Board  representative of Profrigo NV.
Mr.  Vandamme is no longer  affiliated  with  Profrigo  NV. Prior to joining the
Company,  Mr.  Vandamme  was Founder and Chief  Executive  Officer of Planet and
Partners NV, one of the first European based internet access  providers  founded
in 1993.


                                       35
<PAGE>


Mr.  Mark  Wilsher  joined  the  company on March 1,  2005,  as Chief  Financial
Officer.  Mr. Wilsher previously founded and owned Venture  Technologies Limited
(VTL), a venture  capital  company where he  successfully  worked with Durlacher
Corporation Plc,  Autonomy Plc, Eckoh  Technologies Plc and JCP Ltd., later sold
to Sun Microsystems.  Prior to that, he was a director of an investment  company
in the Netherlands.  A UK chartered accountant, Mr. Wilsher served as an auditor
with both Grant Thornton and Deloitte & Touche early in his career.

Mr. Peter Machin joined the Company in 1996 as Commercial Director, assuming the
role of Chief Financial  Officer and Company secretary in 1999. Prior to joining
the Company,  Mr. Machin has held several senior financial  management positions
within the IT industry,  most recently with  International  Computers Ltd. Since
October 1, 2004,  Mr.  Machin has  served as Company  Secretary  on a  part-time
basis.

B.    COMPENSATION.
      -------------

The amount of compensation  paid  (including  benefits in kind) to the Company's
Directors  and senior  management  during the year ended  April 30, 2005 were as
follows:

                               Basic  Performance
                              Salary    related     Sales     Benefits
                            and fees      bonus   commissions  in kind     Total
                              GBP000     GBP000    GBP000      GBP000     GBP000

Leonard M. Fertig (1)         65,000       --         --        3,000     68,000

Mark Wilsher (2)              32,000       --         --         --       32,000

Peter Machin (3)             110,000     26,000       --        7,000    143,000

Jan Vandamme (4)              58,000       --         --         --       58,000

Michael Pilsworth (5)           --         --         --         --         --

John Schwallie (5)              --         --         --         --         --

Michiel Steel (5)               --         --         --         --         --

Mats Johansson (6)           217,000       --      478,000      6,000    701,000

David Bailey (7)             183,000       --         --         --      183,000

Carl Kleman (8)              169,000       --         --         --      169,000


      (1)   Mr. Fertig was appointed as CEO in January 2005. Under an employment
            agreement  with the  Company,  Mr.  Fertig's  annual  base salary is
            GBP150,000.  Mr.  Fertig  may  also be  entitled  to a bonus  at the
            discretion of the Board of Directors.

      (2)   Mr. Wilsher was appointed as CFO in March 2005.  Under an employment
            agreement  with the  Company,  Mr.  Wilsher's  annual base salary is
            GBP115,000.  Mr.  Wilsher  may  also be  entitled  to a bonus at the
            discretion of the Board of Directors.


                                       36
<PAGE>


      (3)   Mr. Machin  currently serves on a part-time basis and is compensated
            at a rate of GBP450 per day for his services.

      (4)   The  services of Mr.  Vandamme as Chairman of the Board of Directors
            are  provided  to the  Company  under  the  terms  of the  Company's
            standard  independent  chairman  agreement,  pursuant  to which  Mr.
            Vandamme is paid a fee of GBP5,000 per month  (inclusive of fees for
            each  committee  of the Board on which  Mr.  Vandamme  serves).  Mr.
            Vandamme  does not receive any other fees or  compensation  from the
            Company. Fees paid to Mr Vandamme in the current fiscal year include
            GBP5,000 in respect of fees  unpaid  from the prior  year,  and were
            paid exclusively for board and board committee services.

      (5)   The services of Messrs Pilsworth, Schwallie and Steel, respectively,
            are  provided  to the  Company  under  the  terms  of the  Company's
            standard  independent  director  agreement,  pursuant  to which each
            Directors  is paid a fee of  GBP2,500  per month plus an  additional
            monthly  fee of GBP250  for each  committee  of the Board on which a
            Director  serves.  The foregoing  Directors do not receive any other
            fees or compensation from the Company.

      (6)   Mr.  Johansson  resigned as CEO and as a Director  in January  2005.
            Fees  paid  to Mr  Johansson  in the  current  fiscal  year  include
            GBP11,000 in respect of fees unpaid for the prior year.

      (7)   Mr.  Bailey  resigned as a Director  in March 2005.  Fees paid to Mr
            Bailey in the current  fiscal year  include  GBP12,000 in respect of
            fees unpaid for the prior year.

      (8)   Mr.  Kleman  resigned as  Director  in April  2005.  Fees paid to Mr
            Kleman in the  current  fiscal year  include  GBP3,000 in respect of
            fees unpaid for the prior year.


                                       37
<PAGE>


As of July 29, 2005,  the  Directors and members of senior  management  held the
following options to purchase Ordinary Shares:

<TABLE>
<CAPTION>
                                Number of Ordinary Shares         Exercise Price                Expiry Date
                                      under Option
<S>                                      <C>                         <C>                               <C>
Leonard M. Fertig                        500,000                     $0.7400                   January 2015

Mark Wilsher                             225,000                     $0.5995                    March 2015

Peter Machin                             175,000                 $0.15 to $1.412           May 2011 to June 2014

Jan Vandamme (1)                         725,000                 $0.10 to $1.412        February 2012 to June 2014

Michael Pilsworth (2)                     6,027                       $0.535                    March 2015

John Schwallie (2)                        6,027                       $0.535                    March 2015

Michiel Steel (2)                         6,027                       $0.535                    March 2015

Mats Johansson                           400,000                  $0.10 to $0.25       October 2006 to February 2102

David Bailey                             815,833                 $0.091 to $0.64             February 28, 2007

Carl Kleman                              87,500                  $0.64 to $1.412        November 2013 to June 2104
</TABLE>

--------------------

      (1)   Under  the  terms of the  Company's  standard  independent  chairman
            agreement, Mr. Vandamme is entitled to receive additional options to
            purchase 75,000 Ordinary Shares on an annual basis.

      (2)   Under  the  terms of the  Company's  standard  independent  director
            agreement, each of Messrs Pilsworth, Schwallie and Steel is entitled
            to receive  additional options to purchase 50,000 Ordinary Shares on
            an annual basis.

During  the year  ending  April  30,  2005,  Directors  and  members  of  senior
management exercised options to purchase an aggregate of 945,000 Ordinary Shares
at exercise prices ranging from $0.10 to $0.64.



C.    BOARD PRACTICES.
      ----------------

      Term of Office.

At the  General  Meeting  of  Shareholders  held on  March  17,  2005 all of the
following  Directors were elected of a term ending  immediately after the Annual
General Meeting of 2005, unless their terms are earlier  terminated by a vote of
the  shareholders,  removal by all of the members of the Board,  resignation  or
death: Messrs Bailey, Kleman, Vandamme and Fertig.

At a Special Meeting of Directors held  immediately  after the Company's  Annual
General Meeting on March 17, 2005, David Bailey resigned as director and Messrs.
Pilsworth,  Steel and Schwallie were appointed as Directors. Mr. Kleman resigned
from the board on April 22, 2005.

      Employment and Service Contracts

The services of Messrs Fertig and Wilsher are retained under a one-year  service
contract,  terminable  by either party by the serving of three months  notice or
payment in lieu of notice.  The service  contract is subject to English law, and
on  termination  other than by mutual  consent the  employee  may be entitled to
additional  compensation for loss of employment,  including  without  limitation
statutory redundancy pay and other compensation.


                                       38
<PAGE>


The services of Messrs  Vandamme,  Pilsworth,  Steel and  Schwallie are retained
under  independent  director  service  contracts,  terminable  by the serving of
ninety  days  notice.  These  contracts  will  also  terminate  immediately  the
individual ceases to remain a Director.

Functioning of the Board of Directors and its Special Committees.

The Board of Directors  meets upon invitation of the Chairman of the Board or of
the Chief Executive  Officer,  whenever the Company's  interests  require it, or
when any  director  requests  a meeting.  The Board of  Directors  held  fifteen
meetings during fiscal 2005.

The Audit Committee operates pursuant to a written Charter that was approved and
adopted by the Board of Directors.  Under the provisions of the Audit  Committee
Charter,   the  Audit   Committee  is  responsible   for,  among  other  things:
recommending  to the  Board  of  Directors  the  nomination  of the  independent
auditor;  reviewing and monitoring the financial  reporting process and internal
control  systems;  reviewing the annual financial  statements,  the scope of the
audit and the role and  performance of the  independent  auditor;  reviewing the
independence  of  the  independent  auditors;   providing  an  open  avenue  for
communication  between  the  independent  auditor,  management  and the Board of
Directors;  reviewing and approving all related party transactions and reviewing
its Charter annually. The Audit Committee is authorized to seek outside legal or
other advice to the extent it deems necessary or appropriate,  provided it shall
keep the board advised as to the nature and extent of such outside advice. It is
furthermore authorized to confer with Company management and other employees. In
accordance with the Sarbanes-Oxley Act and in order to preserve the independence
of the auditor, the Audit Committee has implemented a pre-approval procedure for
audit and all permitted non-audit  services.  According to Nasdaq and SEC rules,
the Audit Committee must consist of at least three members,  all of whom have to
be  independent  directors.  The  Audit  Committee  comprises  Messrs  Schwallie
(Chairman),  Pilsworth and Vandamme. The Audit Committee held 10 meetings during
fiscal 2005.

The Compensation  Committee is responsible  for, among other things,  reviewing,
monitoring and approving the remuneration of the executive  directors and senior
management of the Company and for administering certain aspects of the Company's
stock option and equity incentive plans.  The Compensation  Committee  comprises
Messrs. Steel (Chairman),  Schwallie and Pilsworth.  The Compensation  Committee
held 12 meetings during fiscal 2005.

In  accordance  with the  Nasdaq  rules,  the  Board of  Directors  has  adopted
resolutions  confirming  that all future  director  nominees will be selected in
accordance with the Nasdaq rules such that all director  nominees will either be
selected,  or  recommended  for the  Board's  selection,  by a  majority  of the
independent directors.

The Company  believes  that it is  currently  compliant  with all SEC and Nasdaq
rules and  regulations  relating  to  corporate  governance,  including  without
limitation  requirements  that the Board of Director be  comprised of at least a
majority of independent  directors.  In addition,  in accordance with the Nasdaq
rule,  the Company has filed with Nasdaq a "Corporate  Governance  Certification
Form"  certifying the Company's  compliance with Nasdaq's  corporate  governance
rules governing:

      o     composition of the audit committee;

      o     adoption and annual review of the audit committee charter;

      o     adoption of board resolutions  addressing the nomination process for
            new directors;


                                       39
<PAGE>


      o     regular scheduling of executive  sessions of independent  directors;
            and

      o     adoption and public availability of a code of conduct for directors,
            officers  and  employees  (which  has been filed with the SEC and is
            available on the Company's website - www.futuremedia.co.uk).

The Corporate  Governance  Certification Form is also available on the Company's
website (www.futuremedia.co.uk).

D.    EMPLOYEES.
      ----------

At July 29, 2005, the Company employed 89 persons,  three of whom were corporate
officers. Of the remainder,  57 were engaged in technology delivery and support,
19 in sales and marketing and eight in administrative and financial matters.

As of April 30,  2005,  the Company  employed  89  persons,  three of whom were
corporate officers. Of the other employees as of April 30, 2005, 57 were engaged
in  technology  delivery  and  support,  20 in sales and  marketing  and nine in
administrative and financial matters.

As of April 30,  2004,  the  Company  employed  51  persons,  three of whom were
corporate officers. Of the other employees as of April 30, 2004, 32 were engaged
in  technology  delivery and support,  eleven in sales and marketing and five in
administrative and financial matters.

As of April  30,  2003,  the  Company  employed  19  persons,  two of whom  were
corporate officers. Of the other employees as of April 30, 2003, 12 were engaged
in  technology  delivery and support,  three in sales and  marketing  and two in
administrative and financial matters.

In addition, it is Company policy to employ contract staff to provide specialist
skills when required and tactically when the workload demands across all areas..
The  Company may offer  permanent  employment  to  individual  contractors  when
management can reasonably  foresee a continuing  commercial  requirement for the
contractor's  skills. The average number of temporary  employees during the year
ending April 30, 2005 was ten.

None of the Company's employees is covered by a collective bargaining agreement.
As at July 29, 2005, 71 of the  Company's  employees are employed in the UK, and
18 in Sweden.  The Company  believes that its  relations  with its employees are
good.

The Company's ability to achieve its business objectives is, in part,  dependent
on its ability to recruit the specialist skills it requires, both on a permanent
and a contract basis.

The Company  normally  carries out monthly reviews of its operations,  including
its  profits and  losses,  sales,  marketing,  and  production.  The Company has
introduced incentives to the staff through profit-related  bonuses,  merit-based
promotions and issues of share options.  See "Employee Profit Sharing and Option
Plans."

E.    SHARE OWNERSHIP.
      ----------------

Share Ownership

With respect to the share ownership in the Company of the executive officers and
Directors of the Company,  see the disclosure in Item 7 below  regarding  "Major
Shareholders and Related Party Transactions".

Set out  below is a  summary  of the  plans  or  arrangements  that the  Company
operates for involving employees in the capital of the Company.


                                       40
<PAGE>


Approved  Executive Share Option Scheme.  Under the Company's Approved Executive
Share Option  Scheme,  options to acquire the Company's  Ordinary  Shares may be
granted to all or  selected  employees.  Any  full-time  employee,  other than a
director,  of the  Company who is not within two years of his or her due date of
retirement and who, within one year preceding the grant,  did not hold more than
10% of the share  capital  of the  Company,  is  eligible  to  participate.  The
exercise price of the options must be no less than 85%, of the fair market value
of the  Company's  ADSs on the date of  grant.  The  aggregate  value of  shares
underlying  the options  granted to any  employee  may not exceed the greater of
GBP100,000 ($160,000) or four times earnings.

Unapproved  Executive  Share  Option  Scheme.  Under  the  Company's  Unapproved
Executive Share Option Scheme, options to acquire Ordinary Shares may be granted
to  selected  full-time   employees,   including   directors,   based  on  their
performance.  Such options may also be granted to  non-employee  directors.  The
exercise price of the options  granted must be at or above the fair market value
of the Company's ADSs on the date of grant.

No further  options  will be granted  pursuant to the Approved  Executive  Share
Option Scheme or the  Unapproved  Executive  Share Options Scheme and such plans
have been terminated except for purposes of permitting outstanding options to be
exercised in accordance with their terms, as applicable.

2005 Share Option Plan for New Employees. In March 2005, the Company adopted the
Futuremedia  Plc  Unapproved  2005  Scheme for New  Employees  for  purposes  of
granting options to purchase Ordinary Shares to certain new key employees. Under
the 2005 Share Option Plan for New Employees, options may be granted exclusively
to persons not previously  employees or directors of the Company (or following a
bona fide period of non-employment)  as an inducement  material to entering into
employment  with the Company.  The exercise price of the options granted must be
at or above the fair market  value of the  Company's  ADSs on the date of grant.
The terms and conditions of this plan are otherwise substantially similar to the
terms and conditions of the 2005  Unapproved  Share Option Scheme,  as described
below.  An  aggregate  of 1.2 million  Ordinary  Shares have been  reserved  for
issuance under this plan.

2005 Unapproved Share Option Scheme ("2005  Unapproved  Plan").  Pursuant to the
2005  Unapproved  Plan,  options  may be  granted  to (a)  employees,  officers,
directors, consultants and advisors of the Company and its Subsidiaries, and (b)
any other person who is determined by the Directors (or a committee  thereof) to
have made (or is expected to make) contributions to the Company of inducement to
retain  the  services  of  the  option  holder.  The  2005  Unapproved  Plan  is
administered  by the  Directors  (or a committee  thereof).  Options only become
exercisable  once any  conditions  stipulated  by the  Directors (or a committee
thereof) have been satisfied. Options are typically exercisable over a period of
up to 10 years.  The exercise  price of the options  granted must be at or above
the fair market value of the Company's ADSs on the date of grant.

Enterprise  Management  Incentive Plan 2005 ("EMI Plan"). The EMI Plan is a form
of UK Inland Revenue approved  discretionary share option plan pursuant to which
options  attract  income and capital gains tax relief for UK tax purposes.  Only
UK-based  employees are eligible for options under the EMI Plan. The EMI Plan is
administered  by the  Directors  (or a committee  thereof).  Options only become
exercisable  once any  conditions  stipulated  by the  Directors (or a committee
thereof) have been satisfied. Options are typically exercisable over a period of
up to 10 years.  The exercise  price of the options  granted must be at or above
the fair market value of the Company's ADSs on the date of grant.

Share Incentive Plan 2005 ("SIP").  The SIP provides UK-based employees with the
opportunity to acquire  Ordinary Shares on a tax-favored  basis.  Under the SIP,
participants  have  the  ability  to  enter  into  an  agreement  to  use  up to
(pound)1,500  per  year  out  of  pre-UK  tax  and  pre-UK  National   Insurance
contributions salary to buy Ordinary Shares ("Partnership  Shares"). The Company
has the  discretion  to match the  Partnership  Shares  acquired  with so called
"Matching  Shares",  at no cost to  participants.  Whether the  Company  matches
Partnership  Shares and if so what the matching  ratio (which may not exceed two
Matching  Shares  for each  Partnership  Share)  would be, is  announced  to the
participant  when an invitation is made. In addition to  Partnership  Shares and
Matching Shares (or even in isolation),  the Company has the discretion to award
up to (pound)3,000  of free shares ("Free Shares") to each eligible  employee in
an income tax year.  The award of Free Shares could be dependent on  individual,
business unit or corporate performance. The SIP is administered by the Directors
(or a committee thereof). No awards may be made under the SIP more than 10 years
after the date on which the Plan was formally approved by the UK Inland Revenue.


                                       41
<PAGE>


The 2005  Unapproved  Plan,  the EMI Plan and the SIP were each  approved by the
Company's  shareholders  at the  Extraordinary  General Meeting held on July 28,
2005. The maximum aggregate number of new Ordinary Shares available to be issued
under the these plans may not exceed 10 million Ordinary Shares.

The following  table  summarizes  the  outstanding  options and awards under the
plans and arrangements described above.


<TABLE>
<CAPTION>
                                   Number of Ordinary Shares
                                   subject to
                                   Options or Awards                  Exercise Price              Expiry Date
<S>                                           <C>                  <C>                     <C>
Approved Executive Share Option               32,500               $0.90625 to $1.5938     February 2008 to July 2010
Scheme

Unapproved Executive Share                  4,028,318               $0.0850 to $1.6220      October 2006 to January
Option Scheme                                                                                         2015

2005 Share Option Plan for New               310,000                $0.4735 to $0.5995      March 2015 to April 2015
Employees

2005 Unapproved Share Option Plan            818,081                $0.5350 to $0.7163     January 2015 to March 2015

Enterprise Management Incentive                Nil                          -                          -
Plan 2005

Share Incentive Plan 2005                      Nil                          -                          -
Total                                       5,188,899
</TABLE>


                                       42
<PAGE>
 ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A.    MAJOR SHAREHOLDERS.
      -------------------

The following table sets forth certain information,  as of July 29, 2005, to the
extent  that it is  known  to the  Company  or can be  ascertained  from  public
filings, as of the date of this Report with respect to the beneficial  ownership
of the Company's ADSs by (i) each director, senior manager and key employee, and
(ii) each person known by the Company to own 5% or more of the  Company's  ADSs.
All figures are based on an aggregate of 91,769,479 Ordinary Shares outstanding.


<TABLE>
<CAPTION>
  Name of Beneficial Owner (1)                                   Number of       Number of share      Percentage
                                                              Ordinary Shares        options          Beneficially
                                                                Beneficially      Beneficially            Owned,
                                                                   Owned            owned (2)         including
                                                                                                       options
  <S>                           <C>                            <C>                   <C>                <C>
  Rennes Foundation (3)                                        12,514,989               -               12.9
  M.A.G. Capital, LLC (4)                                       8,233,841                                9.0
  J. Vandamme                   Director & Chairman               890,790               -                0.9
  L Fertig                      Director & CEO                     65,790            500,000             0.6
  M Pilsworth                   Director                            6,027               -                Nil
  M Steel                       Director                            6,027               -                Nil
  J Schwallie                   Director                            6,027               -                Nil
  M Wilsher                     CFO.                                  Nil            225,000             0.2
  P G Machin                    Company Secretary                 288,984              Nil               0.3

  Board and senior management
  as a Group                    Seven persons                   1,263,645            725,000             1.4
</TABLE>


      (1)   For purposes of US securities laws only, persons may be deemed to be
            the  beneficial  owners of  securities  reflected in this table.  It
            should be noted,  however,  that the meaning of beneficial ownership
            is  significantly  different  under English law, and no inference is
            intended, nor should it be construed, as to the status of beneficial
            ownership of these securities under the laws of England.

      (2)   Includes options to purchase Ordinary Shares granted pursuant to the
            Company's  share option plans at prices varying from $0.09 to $1.00.
            See Item 6(B).

      (3)   The Company has no further  information  on the ultimate  beneficial
            owners of Rennes Foundation beyond what Rennes Foundation  disclosed
            in Schedule 13D (Amendment No. 4) filed with the SEC on May 11, 2005
            or in other filings with the SEC. No current  director or officer of
            the Company has any voting or investment power in these entities.

      (4)   M.A.G. Capital, LLC (formerly, Mercator Advisory Group, LLC) ("MAG")
            is the general  partner of Mercator  Momentum  Fund, LP and Mercator
            Momentum Fund III, LP and the manager of Monarch  Pointe Fund,  Ltd.
            (together,  the "MAG  Funds").  David F.  Firestone  is the managing
            member of MAG. MAG, the MAG Funds and Mr.  Firestone are referred to
            herein  together  as  the  "MAG  Entities".  The  MAG  Funds  own an
            aggregate of $4 million of convertible debentures (the "Debentures")
            issued by the Company which are  convertible  into Ordinary  Shares.
            Each  Debenture is  convertible  into the number of Ordinary  Shares
            determined by dividing the principal balance of the Debenture by the
            Conversion Price at the time of the conversion. The Conversion Price
            is based on the volume weighted  average price of the Company's ADSs
            for the five trading days prior to July 13, 2005,  the date that the
            Company  entered  into a term  sheet  with  MAG for  the  investment
            relating to the Debentures.  MAG and the MAG Funds also own warrants
            to purchase an aggregate of 6,175,104 Ordinary Shares at an exercise
            price of $0.61  per  share,  which  become  exercisable  on or about
            January 22, 2006 but not before. Under applicable SEC rules, because
            the  warrants  held by MAG and the  MAG  Funds  are not  exercisable


                                       43
<PAGE>


            within 60 days of the date of the  information  in this  table,  the
            Ordinary  Shares  underlying such warrants have not been included in
            the number of Ordinary Shares  beneficially owned. The documentation
            governing  the terms of such  warrants and the  Debentures  contains
            provisions prohibiting any exercise of the warrants or conversion of
            the  Debentures  that  would  result  in  the  MAG  Entities  owning
            beneficially  more than 9.99% of the outstanding  Ordinary Shares as
            determined under Section 13(d) of the U.S.  Securities  Exchange Act
            of 1934,  as amended.  The MAG  Entities  have never had  beneficial
            ownership of more than 9.99% of the outstanding Ordinary Shares and,
            as a result of the foregoing  provisions,  the MAG Entities disclaim
            beneficial  ownership in excess of 9.99% of the outstanding Ordinary
            Shares.  The number of Ordinary Shares  beneficially  owned has been
            determined  using a Conversion  Price of $0.4858 with respect to the
            Debentures. Mr. Firestone has voting and investment control over MAG
            but he does not own any securities of the Company. The right to vote
            and the right to dispose of the Ordinary Shares  beneficially  owned
            by the MAG Funds are, in each case, shared among either of the three
            funds, as applicable,  and both MAG and Mr.  Firestone.  The Company
            has no further  information on the ultimate beneficial owners of MAG
            or the MAG Funds beyond what the MAG Entities may have  disclosed in
            any Schedule 13D or other filings with the SEC. No current  director
            or officer of the Company has any voting or investment  power in MAG
            or the MAG Funds.

To the knowledge of the Company the  Company's  major  shareholders  do not have
voting  rights  different  from other  shareholders.  As of July 29,  2005,  the
Company had  approximately  eleven  shareholders of record,  one of whom acts as
Depositary  for the  Company's  ADR facility  and is a US resident.  At July 29,
2005, the Depositary had  approximately  115 holders of record of ADSs. Based on
information  received from the Depositary,  the Company  believes that there are
approximately 11,800 beneficial owners of ADSs.

There  are no  arrangements,  known  to the  Company,  which  may  operate  at a
subsequent date to cause a change in control of the Company.

In  addition  to  the   information   disclosed   below  under   "Related  Party
Transactions",  the following  significant  changes in the percentage  ownership
held by the aforementioned  major  shareholders  having occurred during the past
three years:

                                Percentage ownership at April 30
                                            2005          2004          2003
        Rennes/Jobelin Foundations             12.9          15.4          16.7
        M.A.G. Capital, LLC                     9.0             -             -
        J. Vandamme                             0.8           0.9           1.1
        L Fertig                                0.6             -             -
        M Pilsworth                               -             -             -
        M Steel                                   -             -             -
        J Schwallie                               -             -             -
        M Wilsher                               0.2             -             -
        P G Machin                              0.3           0.3           0.2


                                       44
<PAGE>


B.    RELATED PARTY TRANSACTIONS
      --------------------------

In October  2002,  the  Company  completed  a private  placement  with  existing
investors and  affiliates,  raising  GBP150,000  ($230,000),  represented by the
issuance of  approximately  2.7 million Ordinary Shares at a price of $0.085 per
share.  The  following  individuals/entities  purchased  the  number  of  shares
indicated in connection  with this  transaction:  Rennes  Foundation  (1,177,647
shares)  and  Mr.  Mats  Johannson  (181,176  shares),  who was  serving  as the
Company's CEO at that time.

In April, 2003, the Company issued an aggregate of 16,706,000 Ordinary Shares at
a price of $0.10 per  Ordinary  Share and an  aggregate  of  2,250,000  Ordinary
Shares at a price of $0.08 per Ordinary Share representing an aggregate purchase
price  of  approximately   $1,851,000,   of  which  approximately  $382,000  was
outstanding  at April 30, 2003 and  received  subsequent  to the  year-end.  The
following  individuals  and  entities  purchased  the number of Ordinary  Shares
indicated in connection with this private  placement:  Mr. Jan Vandamme (200,000
shares),  Mr. Mats  Johansson  (150,000  shares) and Mr. David  Bailey  (150,000
shares) and Volito AB (8,500,000 shares).

Also in April, 2003, the Company contracted for the exchange of 3,350,000 shares
in Luvit AB for the issue of 4,685,315  Ordinary  Shares at a price of $0.10 per
Ordinary Share to Volito AB.

In August  2003,  the  Company  contracted  and  received  cash for the issue of
387,597  Ordinary  shares at a price of $0.387  per  Ordinary  Share for a total
aggregate price of $150,000.  The following  individuals and entities  purchased
the  number of  Ordinary  Shares  indicated  in  connection  with  this  private
placement: Volito AB (387,597 shares).

During  the year  ended  April  30,  2004,  Volito  AB sold all its  holding  of
Futuremedia shares.

In November,  2003, Mr. C Wit, a non-executive  Director at the time,  exercised
options to purchase an aggregate of 404,500  Ordinary  Shares at prices  ranging
from $0.10 to $0.15 per Ordinary Share for a total aggregate price of $50,563 at
prices of $0.10 and $0.15 per  Ordinary  share,  all of which  were sold  before
April 30, 2004.

In October 2004, Mr. M Johansson  exercised  options to purchase an aggregate of
745,000  Ordinary  Shares at prices  ranging  from  $0.10 to $0.15 per  Ordinary
Share, for a total aggregate price of $93,125.

In October 2004,  Mr. J Vandamme  exercised  options to purchase an aggregate of
100,000  Ordinary  Shares at prices  ranging  from  $0.10 to $0.15 per  Ordinary
Share, for a total aggregate price of $12,500.

In November 2004, Mr. C Wit exercised  100,000 options to purchase an equivalent
number of Ordinary Shares for a total aggregate purchase price of $64,000.

In February, 2005, the Company contracted and received the cash for the issue of
926,972  Ordinary,  Shares  at a price  of  $0.76  per  Ordinary  share,  for an
aggregate  purchase price of $704,500.  The following  entities and  individuals
purchased  the number of  Ordinary  Shares  indicated  in  connection  with this
private placement:  Rennes Foundation  (795,394 shares),  Mr. J Vandamme (65,789
shares) and Mr. L Fertig (65,789 shares).

Also in February,  2005, Mr. Kleman agreed to accept 69,803  Ordinary  shares at
the market price of $0.716 per Ordinary  share for a total  equivalent  value of
$50,000 in part  payment of an  outstanding  debt owed to him by the  Company in
respect of work undertaken by Mr. Kleman associated with the acquisition of Open
Training AB, which was concluded on February 14, 2005.

In April 2005, Mr. M Johansson,  in accordance  with the terms of the Settlement
Agreement  that had been entered into between Mr.  Johansson  and the Company on
his resignation in January,  2005,  agreed to accept 388,614  Ordinary Shares in
respect of commissions due to him, for a total equivalent value of $155,834.


                                       45
<PAGE>


During the year ended April 30, 2005, the following  directors  received payment
for consultancy  services provided through  independent  service companies:  Mr.
Fertig GBP14,000 ($27,000),  Mr. J.Vandamme GBP58,000  ($111,000),  Mr. C.Kleman
GBP28,000  ($53,000).  Fees paid to Mr. Vandamme were  exclusively for board and
board committee services.


C.    INTERESTS OF EXPERTS AND COUNSEL.
      ---------------------------------

Not Applicable


                                       46
<PAGE>


ITEM 8. FINANCIAL INFORMATION.

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.
      --------------------------------------------------------

Consolidated Financial Statements

The  consolidated  Financial  Statements and Other Financial  Information of the
Company are listed under Item 18 in this Report.

Legal Proceedings

The Company is not a party to any material legal proceedings.

Dividend Policy

Holders of the Company's  Ordinary shares may, by ordinary  resolution,  declare
dividends,  but may not declare dividends in excess of the amount recommended by
the directors.  The directors may also pay interim dividends. No dividend may be
paid other than out of profits available for  distribution.  Futuremedia has not
in the past  declared or paid any  dividends to holders of its ordinary  shares,
and there is no present intention to declare or pay any such dividend.

B.    SIGNIFICANT CHANGES.
      --------------------


Not Applicable.


                                       47
<PAGE>


ITEM 9. THE OFFER AND THE LISTING.

A.    OFFER AND LISTING DETAILS.
      --------------------------

The Company's ADSs have traded since May 29, 1996, on the Nasdaq SmallCap Market
under the symbol FMDAY.

The  Company's  warrants  were traded on the Nasdaq  SmallCap  Market  under the
symbol FMDYW from May 29, 1996 until June 25,  1997.  From August 19, 1993 until
May 29,  1996 the  Company's  ADSs and  warrants  traded on the Nasdaq  National
Market.  The Company  agreed to allow the warrants  issued on August 19, 1993 to
lapse in August 2003.

The  closing  bid  prices  of the  Company's  securities  have been  within  the
following  ranges during the periods  shown.  The quotations set forth below are
inter-dealer quotations, without retail mark-ups, mark-downs or commissions, and
do not necessarily represent actual transactions.

(1)   The five most recent full financial years:


                                              ADS Price

    Year Ending April 30,               High              Low
                                          $                $

            2001                        3.125            0.160
            2002                        0.380            0.050
            2003                        0.159            0.060
            2004                        2.080            0.100
            2005                        1.630            0.340


                                            Warrants Price

    Year Ending April 30,               High              Low
                                          $                $
            1999                        0.031            0.031
            2000                        0.031            0.031
            2001                        0.031            0.031
            2002                        0.031            0.031
            2003                        0.031            0.031


                                       48
<PAGE>


(2)   Each full financial  quarter for the two most recent full financial  ADSs:
      FMDAY

Year ended April 30                                 High           Low
-------------------                                 ----           ---
2004     First quarter............................  0.520          0.100
         Second quarter...........................  0.460          0.250
         Third quarter............................  1.170          0.250
         Fourth quarter...........................  2.080          0.890
2005     First quarter............................  1.630          0.820
         Second quarter...........................  1.040          0.680
         Third quarter............................  1.170          0.720
         Fourth quarter...........................  0.820          0.340
2006     First quarter............................  0.611          0.360


Warrants       FMDYW                                High           Low
--------       -----                                ----           ---
                                                      $             $
2003     First quarter............................  0.031          0.031
         Second quarter...........................  0.031          0.031
         Third quarter............................  0.031          0.031
         Fourth quarter...........................  0.031          0.031
2004     First quarter............................  0.031          0.031
         Second quarter...........................  0.031          0.031


(3)   Each month for the most recent six months:

                                                  ADS Price
                                                  ---------
                                            High             Low
                                            ----             ---
                                             $                $

              July 2005                     0.611            0.360
              June 2005                     0.480            0.376
              May 2005                      0.400            0.360
             April 2005                     0.460            0.340
             March 2005                     0.600            0.380
            February 2005                   0.820            0.570


The last  reported  sale price of  the  Ordinary  Shares on July 29, 2005 on the
Nasdaq SmallCap Market was $0.60.

B.    PLAN OF DISTRIBUTION.
      ---------------------

Not Applicable

C.    MARKETS.
      --------

The  Company's  ADSs are listed on the Nasdaq  SmallCap  Market under the symbol
"FMDAY".


                                       49
<PAGE>


D.    SELLING SHAREHOLDERS.
      ---------------------

Not Applicable

E.    DILUTION.
      ---------

Not Applicable

F.    EXPENSES OF THE ISSUE.
      ----------------------

Not Applicable


                                       50
<PAGE>


ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL.

Not Applicable

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION.
      ---------------------------------------

Incorporated  by reference to the Company's  Registration  Statement on Form F-I
(Registration No. 33-639941) and as amended  (previously filed as Exhibit 1.2 to
the Company's  Annual Report on Form 20-F for the year ended April 30, 2004) and
as further  amended and as filed as Exhibit  1.1 to this  Annual  Report on Form
20-F for the year ended April 30, 2005.

C.    MATERIAL CONTRACTS.
      -------------------

The Company  entered into a contract with IX Europe Limited for the provision of
the hosting and support elements of its ISP  requirements,  and with MIS Limited
for the firewall and  security  elements.  Both  contracts  are  renewable on an
annual  basis.  The contract  with Royal Mail,  for the  provision of a learning
management system comprising a hosted service was renewed for a period of twelve
months  from April 1, 2005,  at an annual  value of  GBP300,000  ($572,000).  In
October  2003,  the Company  launched its LFA product.  It is expected  that the
Company will continue to make significant commitment to third party suppliers in
the delivery of these  products and services.  Following  the Company's  move to
Brighton, it entered into a lease arrangement for office facilities for a period
of nine years, with a break clause after four years, up to which time the rental
charge is fixed.  Initially,  this  arrangement was for a serviced area of 4,700
square feet, but, in June 2004, due to the rapid expansion of the business,  the
occupied  space  was  increased  to 7,700  square  feet,  on  similar  terms and
conditions.  The  annual  cost,  including  service  charges,  is  approximately
GBP164,000  ($313,000).  Open Training AB occupies three sites in Sweden, all of
which are leasehold  premises,  with an annual cost of GBP89,000  ($170,000) per
annum.

Following its move to Brighton, the Company has entered into a lease arrangement
for office facilities for a period of ten years, with a break clause after three
years, up to which time the rental charge is fixed. Initially,  this arrangement
was for a serviced area of 4,700 square feet,  but,  subsequent to the year end,
in June 2004, due to the rapid expansion of the business, the occupied space was
increased to 7,700 square feet, on similar terms and conditions. The annual cost
of the expanded area,  including  service charges,  is approximately  GBP138,000
($245,000).  Open Training  AB's  premises in Sweden are provided  under leasing
arrangements  that terminate in 2010, at a cost of (pound)89,000  ($170,000) per
annum.

In November,  2003, the Company contracted with Royal Mail to increase the reach
of its e-Learning  offering to include all eligible  employees and not limit the
e-Learning  opportunity to those who have Internet  access in their workplace by
making  available the Company's  recently-announced  Learning For AllTM product.
This  product  provides  the  participants  with the  hardware,  software  (both
domestic and on-line)  together  with  Internet  connection in their homes for a
period of three years.  The employee uses a UK tax  incentive  scheme based on a
salary  sacrifice  principle to pay for the Package.  Participation is optional,
and at the conclusion of  installations,  an aggregate of  approximately  15,500
employees participated, giving rise to revenues, both delivered and deferred, of
approximately GBP19.8 million ($35.1 million).

In June,  2004, a second phase was launched  within Royal Mail that  resulted in
further revenues aggregating  approximately GBP6.20 million ($11.8 million) over
the period from July 2004 to June 2007.


                                       51
<PAGE>


In October,  2004, a third phase was launched within Royal Mail that resulted in
further revenues aggregating  approximately  GBP5.3 million  ($10.1million) over
the period from November 2004 to November 2007.

In March,  2005, a fourth phase was launched  within Royal Mail that is expected
to result in further  revenues  aggregating  approximately  GBP2.2 million ($4.2
million) over the period from April 2005 to April 2008.

Subsequent  to the year end, in May 2005,  the Company  contracted  with Network
Rail Infrastructure Limited for the provision of Learning for AllTM products and
services. It is expected that this contract will result in revenues in the order
of GBP 1.5 million over the two planned  phases,  which will be recognized  over
the next three to four years.


D.    EXCHANGE CONTROLS.
      ------------------

There are currently no UK foreign exchange control restrictions on the import or
export of capital,  including the  availability of cash and cash equivalents for
use by the Company, or on payment of dividends on securities of the Company.

There are no  restrictions  under  the  Company's  Memorandum  and  Articles  of
Association or under English law that limit the right of non-resident or foreign
owners to hold or vote the Company's securities.

E.    TAXATION.
      ---------

United Kingdom Income Tax

The following  discussion of taxation is intended only as a descriptive  summary
and it does not  purport to be a complete  technical  analysis or listing of all
potential tax effects relevant to the Ordinary Shares or ADSs. The statements of
United  Kingdom  and United  States tax law set forth below are based (i) on the
laws and the UK Inland Revenue practice and published  Statements of Practice in
force as of the date of this report;  and (ii) assumes that each  obligation  in
the deposit  agreement  among the Company,  the  Depositary and the holders from
time to time of ADSs and any related  agreement  will be performed in accordance
with its terms. The statements herein are subject to any changes occurring after
the date of this report in UK or US law, or in the double  taxation  conventions
between the US and the UK with  respect to income and  capital  gains taxes (the
"Income  Tax  Convention")  and with  respect  to estates  and gifts  taxes (the
"Estate Tax Convention").

The Company anticipates that if any cash dividends are paid by the Company,  the
dividends  would be paid in pounds  sterling.  As a result,  fluctuations in the
exchange rate between  sterling and US dollars will affect the US dollar amounts
received  by holders  of ADSs upon  conversion  by the  Depositary  of  dividend
payments into US dollars.

The Company does not expect to pay cash  dividends for the  foreseeable  future,
but rather, to retain earnings to finance the expansion of the business.

Up to April 5, 1999,  an  individual  shareholder  resident  in the UK is for UK
income tax  purposes  treated as having  taxable  income equal to the sum of the
dividend  paid to him plus a tax  credit  equal to 1/4 of the  amount of the net
dividend.  The tax credit is  available to be set against the  individual's  tax
liability on the dividend,  which for a  shareholder  within the lower and basic
tax  rate  bands  will  satisfy  this  tax  liability  on UK  dividends,  and in
appropriate cases may be refunded to him.


                                       52
<PAGE>


From April 6, 1999, the rate of tax credit has reduced to 10% and refunds of tax
credits are no longer possible.  However, an individual shareholder whose income
is within  the lower or basic tax rate bands will be liable to tax at 10% on his
individual  income.  As such,  the tax credit  will  continue to satisfy the tax
liability on UK dividends.  For higher rate taxpayers,  the dividend income will
be liable to UK tax at 32.5%  (which  after  relief for the  reduced  tax credit
leaves the tax effect unchanged for higher rate taxpayers).

Under the current Income Tax Convention,  a US resident  individual or corporate
holder  of an  Ordinary  Share  or ADS  who or  which  satisfied  the  following
conditions (an "Eligible US Holder"):

(i) is resident in the case purposes);  in the US for the purposes of the Income
Tax Convention  (and, of a  corporation,  not also resident in the UK for UK tax
purposes);

(ii) is not a corporation  which,  alone or together with one or more associated
corporations,  controls, directly or indirectly, 10% or more of the voting stock
of the Company;

(iii) whose holding of the Ordinary Shares or ADSs is not effectively  connected
with a permanent  establishment in the UK through which such holder carries on a
business  or  with a  fixed  base  in the UK from  which  such  holder  performs
independent personal services; and

(iv) under certain circumstances, is not an investment or holding company 25% or
more of the capital of which is owned,  directly or indirectly,  by persons that
are neither  individual  residents  nor  citizens of the US, will  generally  be
entitled under the current Income Tax Convention to receive,  in addition to any
dividend paid by the Company,  an amount equal to the tax credit available to UK
resident shareholders in respect of such dividend,  but subject to a withholding
tax equal to 15% of the sum of the dividend paid and the tax credit.

For  example,  with the tax  credit  at the rate of 1/4 of the net  dividend,  a
dividend of GBP80.00 will entitle such a holder to receive, upon compliance with
the refund  procedures  described below an additional  payment of GBP5.00 (i.e.,
the tax credit of GBP20.00 less withholding tax of GBP15.00). The refund may not
be available in certain circumstances if the holder is exempt from US tax on the
dividend received.

Arrangements  have been  made by the  Depositary  so that,  subject  to  certain
exemptions, the tax credit will be refunded, net of the withholding tax, to a US
ADS holder if the ADS holder  completes  the  declaration  on the reverse of the
dividend  check and presents the check for payment  within three months from the
date of issue of the check. The exceptions include certain investment or holding
companies.

ADS  holders  who do not  satisfy  the  foregoing  requirements,  and holders of
Ordinary  Shares,  must,  in order to obtain a refund of tax credit  (net of the
withholding  tax),  file in the manner and at the time  described  in US Revenue
Procedure 80-18,  1980-1 C.B. 623, and US Revenue  Procedure 81-58,  1981-2 C.B.
678, a claim for refund of tax credit  identifying the dividends with respect to
which the tax  credit was paid.  Claims  for  refund of tax credit  must be made
within six years of the UK year of assessment  (the 12-month period ending April
5 in each year) in which the related  dividend  was paid.  The first claim for a
refund of tax credit is made by sending the  appropriate UK form in duplicate to
the Director of the Internal Revenue Service Center with which the holder's last
federal  income  tax  return  was  filed.  Forms  may be  obtained  from the IRS
Assistant  Commissioner   (International),   950  L'Enfant  Plaza  South,  S.W.,
Washington,  DC 20024, Attention:  Taxpayers Service Division.  Because a refund
claim  is  not  considered  made  until  the  UK  tax  authorities  receive  the
appropriate form from the Internal Revenue Service,  forms should be sent to the
Internal  Revenue  Service  well  before  the end of the  applicable  limitation
period.  Any claim for refund of tax credit by a US holder after the first claim
should be filed  directly  with the UK Inspector of Foreign  Dividends,  Lynwood
Road, Thames Ditton, Surrey, KT7 0DP, England.

Dividends  (including  amounts in  respect  of the tax  credit  and any  amounts
withheld)  must be included in gross income by a US holder,  and will  generally


                                       53
<PAGE>


constitute foreign source "passive" or "financial  services" income for purposes
of applying the foreign tax credit  limitations.  Such  dividends will generally
not be eligible for the dividends received deduction allowed to US corporations.
Subject  to certain  limitations,  the  applicable  UK  withholding  tax will be
treated as a foreign tax  eligible for credit  against such  holder's US federal
income tax.

United Kingdom Taxation on Capital Gains.

Under the current Income Tax Convention, the US and the UK each may, in general,
tax capital gains in accordance  with the  provisions of its domestic law. Under
current UK law, residents of the US who are not resident or ordinarily  resident
in the UK will not be liable to UK capital  gains tax on  capital  gains made on
the  disposal of their ADSs or  Ordinary  Shares  unless  those ADSs or Ordinary
Shares are held in  connection  with a trade  carried on through a permanent  UK
establishment.  AUS  holder of an ADS or  Ordinary  Share  will be liable for US
federal  income tax on such gains to the same  extent as on any other gains from
sales of stock.

United Kingdom Inheritance Tax.

Under the current  Estate Tax  Convention,  ADSs or  Ordinary  Shares held by an
individual  who for the purpose of the  convention is domiciled in the US and is
not a national  of the UK will not,  provided  any tax  chargeable  in the US is
paid,  be subject to UK  inheritance  tax on the  disposal  of ADSs or  Ordinary
Shares by way of gift or upon the individual's death unless the ADSs or Ordinary
Shares are part of the business  property of a permanent UK establishment of the
individual  or,  in the  case of a  holder  who  performs  independent  personal
services,  pertain to a fixed base situated in the UK. In the  exceptional  case
where the ADSs or Ordinary  Shares are subject both to UK inheritance tax and to
US federal gift or estate tax, the Estate Tax Convention  generally provides for
double taxation to be relieved by means of credit relief.

United Kingdom Stamp Duty and Stamp Duty Reserve Tax.

Transfer of ADSs are not  subject to UK stamp duty  provided  that the  transfer
instrument  is not executed in, and at all times  remains  outside of, the UK In
addition,  with effect  from July 1, 1996,  stamp duty is not  chargeable  on an
instrument  where the transferee is a member of an electronic  transfer  system.
Under the Finance Act 1986, a stamp duty reserve tax ("SDRT") of 1.5% is payable
on all  transfers  to the  Depositary,  or its nominee,  of Ordinary  Shares for
inclusion in ADSs. Such SDRT is calculated on the purchase price or market value
of the Ordinary Shares so transferred.

United States Information Reporting and Backup Withholding.

 Dividend  payments on Ordinary  Shares and proceeds from the sale,  exchange or
redemption of the Ordinary Shares may be subject to information reporting to the
IRS and  possible  U.S.  backup  withholding  at a 30% rate  (this  rate will be
reduced to 29% for 2004 and 2005,  and to 28% for 2006 and  thereafter).  Backup
withholding  will not  apply,  however,  to a holder  who  furnishes  a  correct
taxpayer  identification  number or  certificate of foreign status and makes any
other required certification or who is otherwise exempt from backup withholding.
Persons  required to establish  their exempt status  generally must provide such
certification  on IRS Form W-9 (Request for Taxpayer  Identification  Number and
Certification)  in the case of U.S. persons and on IRS Form W-8BEN  (Certificate
of Foreign Status) in the case of non-U.S.  persons. New regulations  applicable
to  payments  made  after  December  31,  1999  have   generally   expanded  the
circumstances under which information reporting and backup withholding may apply
unless the holder provides the information described above.

 Amounts withheld as backup  withholding may be credited against a holder's U.S.
federal  income  tax  liability,  and a holder may obtain a refund of any excess
amounts  withheld under the backup  withholding  rules by filing the appropriate
claim for refund with the IRS and  furnishing  any  required  information.  U.S.
stockholders  should consult their tax advisors regarding the application of the
information reporting and backup withholding rules.


                                       54
<PAGE>


F.    DIVIDENDS AND PAYING AGENTS.
      ----------------------------

Not Applicable

G.    STATEMENT BY EXPERTS.
      ---------------------

Not Applicable

H.    DOCUMENTS ON DISPLAY.
      ---------------------

Copies of this Annual Report on Form 20-F, including the exhibits hereto, may be
inspected  without  charge  at the  Commission's  principal  office at 450 Fifth
Street, NW, Washington, D.C. 20549, and copies of all or any part thereof may be
obtained  from the  Commission  upon payment of certain fees  prescribed  by the
Commission.

I.    SUBSIDIARY INFORMATION.
      -----------------------

Not Applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

None.


                                       55
<PAGE>


PART II
-------

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.  MATERIAL  MODIFICATIONS  TO THE RIGHTS OF SECURITY  HOLDERS AND USE OF
PROCEEDS.

None.

ITEM 15. CONTROLS AND PROCEDURES

(a)   Disclosure Controls and Procedures.

An evaluation was carried out, under the supervision and with the  participation
of the  Company's  management  including its Chief  Executive  Officer and Chief
Financial  Officer,   of  the  effectiveness  of  its  disclosure  controls  and
procedures  (as defined in SEC Rules 13a-15 (e) and  15d-15(e)).  Based on their
evaluation of the Company's  disclosure controls and procedures as of the end of
the period  covered by this  Annual  Report on Form 20-F,  the  Company's  Chief
Executive  Officer and Chief  Financial  Officer  concluded  that the  Company's
disclosure  controls  and  procedures  are  designed to ensure that  information
required to be  disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934, as amended,  is recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and are operating in an effective manner.

(b)   Management's Annual Report on Internal Control over Financial Reporting.

Not applicable.

(c)   Attestation Report of the Registered Public Accountant.

Not applicable.

(d)   Changes in Internal Control Over Financial Reporting.

During the period covered by this Annual Report on Form 20-F, there have been no
changes  in  the  Company's  internal  control  over  financial  reporting  that
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that Mr. John Schwallie, who was appointed
to the Board on March 17, 2005,  meets the  requirements of an "audit  committee
financial  expert" as such term is defined under currently  applicable  rules of
the SEC.

ITEM 16B.  CODE OF ETHICS

The Company has adopted a code of ethics which is  applicable  to the  Company's
principal executive officer,  principal financial officer, or persons performing
similar  functions.  A copy of the Company's code of ethics was filed as Exhibit
11.1 to the  Company's  Annual  Report on Form 20-F for the year ended April 30,
2004 and is posted on the Company's website at www.futuremedia.co.uk.


                                       56
<PAGE>


ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  following  table  sets  forth the total  remuneration  that was paid by the
Company and its  subsidiaries  to the Company's  Independent  Registered  Public
Accounting  Firm,  BDO Stoy Hayward LLP, in each of the  Company's  previous two
fiscal years:


                                   2005           2005           2004
                                  $000's        GBP000's       GBP000's
           Audit Fees                  309             162            77
           Audit-Related Fees           11               6             7
           Tax Fees                     55              29             4
           All Other Fees                2               1             -
                                     -----           -----         -----
           Total                       377             198            88

The Audit  Fees for the  fiscal  years  ended  April 30,  2005 and 2004 were for
professional   services   rendered  for  the  annual  audits  of  the  Company's
consolidated   financial  statements,   statutory  audits  required  by  foreign
jurisdictions,  issuance  of  consents  and review of  documents  filed with the
Securities and Exchange Commission.

The Audit  Related  Fees for the fiscal years ended April 30, 2005 and 2004 were
for specific accounting and consultation issues.

Tax Fees for the years ended April 30, 2005 and 2004 were for services performed
in connection with income tax compliance,  consulting and tax research  services
and assistance with tax computations.

The Company's Audit Committee  pre-approves  all of the services to be performed
by its  Independent  Registered  Public  Accounting  Firm.  In each  case  where
approval  was  sought  for the  provision  of audit  and  permissible  non-audit
services,  the Audit  Committee  considered  whether the  independent  auditors'
provision of such services to the Company was compatible  with  maintaining  the
auditors' independence,  and determined that it was compatible. No services were
approved by our Audit Committee pursuant to paragraph  (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.

ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM  16E.   PURCHASES  OF  EQUITY  SECURITIES  BY  THE  ISSUER  AND  AFFILIATED
      PURCHASERS

Not applicable.


                                       57
<PAGE>


PART III
--------

ITEM 17.  FINANCIAL STATEMENTS

Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

The  following  audited  consolidated  financial  statements,  together with the
Independent  Registered Public  Accounting Firm's reports,  are filed as part of
this Annual Report on Form 20-F.

Financial Statements                                                     Page
                                                                         ----
Report of Independent Registered Public Accounting Firm.................. F1

Audited Financial Statements

     Consolidated Balance Sheets at April 30, 2005 and 2004.............. F2

     Consolidated  Statements  of Income for the fiscal
        years ended April 30,  2005,  2004 and 2003...................... F4

     Consolidated  Statements  of Changes  in  Stockholders'
        Equity for the fiscal  years ended April 30, 2005,
        2004 and 2003.................................................... F5

     Consolidated  Statements  of Cash Flows for the fiscal
        years ended  April 30,  2005, 2004 and 2003...................... F6

     Notes to Consolidated Financial Statements.......................... F7



All other  Schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.


                                       58
<PAGE>


ITEM 19.  EXHIBITS

The following exhibits are filed as part of this Annual Report on Form 20-F.



Exhibit Number                                   Exhibit Description

      1.1   Amended and Restated Articles of Association of Futuremedia PLC (the
            "Registrant") (filed herewith).

      2.1   Description of the  Registrant's  Ordinary  shares  (included in the
            Amended and  Restated  Articles of  Association  of the  Registrant,
            filed as Exhibit 1.1 herewith.)

      2.2   Form of Warrant  Agreement,  as amended  (including  form of Warrant
            Certificate),  (previously  filed as Exhibit 4.3 to the Registrant's
            Amendment No. 2 to the Registration  Statement on Form F-1, filed on
            August 17, 1993,  File No. 33-63994 (the "Amendment No. 2 to the F-1
            Registration Statement"), and incorporated herein by reference).

      2.3   Form  of  Deposit  Agreement,  as  amended  (including  specimen  of
            American  Depositary  Receipt),  (previously filed as Exhibit 4.5 to
            Registrant's  Amendment No. 1 to Registration Statement on Form F-1,
            filed on July 20, 1993,  File No.  33-63774 (the "Amendment No. 1 to
            the  F-1  Registration  Statement"),   and  incorporated  herein  by
            reference).

      2.4   Form of Registration  Rights Agreement  (previously filed as Exhibit
            10.17 to the Registrant's  Registration Statement on Form F-1, filed
            on  June  3,  1993,  File  No.   33-63994  (the  "F-1   Registration
            Statement"), and incorporated herein by reference).

      2.5   Securities  Purchase  Agreement  (the  "M.A.G.  Securities  Purchase
            Agreement")  dated  July  21,  2005  by and  among  the  Registrant,
            Mercator  Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch
            Pointe Fund, LTD (collectively, the "Funds") and M.A.G. Capital, LLC
            ("M.A.G.") (filed herewith).

      2.6   Registration  Rights  Agreement dated July 21, 2005 by and among the
            Registrant,  the  Funds  and  M.A.G in  connection  with the  M.A.G.
            Securities Purchase Agreement (filed herewith).

      2.7   Form of  Convertible  Debenture  due  October  31,  2006  issued  in
            connection  with the M.A.G.  Securities  Purchase  Agreement  (filed
            herewith).

      2.8   Form of Warrant  issued in  connection  with the  M.A.G.  Securities
            Purchase Agreement (filed herewith).

      4.1   Approved Executive Share Option Scheme, as amended (previously filed
            as Exhibit 99.1 to the Registrant's  Registration  Statement on Form
            S-8 filed April 13, 2000, File No. 33 - 11828 (the "S-8 Registration
            Statement"), and incorporated herein by reference).

      4.2   Unapproved  Executive  Share Option Scheme,  as amended  (previously
            filed  as  Exhibit  99.2 to the  S-8  Registration  Statement),  and
            incorporated herein by reference).

      4.3   Approved  Net Profit  Sharing  Scheme  (previously  filed as Exhibit
            10.20 to the Amendment No. 1 to the F-1 Registration Statement,  and
            incorporated herein by reference).

      4.4   Incentive Profit Sharing Scheme (previously filed as Exhibit 10.6 to
            the 2000 20-F, and incorporated herein by reference).


                                       59
<PAGE>


      4.5   Registrant's  2005 Unapproved  Share Option Scheme for New Employees
            (filed herewith).

      4.6   Registrant's 2005 Unapproved Share Option Plan (filed herewith).

      4.7   Registrant's 2005 Share Incentive Plan (filed herewith).

      4.8   Registrant's  2005  Enterprise   Management  Incentive  Plan  (filed
            herewith).

      4.9   Form of  Subscription  Agreement dated February 15, 2005 between the
            Registrant and Rennes Foundation (filed herewith).

      4.10  Form of  Subscription  Agreement  dated  February  15, 2005  between
            Registrant and Leonard M. Fertig (filed herewith).

      4.11  Form of  Subscription  Agreement  dated  February  15, 2005  between
            Registrant and Jan Vandamme (filed herewith).

      4.12  Subscription   Agreement   executed   April  23,  2003  between  the
            Registrant  and Volito AB  (previously  filed as Exhibit  4.5 to the
            Registrant's Annual Report on Form 20-F for the year ended April 30,
            2004,  filed on September 30, 2004,  File No.  000-21978  (the "2004
            20-F"), and incorporated herein by reference).

      4.13  Subscription  Agreement executed April 23, 2003 between Luvit AB and
            Registrant (previously filed as Exhibit 4.6 to the Registrant's 2004
            20-F, and incorporated herein by reference).

      4.14  Subscription   Agreement   executed   April  14,  2003  between  the
            Registrant and Rennes Foundation (previously filed as Exhibit 4.7 to
            the Registrant's 2004 20-F, and incorporated herein by reference).

      4.15  Agreement  dated November 5, 2003 between  Registrant and Royal Mail
            Group Plc relating to the Learning For All(TM) services  (previously
            filed  as  Exhibit  4.10  to  the   Registrant's   2004  20-F,   and
            incorporated herein by reference ).

      4.16  Agreement  dated July 25,  2003  between  the  Registrant  and IQDOS
            Limited  relating to the sale of the whole of the issued  capital of
            Temp Limited  (previously  filed as Exhibit 4.11 to the Registrant's
            2004 20-F, and incorporated herein by reference).

      4.17  Agreement  dated April 22, 2003 between the Registrant and Volito AB
            relating to the Registrant's  investment in Luvit AB and Volito AB's
            investment in the  Registrant  (previously  filed as Exhibit 4.12 to
            the Registrant's 2004 20-F, and incorporated herein by reference ).

      4.18  Agreement  dated April 17, 2003 between the Registrant and Volodymyr
            V.  Donchenko  and Michael  Uyttebroeck  relating to the sale of the
            whole  of the  issued  share  capital  of  Aktivna  Objects  Limited
            (previously filed as Exhibit 4.13 to the Registrant's 2004 20-F, and
            incorporated herein by reference ).

      4.19  Agreement dated January 10, 2003 between the Registrant and Wavedean
            Limited relating to Media House, Arundel Road, Walberton West Sussex
            (previously filed as Exhibit 4.14 to the Registrant's 2004 20-F, and
            incorporated herein by reference ).


                                       60
<PAGE>


      4.20  Agreement  dated  November  5,  2004  between  Registrant  and  Open
            Training relating to Registrant's acquisition of one hundred percent
            (100%) of the outstanding shares in Open Training (filed herewith).

      4.21  Agreement  dated April 21, 2005  between  Registrant  and Royal Mail
            Group, relating to Registrant making bicycles available to all Royal
            Mail employees under the UK government's  expanded Green Travel Plan
            program (filed herewith).

      4.22  Form of Service Agreement dated February 14, 2005 between Registrant
            and Leonard M. Fertig (filed herewith)

      4.23  Form of Service Agreement dated February 28, 2005 between Registrant
            and Mark Wilshire (filed herewith).

      4.24  Form of Non-Executive  Director Service Agreement dated February 22,
            2005 (filed herewith).

      4.25  Form of Non-Executive  Director and Chairman Service Agreement dated
            February 22, 2005 (filed herewith).

      8.1   List of Subsidiaries of the Registrant  (previously filed as Exhibit
            8.1 to the  Company's  Annual Report on Form 20-F for the year ended
            April 30, 2001,  filed  November 15, 2001,  File No.  000-21978 (the
            2001 20-F") and incorporated herein by reference).

      11.1  Code of  Business  Conduct,  adopted  by the  Registrant's  Board of
            Directors on April 22, 2004 (previously filed as Exhibit 11.1 to the
            Registrant's 2004 20-F, and incorporated herein by reference).

      12.1  Chief  Executive  Officer   Certification   (SEC  Rule  13a-14(a)  /
            15d-14(a)) (filed herewith).

      12.2  Chief  Accounting  Officer   Certification  (SEC  Rule  13a-14(a)  /
            15d-14(a)) (filed herewith).

      13.1  Chief  Executive  Officer  Certification  (18  U.S.C.  1350)  (filed
            herewith).

      13.2  Chief  Accounting  Officer  Certification  (18 U.S.C.  1350)  (filed
            herewith).

      15.1  Consent of BDO Stoy Hayward LLP, Independent  Registered  Accounting
            Firm (filed herewith).

      15.2  Registrant's  Audit  Committee  Charter,  dated as of June 22,  2005
            (filed herewith).

      15.3  Registrant's  Compensation  Committee  Charter,  dated as of May 19,
            2005 (filed herewith).

      15.4  Policy Statement On Securities Trades by Company Officers, Directors
            and Certain Other Significant  Employees adopted by the Registrant's
            Board of Directors on July 2, 2003 (previously filed as Exhibit 15.2
            to  the  Registrant's   2004  20-F,  and   incorporated   herein  by
            reference).


      15.5  Policy Statement on Securities trades by Company Personnel,  adopted
            by the  Registrant's  Board of Directors on July 2, 2003 (previously
            filed  as  Exhibit  15.3  to  the   Registrant's   2004  20-F,   and
            incorporated herein by reference).


                                       61
<PAGE>


SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the  undersigned to sign
this Annual Report on its behalf.

                       FUTUREMEDIA PLC
                       (Registrant)

                       By:  /s/ Leonard M Fertig
                          ---------------------------------------------------
                       Name:  Leonard M Fertig
                       Title: Chief Executive Officer and Authorized Signatory


Date:    August 4, 2005


                                       62
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Futuremedia PLC

We have audited the accompanying  consolidated balance sheets of Futuremedia PLC
as of  April  30,  2005  and 2004 and the  related  consolidated  statements  of
operations,  stockholders'  equity,  and cash flows for each of the three  years
ended April 30, 2005. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.


In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Futuremedia PLC as
of April 30, 2005 and 2004, and the results of its operations and its cash flows
for each of the three years in the period  ended April 30, 2005,  in  conformity
with accounting principles generally accepted in the United States of America.



/s/ BDO Stoy Hayward LLP
--------------------------
BDO Stoy Hayward LLP
London, England


July 22, 2005


                                       F1
<PAGE>



FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     April 30,
                                                              ---------------------------------------------------
                                                                    2005               2005               2004
                                                                    ----               ----               ----
                                                                   ($'000)           (GBP'000)          (GBP'000)
ASSETS
<S>                                                                    <C>               <C>               <C>
Current assets
   Cash and cash equivalents                                           2,068             1,084             4,651
   Accounts receivable, less allowance of GBPNil ($Nil) in
   2005 and GBP74,000 in 2004 for doubtful accounts                    2,131             1,117             1,889
   Amounts recoverable on contracts                                      210               110                42
   Accrued income                                                      1,272               667               833
   Amounts recoverable from vendors                                     --                --                 804
   Other current assets                                                  126                66                96
   Receivable from stock subscription                                   --                --                  24
   Inventories - finished goods                                        1,167               612               634
   Prepaid expenses                                                    1,350               708               378
                                                             ---------------   ---------------   ---------------
   Total current assets                                                8,324             4,364             9,351


Property and equipment
    Audio visual and computer equipment                                1,543               809               512
    Office equipment                                                     135                71                71
     Property improvements                                               183                96              --
     Lease premium                                                       141                74              --
                                                             ---------------   ---------------   ---------------

                                                                       2,002             1,050               583
Less accumulated depreciation                                          1,364               715               487
                                                             ---------------   ---------------   ---------------
                                                                         638               335                96

Other assets
Goodwill                                                                 159                83                83

Intangible assets                                                      1,578               827               376

Goodwill on Investment in Luvit AB                                      --                --                 639
                                                             ---------------   ---------------   ---------------
TOTAL ASSETS                                                          10,699             5,609            10,545
                                                             ===============   ===============   ===============
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       F2
<PAGE>




FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                        April 30,
                                                                    --------------------------------------------------
                                                                         2005              2005             2004
                                                                         ----              ----             ----
                                                                        ($'000)         (GBP'000)        (GBP'000)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY
<S>                                                                        <C>              <C>               <C>
Current liabilities
    Fees received in advance.....................................          6,800            3,565             2,990
    Accounts payable.............................................          4,032            2,114             1,916
    Other taxes and social security costs........................            654              343             1,517
    Other accounts payable.......................................            290              152               135
    Accrual for National Insurance costs on stock options..                   65               34               234
    Accrual for sales commissions due........................                151               79               888
    Other accrued expenses.......................................          1,721              902             1,133
                                                                 ---------------    -------------      ------------
        Total current liabilities................................         13,713            7,189             8,813


Stockholders' equity
         Ordinary shares of 1 1/9p each
         Authorized - 250,000,000
         Issued and outstanding- 91,769,479 at April 30, 2005,
         87,239,486 at April 30, 2004............................          1,944            1,019               969
         Preference shares of 2p each
         Authorized - 2,000,000
         None issued.............................................              -                -                 -
         Additional paid-in capital..............................         36,733           19,257            18,642
         Receivable from stock subscription                                  (35)             (18)                -
         Accumulated deficit.....................................        (41,452)         (21,731)          (17,773)

Other comprehensive loss- cumulative translation
adjustment.........................................................         (204)            (107)             (106)
                                                                 ---------------    -------------      ------------
Total stockholders' (deficit)/equity.............................         (3,014)          (1,580)            1,732

                                                                 ---------------    -------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY.............         10,699            5,609            10,545
                                                                 ===============    =============      ============
</TABLE>


See accompanying notes to the consolidated financial statements.


                                       F3
<PAGE>



FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                               Year ended April 30,

                                                    2005           2005           2004           2003
                                                -----------    -----------    -----------    -----------


                                                  ($,000's)     (GBP000's)     (GBP000's)     (GBP000's)
<S>                                             <C>            <C>            <C>            <C>
Net sales
    Products                                        26,144         13,706         17,504            622
    Services                                         3,710          1,945          1,157            720
                                               -----------    -----------    -----------    -----------
Total Net sales                                     29,854         15,651         18,661          1,342

Cost of sales
    Products                                        22,632         11,865         15,010            379
    Services                                         4,855          2,545          1,522            735
                                               -----------    -----------    -----------    -----------
Total Cost of sales                                 27,487         14,410         16,532          1,114


Gross profit                                         2,367          1,241          2,129            228

Operating expenses
     Sales and marketing                             3,229          1,693            496             91
     General and administrative                      5,711          2,994          2,869          1,134
     Facilities expenses                               603            316            155             44

                                               -----------    -----------    -----------    -----------
Total operating expenses                             9,543          5,003          3,520          1,269

Operating loss                                      (7,176)        (3,762)        (1,391)        (1,041)

Interest income                                        227            119             24              1
Interest expense                                      --             --               (2)           (48)
Foreign currency (losses)/gains                        (19)           (10)            (6)          --


Share of loss from equity investment
including goodwill impairment of GBP343,000
($654,000) in 2004, GBP100,000                        (685)          (359)          (287)          --

Profit on disposal of equity investment                103             54           --             --

                                               -----------    -----------    -----------    -----------
Net loss                                            (7,550)        (3,958)        (1,662)        (1,088)
                                               ===========    ===========    ===========    ===========

Loss per share basic and diluted                   (8.53)c        (4.47)p        (1.98)p        (2.34)p

Weighted average shares outstanding             88,559,952     88,559,952     83,811,982     46,414,194
</TABLE>

See accompanying notes to the consolidated financial statements


                                       F4
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)/EQUITY


<TABLE>
<CAPTION>
                       Number of      Share      Additional                  Receivable                  Cumulative      Total
                       Ordinary      Capital      Paid-in      Shares to        From       Accumulated   Translation   Stockholders'
                         Shares      Amount       Capital      be Issued     subscription    Deficit      Adjustment     Equity
                       -------------------------------------------------------------------------------------------------------------
                        (GBP'000)    (GBP'000)    (GBP'000)     (GBP'000)   (GBP'000)      (GBP'000)     (GBP'000)      (GBP'000)
                       ----------   ----------   ----------    ----------    ----------    ----------    ----------    ----------
<S>                    <C>               <C>         <C>              <C>           <C>       <C>              <C>         <C>
At April 30, 2002      39,995,353          329       14,822           506          --         (15,023)          (67)          567
                                                                                                                       ----------
Exchange translation
adjustments
                             --           --           --            --            --            --             (37)          (37)
Net loss                     --           --           --            --            --          (1,088)         --          (1,088)
                                                                                                                       ----------
Comprehensive loss
                             --           --           --            --            --            --            --          (1,125)
                                                                                                                       ----------
Issuance of shares
(net of issuance
costs of GBP120,000)
                       38,199,104          540        2,099          (506)         --            --            --           2,133
                       ----------   ----------   ----------    ----------    ----------    ----------    ----------    ----------
At April 30, 2003      78,194,457          869       16,921          --            --         (16,111)         (104)        1,575
                                                                                                                       ----------
Exchange translation
adjustments                  --           --           --            --            --            --              (2)           (2)

Net loss                     --           --           --            --            --          (1,662)                     (1,662)
                                                                                                                       ----------
Comprehensive loss
                             --           --           --            --            --            --            --          (1,664)
                                                                                                                       ----------
Adjustment for
Variable options             --           --            686          --            --            --            --             686
Issuance of shares
re exercise of
warrants (net of
issuance costs of
GBP5,000)               1,594,344           18           54          --            --            --            --              72

Issuance of shares
re acquisition (net
of issuance costs of
GBP20,000)              1,125,000           12          270          --            --            --            --             282

Issuance of shares
re investment (net
of issuance costs of
GBP50,000)              5,173,958           57          649          --            --            --            --             706

Issuance of shares
re exercise of
options (net of
issuance costs of
GBP5,000)               1,151,727           13           62          --            --            --            --              75
                       ----------   ----------   ----------    ----------    ----------    ----------    ----------    ----------
At April 30, 2004      87,239,486          969       18,642          --            --         (17,773)         (106)        1,732
                       ----------   ----------   ----------    ----------    ----------    ----------    ----------    ----------
Exchange translation
adjustments                  --           --           --            --            --            --              (1)           (1)

Net loss                     --           --           --            --            --          (3,958)         --          (3,958)
                                                                                                                       ----------

Comprehensive loss           --           --           --            --            --            --            --          (3,959)
                                                                                                                       ----------
Receivable from
subscription                 --           --           --            --             (18)         --            --             (18)
                                                                                                                       ----------
Adjustment for
Variable options             --           --           (306)         --            --            --            --            (306)
Issuance of shares
re acquisition (net
of issuance costs of
GBP160,000)             1,735,840           19          360          --            --            --            --             379
Issuance of shares
re investment (net
of issuance costs of
GBP32,000)              1,385,392           15          442          --            --            --            --             457
Issuance of shares
re exercise of
options (net of
issuance costs of
GBP6,000)               1,408,758           16          119          --            --            --            --             135
                       ----------   ----------   ----------    ----------    ----------    ----------    ----------    ----------
At April 30, 2005      91,769,479        1,019       19,257          --             (18)      (21,731)         (107)       (1,580)
                       ==========   ==========   ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>


See accompanying notes to the consolidated financial statements.



                                       F5
<PAGE>



FUTUREMEDIA PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                Year ended April 30,
                                                        ----------------------------------------------------------------------
                                                                  2005              2005              2004             2003
                                                        ----------------- ----------------- ---------------- -----------------
                                                             $'000               GBP'000           GBP'000          GBP'000
<S>                                                             <C>               <C>               <C>              <C>
Operating activities
Net loss........................................                (7,550)           (3,958)           (1,662)          (1,088)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
   Depreciation.................................                   218               114                69              131
   Shares issued for services...................                     -                 -                 -               11
   Profit on disposal of investment.............                  (103)              (54)              (33)               -
   Loss/(profit) on disposal of fixed assets..............           6                 3                 -              118
   Amortization of intangible assets............                   336               176               150                -
   Loss from equity investment including goodwill
      impairment..........................................         654               343               286                -
   Stock compensation arising from Variable option
      accounting..........................................        (584)             (306)              686                -
   Accounts receivable..........................                 1,745               915            (1,661)            (149)
   Allowance for doubtful accounts......................             -                 -                39              (24)
   Amounts recoverable on contracts.............                  (130)              (68)                2              (29)
   Other current assets.........................                 2,045             1,072            (1,720)             (10)
   Inventories..................................                    42                22              (634)               -
   Prepaid expenses.............................                  (372)             (195)               (2)              17
   Fees received in advance.....................                 1,097               575             2,562             (285)
   Accounts payable.............................                   351               184             1,472              248
   Other accounts payable.......................                    63                33                26               89
   Other taxes and social security costs........                (2,438)           (1,278)            1,420               15
   Other accrued expenses.......................                (2,486)           (1,303)            2,052               84
                                                        ----------------- ----------------- ---------------- -----------------
Net cash provided by/(used in) operating activities             (7,106)           (3,725)            3,052             (872)
                                                        ----------------- ----------------- ---------------- -----------------

Investing activities
Acquisition of Open Training AB............................       (799)             (419)                -                -
Purchase of equity investment............................            -                 -                 -             (641)
Capital expenditures............................                  (612)             (321)              (86)             (12)
Proceeds on disposal of investment .............                   670               351                51                -
Proceeds on disposal of fixed assets.....................            6                 3               450              300
                                                        ----------------- ----------------- ---------------- -----------------
Net cash provided by/(used in) investing activities               (735)             (386)              415             (353)
                                                        ----------------- ----------------- ---------------- -----------------

Financing activities
Proceeds of share issues........................                 1,167               612             1,125            1,447
Share issue costs...............................                  (128)              (67)              (80)            (120)
(Repayment of)/Proceeds from short-term debt                         -                 -              (300)             300
(Repayment of)/proceeds from Waverton...............                 -                 -                 -             (410)
Net cash provided by financing activities.......                 1,039               545               745            1,217
                                                        ----------------- ----------------- ---------------- -----------------
Effects of exchange rate changes................                    (2)               (1)                2                -
                                                        ----------------- ----------------- ---------------- -----------------
Net (decrease)/increase in cash and cash equivalents..          (6,804)           (3,567)            4,214               (8)
Cash and cash equivalents at beginning of period                 8,872             4,651               437              445
                                                        ----------------- ----------------- ---------------- -----------------
Cash and cash equivalents at end of period......                 2,068             1,084             4,651              437
                                                        ================= ================= ================ =================

Supplemental disclosure of cashflow information
Interest paid during the period.................                     -                 -                 2               48
                                                                     =                 =                 =               ==

Supplemental disclosure of non-cash transactions
Issuance of shares in acquisitions.........................      1,026               538               302              253
Issuance of shares for services............................          -                 -                 -               11
Issuance of shares in investment..........................       1,202               630                 -              300
Receivable from stock subscription......................            34                18                24              239
</TABLE>


See accompanying notes to the consolidated financial statements.


                                       F6
<PAGE>



FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business
Futuremedia PLC was  incorporated in England in 1982 as Futuremedia  Limited and
re-registered  as a public  company in 1993.  The  Company's  activities  can be
regarded as falling into one of two business segments.  The first and largest is
that of the provision of the Company's Learning For AllTM fully-managed  service
that includes the provision of PC, Internet access,  delivery and  installation,
e-Learning courses, and a personal focused e-Learning environment managed by the
Company.  Since  March  2005,  this  offering  has been  extended to include the
provision  of  bicylcles,  and  childcare  vouchers  now  allowed  under  the UK
government's tax incentive HCI scheme.  The second is that of e-Learning,  which
includes the  provision of Internet  and  Intranet  learning and  communications
products and  services,  with some  production  of learning  and  communications
material on other media, such as CD-ROM.

Subsequent  to the year end, in July 2005,  Futuremedia  announced the launch of
its Home Computing 2005 ("HC2005")  product to the UK market.  Designed to bring
additional  benefits  to  corporations  and  institutions  and  provide  greater
flexibility to employees,  HC2005 sets the standard for the delivery of products
and services under the UK government's  Home Computing  Initiative (HCI) and the
full suite of salary sacrifice programs in the UK.

In addition to providing  convenient access to HCI, as well the tax-free bicycle
and childcare  voucher programs in the UK, HC2005's  enhancements  include a new
online shopping portal,  optional  broadband  access,  home visits from personal
computer trainers and optional self-installation.  HC2005's new online shop will
offer additional computer hardware and software products,  as well as stationery
and other  related  goods.  Participating  employees  will be given a  (pound)50
voucher,  with the  chance to save even more in the  Futuremedia  virtual  shop.
Employees will have the  flexibility to sign-up for HC2005 24 hours a day, seven
days a week.  HC2005  will be included  in the  Learning  for All segment of the
Company's business for management and review purposes.

In  conjunction  with the launch of HC2005,  Futuremedia  also  unveiled its new
corporate branding around the theme Work Smart Live Smart. The revitalized brand
positions Futuremedia as a learning and lifestyle company that enables consumers
to improve  their  lives  both at home and at work,  and is  reflected  in a new
Futuremedia logo, Web site (www.futuremedia.co.uk) and marketing materials.

Principles of Consolidation
The consolidated  financial  statements include the financial  statements of the
Company and all its  subsidiaries  (together the "Company").  All  inter-company
accounts and transactions have been eliminated.

Financial Resources and Going Concern
Subsequent to the year end, on July 21, 2005, the Company entered into a private
placement with M.A.G.  Capital,  LLC (formerly  Mercator  Advisory Group,  LLC),
through its designated funds,  Monarch Pointe Fund, Ltd, Mercator Momentum Fund,
LP and  Mercator  Momentum  Fund III, LP  (collectively,  "M.A.G."),  to provide
financing to the Company in the amount of $4 million.  The  investment  was made
via a  convertible  loan  that is  convertible  (subject  to  certain  terms and
conditions) into Ordinary Shares of the Company. The conversion rate is based on
the volume  weighted  average price of the  Company's  ADSs for the five trading
days prior to July 13, 2005, the date that the Company entered into a term sheet
with M.A.G. for the investment.  The loan bears interest at an annual rate equal
to the  greater  of 8.5% or Wall  Street  Journal  Prime Rate plus 3%, but in no
event  greater  than 10%.  The  Company  also issued  warrants to the  investors
covering an aggregate of 6.2 million  Ordinary  Shares with an exercise price of
$0.61 per share.  The  agreement  with M.A.G also  provides for an additional $2
million of funding that


                                       F7
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (continued)

may be available at Futuremedia's  request  provided that  Futuremedia  achieves
certain  performance  benchmarks.  Net  proceeds to the Company  from the M.A.G.
investment were approximately $3.8 million.  The Company also issued warrants to
purchase 411,692  Ordinary Shares to its financial  adviser on the investment on
substantially the same terms as the warrants issued to the investors.

Since its initial public offering  ("IPO"),  the Company has incurred net losses
and experienced negative cash flows from operating activities.

At July 29, 2005, the Company's cash resources and available borrowings amounted
to  approximately  GBP 2.9  million  ($5.5  million).  Based  on the  continuing
improvement in levels of order intake and sales since the end of the fiscal year
ended April 30, 2005,  notably the recent order for the  Company's  Learning For
All(TM)  product from  various new  customers,  and the  securing of  additional
funding of up to $4.0  million in  Convertible  Secured  Debentures,  management
believes  that revenues and cash flows will be sufficient to the extent that the
Company's  requirements  for working  capital for the  remainder  of the current
fiscal  year are  required  to be met from  trading  and  financing  activities.
Accordingly,  the directors  have prepared the accounts for the year ended April
30, 2005 on a going concern basis.

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

Convenience Translations
Translation of the financial  statements at April 30, 2005 and for the year then
ended from sterling into US dollars is for  informational  purposes only and has
been made at the April 30, 2005 Noon Buying Rate of GBP1.00 to $1.9075.

Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term deposits with maturities
of less than three months at inception.

Inventories
Inventories  are  stated  at the lower of cost,  determined  on the basis of the
first  in,  first out  method,  and net  realizable  value.  At April 30,  2005,
inventories held of GBP612,000  ($1,167,000) represent Learning For AllTM goods,
net of a provision of GBP43,000 ($82,000) for slow-moving and excess stocks. All
stocks are held on behalf of the Company by its appointed  distribution agent at
their  premises,  and are  controlled  under a  perpetual  inventory  management
system.


                                       F8
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (continued)


Property and Equipment
Property  and  equipment  is  carried  at cost.  Depreciation  is  charged  on a
straight-line  basis to costs and expensed over the expected useful lives of the
assets. Depreciation is provided at the following annual rates:

Property improvements..............................20%
Audiovisual and computer equipment
         Long-term.................................15%
         Mid-term..................................20%
         Short-term................................33%
         Office equipment..........................20%

Leasehold  improvements  are amortized over the shorter of their estimated lives
and the non-cancelable term of the lease.

Goodwill.
Goodwill is tested for  impairment on an annual basis or whenever  indicators of
impairment  arise. The Company  performed the required annual impairment test as
of February 1, 2005. This test indicated that there was a requirement to make an
impairment  charge in respect of the goodwill held in the books arising from the
Company's equity investment in Luvit AB of GBP343,000 ($654,000).
Revenue Recognition

Net sales represent the value of goods and services  delivered,  excluding value
added  tax,  and for the year ended  April 30,  2005 and can be  categorized  by
activity into one of five sources:


Consultancy  Service -  Consultancy  revenues are invoiced at the  completion of
each work package, and revenues recognized at that time.

Customer  Designed  Content - Customer  designed content are those products that
are specifically  designed to meet a customer's individual e-learning needs. Due
to the  customization  and  modification  required,  revenue for these long-term
contracts are recognized on a percentage of cost to completion basis.

Learning  Management  Systems - A  Learning  Management  System is  specifically
designed for the customer to meet all of their e-learning  needs.  These systems
can  include  multiple  elements  such  as: a  license  for  ActivnaTM,  hosting
services,  set up charges,  integration  and support  services and content.  For
these contracts, the Company recognizes revenue over the period of the license.

Blended Learning  Solution - Blended Learning  solutions are those which combine
an element of  e-Learning,  together with physical  classroom or workbook  based
training.  It can  include  multiple  solutions  such as  supply  of  e-Learning
materials,  workbooks and classroom based instruction.  The Learning  Management
System  element is recognized  over the period of the license  agreement and the
remaining


                                       F9
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (continued)

element is  recognized  on the  delivery  of the  service  for  classroom  based
instruction  and on the delivery of the product for the workbooks.  Learning for
AllTM - The Guidance applied when recording revenues in connection with Learning
For  All(TM)  is  in  accordance   with  EITF  00-21   "Accounting  for  revenue
arrangements with multiple deliveries".

Learning For AllTM  solutions are those that comprise a combination of hardware,
software  and  services,  installed at the homes of  participating  employees of
clients that contract with  Futuremedia for the provision of such services.  The
software  included  in  the  package,  which  are  all  off-the-shelf  products,
comprises the operating software,  a selection of interactive games software and
a selection of interactive Learning software accessible on CDrom, anti-virus and
adult  filter  software,  together  with a number of netbased  Learning  titles,
accessible  via the hosted  website.  The aggregate  selling value of all of the
software provided amounts to approximately 30% of the total package price.

The Company believes that the software components are incidental to the Learning
For AllTM product,  and that therefore has not applied the guidance in SOP 97-2:
Statements of Position 97-2:  Software Revenue  Recognition.  This conclusion is
based on the following:

      1     the software is not a significant focus of the marketing effort, and
            is available for purchase separately;

      2     no post-contract customer support is provided; and

      3     the Company does not incur any significant  cost within the scope of
            FASB Statement No. 86.

Guidance provided under EITF 03-05: Applicability of AICPA Statement of Position
97-2  Software  Revenue   Recognition,   to  Non-Software   Deliverables  in  an
Arrangement  Containing   more-Than-Incidental   Software,  only  applies  where
software is more than incidental, and has therefore not been applied.

The Company  believes that the guidance  given under EITF 00-3:  Application  of
AICPA SOP 97-2, "Software Revenue Recognition," to Arrangements That Include the
Right to Use  Software  Stored  on  Another  Entity's  Hardware,  that  seeks to
determine whether certain software elements should be recognized separately does
not apply in the case of the Learning For AllTM product  because the contractual
arrangements  do not allow the  customer  the right to take the  software at any
time during the hosting  period.  The nature of the sale therefore does not meet
the requirement that both the following criteria are satisfied:

      1     the  customer  does not have the right to take the  software  at any
            time during the hosting period without significant penalty; and

      2     it must be feasible for the  customer  either to run the software on
            its own hardware or to host the software with another third party.

Revenues are categorized as being either 'delivered' or 'deferred'  depending on
the nature of each element of the installed  package.  Typically,  all hardware,
operating  software and any software programs  delivered on local media,  either
CD-rom or loaded on the hard disc, are treated as 'delivered'  revenues,  whilst
the remaining  services,  which typically comprise telephone and e-mail support,
the provision  and hosting of a Learning  Management  System and various  online
software programs,  are treated as 'deferred' revenues.  For revenue recognition
purposes,  the package  price is  allocated by element in  accordance  with fair
values of each  element.  The fair values of each  element  were  determined  by
taking


                                      F10
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES- (continued)

the price of similar products being offered by competitors, as advertised on the
Internet or in trade publications. This was done at the outset of each campaign,
and therefore reflected the 'spot price' of each element. Once established,  the
fair values remained  unchanged for the duration of the campaign,  typically two
to three  months.  These  values  are then used to  compile a fair value for the
total package being offered,  and the percentage of this total that each element
represents  was used to derive  the  actual  revenue  recognized  in the  income
statement.  Those  elements  that  have  been  categorized  as  'delivered'  are
recognized on the completion and acceptance of installation by the  participant,
and those revenues that are  categorized  as 'deferred' are recognized  over the
period of the agreement.  As at April 30, 2005,  Futuremedia has contracted with
approximately  20 clients and  implemented  approximately  30 campaigns  for the
provision  of its LFATM  product.  The  proportions  of  delivered  and deferred
revenues  were  established  for each in accordance  with the process  described
above.  The ratios derived in each case showed a consistent  ratio of 85% to 15%
for  delivered  and  deferred  revenues  respectively.  In order to  reduce  the
administrative cost, particularly for smaller schemes, Futuremedia may choose in
the future to adopt  these  ratios as  standard  for each  campaign,  subject to
periodic review.

Revenues arising from the sale of bicycles and childcare vouchers recognize only
the commissions and service charges that Futuremedia  earns on the sale of these
items, on acceptance by the participant.  The client,  or participating  finance
house,  is  invoiced  for the  full  amount  on  completion  and  acceptance  of
installation.



Research and Development costs.

The Company  expenses  research and development  costs,  including  expenditures
related to  development of the Company's  software  products that do not qualify
for  capitalization.  Software  development costs are capitalized  subsequent to
establishing technological feasibility. Capitalized costs are amortized based on
the  larger of the  amounts  computed  using (a) the ratio  that  current  gross
revenues for each product bears to the total of current and  anticipated  future
gross  revenues  for  that  product  or (b) the  straight-line  method  over the
remaining  estimated economic life of the product.  Expected future revenues and
estimated  economic  lives are subject to  revisions  due to market  conditions,
technology  changes,  and other  factors  resulting  in  shortfalls  of expected
revenues or reduced economic lives.

The following amounts have been charged to expense:

--------------------------------------------------------------------------------
                                                 Year ended April 30
--------------------------------------------------------------------------------
                                     2005       2005        2004        2003
---------------------------------- ---------- ----------- ----------- ----------
                                    $000's    GBP000's    GBP000's    GBP000's
---------------------------------- ---------- ----------- ----------- ----------

---------------------------------- ---------- ----------- ----------- ----------
Research and development expense     498         261        196          131
---------------------------------- ---------- ----------- ----------- ----------


                                      F11
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES- (continued)

Pensions
The  Company   operates  a  number  of  defined   contribution   pension  plans.
Contributions  are charged to income as they become  payable in accordance  with
the rules of the plans.

Foreign Currency Translation
Transactions  in  non-functional  currencies are recorded at the rates ruling at
the date of the  transactions.  Gains and losses  resulting from  non-functional
currency translations, and the remeasurement of non-functional currency balances
are  included  in the  determination  of net  income in the period in which they
occur, in accordance with the requirements of Statement of Financial  Accounting
Standards No. 52, "Foreign Currency Translation."

Assets and liabilities of overseas  subsidiaries  are translated at the exchange
rate in effect at the year end. Income statement  accounts are translated at the
average rate of exchange  prevailing  during the year.  Translation  adjustments
arising  from the use of  differing  exchange  rates  from  period to period are
included in a separate component of stockholder's equity.

Equity Method Investments
Investments in companies in which Futuremedia Plc has significant influence, but
less than a  controlling  voting  interest,  are  accounted for using the equity
method.  Under the equity method, only Futuremedia Plc investment in and amounts
due to and from the equity  investee  are included in the  consolidated  balance
sheet;  only Futuremedia  Plc's share of the investee's  earnings is included in
the consolidated operating results.

Long-Lived Assets
Long  lived  assets  are  evaluated  for  impairment  when  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable through the estimated  undiscounted future cash flows resulting from
the use of these assets.  When any such  impairment  exists,  the related assets
will be written down to fair value.

Comprehensive Income (Loss)
Comprehensive  income  (loss) is defined to include all changes in equity except
those  resulting from  investments by owners and  distributions  to owners.  The
Company's  only item of other  comprehensive  income (loss) is foreign  currency
translation adjustments.

Loss Per Share
Loss per  share  figures  have been  calculated  using the  method  required  by
Statement  of  Financial  Standards  No. 128  "Earnings  per  Share".  Under the
provisions of SFAS No.128,  basic net loss per share is computed by dividing the
loss attributable to common  stockholders for the period by the weighted average
number of shares of common stock outstanding  during the period,  which included
shares to be issued.  The  calculation of diluted loss per share gives effect to
common stock equivalents, however, potential common shares are excluded if their
effect is anti-dilutive.  The calculation  excludes a total of 5,188,899 options
to purchase Ordinary shares outstanding as at April 30, 2005 under the Company's
various Approved and Unapproved Share Option Schemes.

Income Taxes

The Company  accounts for income taxes using the  liability  method  required by
statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes."  Deferred  income  taxes  reflect  the  net  tax  effects  of  temporary
differences between the carrying amounts of assets and liabilities for financial


                                      F12
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (continued)

reporting  purposes  and the  amounts  used for income tax  purposes.  Valuation
allowances are  established  when necessary to reduce deferred tax assets to the
amount expected to be realized.

Stock-based employee compensation
The  Company's  financial  statements  are  presented  in  accordance  with  the
Accounting  Principles  Board's  Opinion No. 25,  Accounting for Stock Issued to
Employees ("APB No. 25"). Under APB No. 25, generally,  no compensation  expense
is  recognized  in  connection  with the  awarding  of stock  option  grants  to
employees  provided  that, as of the grant date, all terms  associated  with the
award are fixed and thequoted market price of the stock is equal to or less than
the amount an employee must pay to acquire the stock as defined.  As the Company
only issues fixed term stock option  grants at or above the quoted  market price
on the date of the grant,  there is no  compensation  expense  recognized in the
accompanying combined financial  statements.  The Company adopted the disclosure
only provisions of SFAS No. 123, Accounting for Stock-Based  Compensation ("SFAS
123"),  which requires certain financial  statement  disclosures,  including pro
forma  operating  results had the Company  prepared its  consolidated  financial
statements  in  accordance  with the fair value based method of  accounting  for
stock-based compensation.  The conditions attaching to performance based options
had not been met,  therefore no amount of stock compensation was included in the
income statement for any period in respect of the granting of  performance-based
options.

Stock-Based  Compensation  Transition and Disclosure ("SFAS 148"), the pro forma
effects of  stock-based  compensation  on net income (loss) and net earnings per
share  have  been  estimated  at the  date  of  grant  using  the  Black-Scholes
option-pricing model based on the following weighted average assumptions:

                                              April 30,
                                2005          2004               2003
                                -----         -----              ----
  Risk-free interest rate       3.63    %           2.4%              4.0%
  Volatility                     61     %          26.7%             19.0%
  Dividend yield                  0     %             0%                0%
  Expected life (years)          3.3                3.3               3.3


                                      F13
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (continued)


<TABLE>
<CAPTION>
                                                                           Year ended April 30
                                                     -----------------------------------------------------------------
                                                          2005            2005             2004            2003
                                                          ----            ----             ----            ----
                                                        ($'000)        (GBP '000)       (GBP '000)      (GBP '000)
<S>                                                     <C>              <C>             <C>              <C>
Net loss as reported.......................             (7,550)          (3,958)         (1,662)          (1,088)
Add/Deduct stock compensation arising from
variable option accounting....................
                                                         (584)            (306)             686                -
Add: Total stock-based employee compensation
 expense determined under fair value
 based  method for all awards,  net of tax and
 stock  compensation  arising  from
variable option accounting...................            (189)             (99)           (777)            (106)

Pro-forma net loss.........................             (8,323)          (4,363)         (1,753)          (1,194)

                                                           $               GBP             GBP              GBP
Net loss per share as reported, basic and
diluted.............................................    (8.53)c          (4.47)p         (1.98)p          (2.34)p
Pro forma net loss per ordinary share:

                              Basic and diluted         (9.39)c          (4.92)p         (2.01)p          (2.57)p
                                                        (9.39)c          (4.92)p         (2.01)p          (2.57)p
</TABLE>



Advertising Costs
All  advertising  costs incurred in the promotion of the Company's  products and
services are expensed as incurred.  Advertising costs were GBP20,000  ($38,000),
GBP126,000 and GBPNil for the years ended April 30, 2005, 2004 and 2003.

Allowance for doubtful accounts
Accounts  receivable  consist  primarily of amounts due to us from the Company's
normal  business  activities.  The  Company's  ability  to  collect  outstanding
receivables from its customers is critical to its operating performance and cash
flows.  Futuremedia  maintains an allowance for doubtful accounts to reflect the
estimated  future   uncollectability   of  accounts  receivable  based  on  past
collection  history and specific  risks that have been  identified  by reviewing
current  customer  information.  After all attempts to collect a receivable have
failed,  the  receivable  is written  off against  the  allowance.  Based on the
information  available to it, the Company  believes its  allowance  for doubtful
accounts as of April 30, 2005, is adequate.  However,  actual  write-offs  might
exceed the recorded allowance.


                                      F14
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (continued)


------------------------ -------------------------------------------------------
                                          Year ended April 30
------------------------ -------------------------------------------------------
                               2005                2005               2004
------------------------ ------------------ -------------------- ---------------
                              ($'000)            (GBP'000)          (GBP'000)
------------------------ ------------------ -------------------- ---------------
Allowance at May 1              141                 74                 35
------------------------ ------------------ -------------------- ---------------
Utilized during year           (141)               (74)               (16)
------------------------ ------------------ -------------------- ---------------
Provided in year                 -                   -                 55
------------------------ ------------------ -------------------- ---------------
Allowance at April 30            -                   -                 74
------------------------ ------------------ -------------------- ---------------


2.    FAIR VALUES OF FINANCIAL INSTRUMENTS


<TABLE>
<CAPTION>
                                                                       April 30,
                                   -----------------------------------------------------------------------
                                                       2005                                 2004
                                   ------------------------------------ ----------------------------------
                                        Carrying            Fair           Carrying            Fair
                                         Value             Value            Value              Value

                                       (GBP'000)         (GBP'000)         (GBP'000)         (GBP'000)
<S>                                       <C>               <C>              <C>               <C>
Cash and cash equivalents.........        1,084             1,084            4,651             4,651
</TABLE>


The carrying value of these financial instruments approximates fair value due to
the short period until maturity.

3........INCOME TAXES

Deferred  income taxes reflect the net effects of temporary  difference  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts  used for income tax  purposes.  Significant  components  of the
Company's deferred tax liabilities and assets are as follows:

                                                            April 30,
                                             -----------------------------------
                                                    2005             2004
                                                    ----             ----
                                                          (GBP'000)

Book over tax depreciation                           100               67
Operating losses carried forward                   5,293            4,274
Other timing differences                              41               70
                                                      --               --
                                                    5434            4,411
Less:  valuation allowance                        (5,434)          (4,411)
Net deferred tax assets                               --               --
                                             ===========      ===========


                                      F15
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.    INCOME TAXES (continued)

There is no time  limit  on the  utilization  of the  operating  losses  carried
forward tax value provided no substantial change in the nature of trade. GBP17.6
million which are specific to certain  companies and cannot be relieved  against
profits in other Group companies.

For  financial  reporting  purposes,  loss  before  income  taxes  includes  the
following components :

                                     Year ended April 30,
                          -------------------------------------------
                               2005            2004         2003
                               ----            ----         ----
                                           (GBP'000)
United Kingdom               (3,973)         (1,662)      (1,027)
Overseas                         15              --          (61)
                                 --              --           --
                             (3,958)         (1,662)      (1,088)
                            =======         =======       =======




The  reconciliation  of income tax computed at the UK statutory  tax rate to the
effective rate is:


<TABLE>
<CAPTION>
                                                                       Year ended April 30,
                                          --------------------------------------------------------------------------------
                                                     2005                       2004                           2003
                                          ----------------------- ------------------------------- ------------------------
                                           (GBP'000)       %         (GBP'000)           %          (GBP'000)        %
<S>                                         <C>          <C>           <C>            <C>             <C>         <C>
Statutory rate......................        (1,299)      (30.0)        (261)          (30.0)          (326)       (30.0)
Unrelievable UK tax losses..........         1,106        25.5          79              9.1            291         26.8
Non deductible expenses.............           189         4.4          112            12.9            35           3.2
Other sundry items..................             4        0.1           70              8.0             -             -
                                                                        --              ---          --------      -------
                                                 -           -           -               -              -             -
                                                                                                     ========      =======
</TABLE>


4.    LEASE COMMITMENTS

The future minimum  rental  payments under  non-cancelable  operating  leases at
April 30, 2005 are:

                                                    Equipment         Rental

                                                  --------------- --------------
                                                    (GBP'000)        (GBP'000)

2006........................................            2               253
2007...........................................         2               253
2008........................................            2               113
2009...........................................         2               89
2010...........................................         1               45
2011...........................................         -                -

Rental expense was GBP153,000 ($292,000), GBP112,000 and GBP11,000 for the years
ended April 30, 2005,  2004 and 2003 in respect of the Company's UK  operations.
The  annual  cost  of  rental   expense  for  Open  Training  AB  in  Sweden  is
GBP89,000 ($170,000).


                                      F16
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.    PREPAID EXPENSES

Prepaid  expenses for the year ended April 30, 2005 of  GBP708,000  ($1,351,000)
includes  the  forward  purchase of  learning  materials  in respect of existing
customer  contracts of  GBP416,000,  together with prepaid  expenses for hosting
services, dues and subscriptions, and insurances of GBP292,000.

Prepaid  expenses  for the year ended  April 30, 2004 of  GBP378,000  ($671,000)
included  the  forward  purchase of  learning  materials  in respect of existing
customer  contracts of  GBP245,000,  together with prepaid  expenses for hosting
services, dues and subscriptions, and insurances of GBP133,000.


                                      F17
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.     SEGMENT INFORMATION, EXPORT SALES AND MAJOR CUSTOMERS

The Company  reviews the results from  operations  and total assets based on two
segments:- Learning For AllTM and e-Learning services. The major segment is that
of Learning For AllTM solutions,  comprising the provision of hardware, software
and services in the homes of clients'  employees.  The second, and much smaller,
segment is that of  e-Learning  services and  comprises the provision of its own
and third party  products  and  services  which  together  provide  clients with
learning  solutions.  The  accounting  policies for the segments are the same as
those described in the summary of accounting policies.

                                         Year ended April 30
                           -----------------------------------------------------
                              2005          2005          2004           2003
                             $'000         GBP'000       GBP'000       GBP'000
Net Sales:
Learning For AllTM             26,774        14,036        17,366          --
e-Learning services             3,080         1,615         1,295         1,342
                           ----------    ----------    ----------    ----------
Total Net Sales                29,854        15,651        18,661         1,342

Cost of sales
Learning For AllTM             24,803        13,003        15,246          --
e-Learning services             2,684         1,407         1,286         1,114
                           ----------    ----------    ----------    ----------
Total Cost of sales            27,487        14,410        16,532         1,114

Gross profit/(loss):
Learning For AllTM              1,970         1,033         2,120          --
e-Learning services               396           208             9           228
                           ----------    ----------    ----------    ----------
Total Gross profit              2,367         1,241         2,129           228

Operating expenses:
Learning For AllTM              6,524         3,420         1,214          --
e-Learning services             3,019         1,583         1,620         1,269
                           ----------    ----------    ----------    ----------
Total Operating expenses        9,543         5,003         2,834         1,269

Operating profit/(loss)
Learning For AllTM             (4,553)       (2,387)          906          --
e-Learning services            (2,623)       (1,375)       (1,611)       (1,041)
                           ----------    ----------    ----------    ----------
Total Operating loss           (7,176)       (3,762)         (705)       (1,041)
                           ==========    ==========    ==========    ==========


                                      F18
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.    SEGMENT INFORMATION, EXPORT SALES AND MAJOR CUSTOMERS (continued)



                                            At April 30,
                                   2005             2005             2004
                                  $'000           GBP'000          GBP'000

Assets:
Learning For AllTM                4,071             2,134            3,900
e-Learning services               3,735             1,958            1,098
                                -------           -------          -------
Total segment assets              7,806             4,092            4,998

Unallocated assets:
Cash                              2,068             1,084            4,651
Prepaid expenses                    164                86              137
Other current assets                 23                12               24
Property and equipment              638               335               96
Goodwill on Luvit                                       -              639
                                -------           -------          -------
Total assets                     10,699             5,609           10,545
                                 ======             =====           ======


Unallocated assets are either central assets or non-allocable assets.

The  Company's  sales were  divided by  geographical  location  of  customer  as
follows:

                                        Year ended April 30,
                                --------------------------------
                                  2005          2004        2003
                                ------      --------     -------
                                            (GBP'000)
United Kingdom.............     15,398        18,661       1,340
Rest of Europe.............        253             -           2
Rest of the World..........         --             -           -
                                ------      --------     -------
                                15,651        18,661       1,342
                                ======      ========     =======


During the year ended April 30, 2005,  Customer A accounted for 79% of sales and
Customer B for 3% of sales;  during the year ended  April 30,  2004,  Customer A
accounted  for 93% of sales and Customer C for 4% of sales,  and during the year
ended April 30, 2003,  Customer A accounted  for 59% of sales and Customer D for
4% of sales.

At April 30, 2005 the major customers  identified above accounted for 17% of the
accounts receivable and 66% in 2004.


                                      F19
<PAGE>



FUTUREMEDIA PLC SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    PENSION PLANS

The Company operates various defined contribution pension plans on behalf of the
directors  and other  staff.  Contributions  payable  are  charged  to Income as
incurred.  Contributions  by the Company are  determined in accordance  with the
rules of the pension plans.  Contributions  aggregated  GBP87,000  ($164,000) in
fiscal 2005, GBP41,000 in fiscal 2004, and GBP41,000 in fiscal 2003. The Company
has no obligations in respect of post retirement benefits other than the pension
obligations described above.

8.    ACQUISITIONS

Operations of acquired  companies are included in  consolidated  operations from
the date of acquisition and the fair value of common stock was determined  based
on the quoted market price when the terms of acquisition were agreed to.

In April  2003,  the  Company  acquired  the assets of Activna  Objects  Limited
("Activna"), a non-trading UK company with ownership of a software tool that the
Company believes would substantially  reduce the development time and cost for a
new third generation  e-Learning  management  system. The net assets of Activna,
comprising the software  intangible of GBP62,500,  sundry creditors of GBP62,500
and sundry  debtors of GBP100,  amounted to GBP100 , were  acquired  for a total
consideration of GBP224,000 . The  consideration  of GBP224,000  represented the
fair value of the 3,500,000 shares issued to the  shareholders.  As at April 30,
2003,  GBP62,000 was recorded as intangible assets, and the remaining GBP162,000
was recorded as Goodwill.  The  acquisition was accounted for using the purchase
method.  The formal purchase price  allocation was finalized in fiscal 2004, and
as a  consequence,  the  whole  of the  purchase  price of  GBP224,000  has been
categorized as intangible  assets,  representing  the fair value of the software
tool acquired.

Also in April 2003, the Company  purchased  11,150,000 shares in Luvit AB, which
at the time had a total of 37,416,107  shares on issue,  for a holding of 29.8%,
which had been accounted for under equity  accounting  rules throughout the life
of the  investment,  which ceased in April 2005,  on  Futuremedia's  sale of its
remaining  shareholding.  The  total  consideration  paid for this  shareholding
amounted  to  GBP643,000  ($1,000,000)  in cash  and  GBP300,000  ($480,000)  in
Futuremedia shares, and represented fair value for the cash and 4,685,315 shares
issued.

At the time of the investment, the net assets of Luvit AB amounted to GBP686,000
($1,097,000),  therefore the investment  value arising from this transaction was
GBP204,000 ($326,000),  representing Futuremedia's 29.8% shareholding,  with the
remaining GBP739,000 ($1,182,000) appearing as goodwill.

During the year ended  April 30,  2004,  Luvit AB  completed  a 'reverse  split'
whereby their shares were  consolidated on a ten for one basis,  and furthermore
issued a further  6,233  shares  (post  consolidation).  During the same period,
Futuremedia sold 96,069 of their holding,  resulting in Futuremedia's  ownership
reducing to 27.2% at April 30, 2004. During the year ended April 30, 2004, Luvit
AB recorded losses of  approximately  (pound)1,000,000.  Futuremedia's  share of
these losses  therefore  amounted to GBP 272,000,  reducing the investment value
from  GBP187,000 to GBPNil.  An impairment  charge of GBP100,000  was also taken
against the value of goodwill carried forward, for a total charge of GBP287,000,
GBP15,000  more than the share of  losses.  In June,  2004,  Luvit  completed  a
restructuring of its indebtedness,  resulting in the  capitalisation of external
debt of SEK3,750,000 being taken into stock, increasing its issued share capital
by 570,776 shares to a total of 4,318,620. During the year ended April 30, 2005,
Futuremedia  sold its  remaining  1,018,931  shareholding  in Luvit AB. Luvit AB
traded at a loss in the year,  Futuremedia's portion of these losses amounted to
GBP38,000  ($72,000),  but, since the investment  value had already been written
down to GBPNil at April 30,  2004,  none of these  losses  have been  taken into
account.  However,  during  the  same  period,  a  total  impairment  charge  of
GBP346,000 ($660,000)


                                      F20
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.    ACQUISITIONS (continued)

was  recorded,  reducing the amount of goodwill  carried  forward to  GBP293,000
($559,000),  all of which was written off as the final  shares were  divested in
April,  2005.  Proceeds of sale amounted to GBP361,000  ($689,000) for the year,
resulting in a net charge to the income statement of GBP278,000 ($530,000).  The
following tables summarizes the movements:

Futuremedia investment in Luvit AB:

                                         Investment        Goodwill
                                         GBP000          GBP000
       Balance at April 30, 2003               204               739
       Sale of Luvit AB shares                 (17)                 -
       Share of Luvit AB losses               (187)                 -
       Impairment charge                          -             (100)
       Balance at April 30, 2004                Nil               639
       Sale of Luvit AB shares                    -             (350)
       Impairment charge                          -             (343)
       Gain on sale of shares                     -                54
       Balance at April 2005                    Nil               Nil


In July 2003,  Futuremedia  acquired the entire share  capital of Temp  Limited,
into which had been  transferred  the business and assets of IQDos Limited,  for
the issue of 1.125  million  Futuremedia  shares,  valuing  the  acquisition  at
approximately  GBP302,000 . The whole of the GBP302,000,  representing  the fair
value of the assets  acquired,  comprising  a number of  software  products  and
client list, has been treated as an amortizable  intangible  asset, and is being
amortized over three years.  There is not  considered to be any residual  value.
IQDos  Limited,  a  wholly-owned  subsidiary  of Excel  Communications  Limited,
specializes  in the production of bespoke  e-Learning  content and also provides
e-Learning  consultancy services,  and will substantially improve the capability
of Futuremedia to present itself to the  marketplace as a single point of supply
for total  e-Learning  solutions.  The  acquisition  was accounted for using the
purchase method.

In February 2005,  Futuremedia determined to acquire the entire share capital of
Open Training AB, for the issue of 1,735,840  Futuremedia shares, and GBP419,000
($799,000)  in  cash,  valuing  the  acquisition  at  approximately   GBP958,000
($1,827,000),  representing the fair value of the assets  acquired.  The primary
reason for this  acquisition was to enable the Company access to Open Training's
own in-house developed Learning Management System ("LMS"),  "Learngate".  At the
time of  acquisition,  the net assets of Open Training AB aggregated  GBP331,000
giving rise to an intangible asset of GBP627,000 ($1,196,000),  representing the
fair value of the  Learngate  software  product,  which will form the basis of a
replacement for the Company's own LMS, Aktivna, which would otherwise have to be
enhanced at considerable expense to remain competitive in the marketplace. Based
on experience with the Company's  Aktivna  software,  it is anticipated that the
useful life of the Learngate  software  will be in the order of five years,  the
intangible therefore will be written off over five years.

The Sale and Purchase  Agreement  pertaining to the acquisition of Open Training
AB provided  for a  contingency  payment  conditional  on the company  achieving
agreed levels of  performance  during the period  November 1, 2004 to October 31
2005.  Taking into  consideration the actual results of Open Training AB for the
period  November 1, 2004 to April 30, 2005,  together with  projections  for the
period


                                      F21
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.    ACQUISITIONS (continued)

May 1, 2005 to October 31 2005,  management consider that the conditions for the
contingency  payment to become due will not be met,  therefore no provision  has
been made for such payment.

At the time of acquisition,  the condensed balance sheet of open Training AB was
as follows:



-----------------------------------------------------------------------
                                      As at February 14, 2005
------------------------------------------------------------------------
                                    $000                  GBP000
----------------------------- ------------------- --- ------------------
Fixed assets                        194                     102
----------------------------- ------------------- --- ------------------
Current assets                      664                     348
----------------------------- ------------------- --- ------------------
Current liabilities                (227)                   (119)
----------------------------- ------------------- --- ------------------
Net current assets                  631                     331
----------------------------- ------------------- --- ------------------
Total Equity and reserves          (631)                   (331)
----------------------------- ------------------- --- ------------------


There was no material  difference between the book values and fair values of the
assets and  liabilities  at the time of  acquisition.

Results  of  operations   for  Open  Training  AB  have  been  included  in  the
accompanying consolidated financial statements since its acquisition on February
14, 2005.

The unaudited pro forma  consolidated  statement of operations for the 12 months
ended April 30, 2005 gives effect to the  acquisition  of Open Training AB as if
it had occurred at the beginning of Fiscal 2005:

                                            2005           2005          2004
                                            $000          GBP000        GBP000

Revenues                                   31,205         16,359         18,980
Net Loss                                   (7,496)        (3,930)        (1,649)
Basic and diluted net loss per share      (8.44)c       (4.42 )p        (1.97)p
Weighted average shares outstanding    88,811,982     88,811,982     83,811,982


The unaudited pro forma consolidated  financial  information does not purport to
represent what the Company's  financial  position or results of operations would
actually  have  been if these  transactions  had  occurred  at such  dates or to
project the Company's future results of operations.


                                      F22
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.    ACQUISITIONS (continued)

To facilitate this  acquisition,  the company set up a wholly-owned  subsidiary,
Futuremedia Sverige AB, in Sweden with an issued share capital of 50,000 shares,
for which Futuremedia paid a total of GBP8,000 ($15,000) and owes the subsidiary
a further GBP740,000  ($1,412,000) as payment for the shares.  Subsequent to the
incorporation of Futuremedia  Sverige AB, all of  Futuremedia's  Swedish assets,
including  the  balance of its  shareholding  in Luvit AB, the  contents  of its
Swedish bank accounts  holding the proceeds from sale of shares in Luvit AB, and
its shareholding in Open Training AB, were transferred into Futuremedia  Sverige
AB. None of these transfers  resulted in any cash movements between  Futuremedia
and its  Swedish  subsidiary.  The  acquisition  of Open  Training  AB has  been
accounted  for using the  purchase  method.  , and since  February 14 2005,  the
results of Open Training AB have been consolidated into the Group's results.


9.       INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

                                                 At April 30
                                     ------------------------------------
                                        2005         2005         2004
                                     ----------   ----------   ----------
Cost                                   $'000             (GBP'000)

At May 1 .........................        1,507          790          326
Additions ........................        1,196          627          302
Amounts reclassified from goodwill         --           --            162
                                     ----------   ----------   ----------
At April 30 ......................        2,703        1,417          790
                                     ----------   ----------   ----------

Amortization
At May 1 .........................          790          414          264
Charge for year ..................          336          176          150
At April 30 ......................        1,125          590          414

Net book amount at April 30 ......        1,578          827          376
                                     ==========   ==========   ==========


The addition in 2005 of GBP627,000  represents the intangible asset arising from
the acquisition of Open Training AB.  GBP790,000 in 2004  represents  internally
developed  software of GBP264,000  (fully  amortized),  together with GBP224,000
representing  the  intangible  asset  arising  from the  acquisition  of Activna
Objects Limited made in April 2003,  together with GBP302,000  representing  the
intangible  asset arising from the  acquisition  of Temp  limited,  made in July
2003.


 The table below shows  expected  amortization  expense for acquired  intangible
assets recorded as of April 30, 2005.


                                      F23
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.       INTANGIBLE ASSETS AND GOODWILL (continued)


--------------------------------------------------------------------------------
                  ~                   2006       2007       2008     2009   2010
--------------------------------------------------------------------------------
Amortization expense (GBPthousands)   305        146        125      125    126
--------------------------------------------------------------------------------


Intangible  assets are being  written  off over a period of three to five years,
depending  on the  expected  useful  life of the asset.  The above  amortization
expense  forecast is an estimate.  Actual  amounts of  amortization  expense may
differ from estimated amounts due to additional  intangible asset  acquisitions,
impairment of intangible assets,  accelerated amortization of intangible assets,
and other events

Goodwill

                                                            At April 30,
                                             -----------------------------------
                                                     2005                   2004
                                                     ----                   ----
Cost                                                          (GBP'000)
At May 1...................................         722                      984
Additions .................................           -                        -
Amounts reclassified....................              -                    (162)
Sale of Luvit shares.....................          (296)                      -
Impairment loss..........................          (343)                   (100)
                                                   -----                   -----
At April 30................................          83                      722
                                                   =====                   =====


The  reclassification  of GBP162,000  in 2004 arises from the  completion of the
purchase price  allocation  with regard to the  acquisition  of Activna  Objects
Limited  made in  April  2003,  whereby  the  whole  of the  purchase  price  of
GBP224,000 has been attributed to the software tool acquired. The GBP162,000 was
transferred to Intangible assets.

All of  the  GBP83,000  goodwill  at  April  30,  2005  is  attributable  to the
e-Learning business segment.


                                      F24
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.      PROPERTY PLANT AND EQUIPMENT


<TABLE>
<CAPTION>
                                                                         At April 30,
                                          ----------------------------------------------------------------------------
                                                            2005                                 2004
                                                            ----                                 ----
                                             Cost       Accumulated       Net        Cost     Accumulated       Net
                                             ----       -----------       ---        ----     -----------       ---
                                                        depreciation      book                depreciation     book
                                                        ------------     -----                ------------     ----
                                                                         value                                 value
                                                                         -----                                 -----
                                                                          (GBP'000)

<S>                                         <C>              <C>          <C>         <C>          <C>          <C>
Audiovisual and computer equipment
    Mid-term.........................        78               78            -          78           78            -
    Short-term.......................       588              416           172        434          338           96
Office Equipment.....................       214              158           56          71           71            -
                                                                                                                  -
Property improvements                        96                9           87           -            -            -
Lease premium                                74               54           20           -            -            -
                                             --               --           --           -            -            -
                                          1,050              715          335         583          487           96
                                          =====              ===          ===         ===          ===           ==
</TABLE>


The net book value  includes no amounts in respect of assets held under  capital
leases.



11.   CHANGES IN SHAREHOLDER EQUITY

In March 2002, the Company contracted for the issue of and received the cash for
an aggregate of 4,702,410  Ordinary  Shares at a price of GBP0.051  ($0.083) per
Ordinary  Share  representing  an  aggregate  purchase  price  of  approximately
GBP244,000 ($390,000).

Also in March 2002,  the Company  contracted  for the issue of an  aggregate  of
759,700  Ordinary Shares at a market price of GBP0.04 ($0.07) per Ordinary Share
pursuant  to the stock  transaction  for the  acquisition  of the assets of Palm
Teach Limited,  together with the issue of an aggregate  702,900 Ordinary shares
at a market price of GBP0.04  ($0.07) per Ordinary share to four key individuals
on their joining the Company.

Also in April 2002,  the Company  contracted  for the issue of and  received the
cash for 3,276,923  Ordinary shares at a price of GBP0.041 ($0.065) per Ordinary
Share  representing  an aggregate  purchase  price of  approximately  GBP133,000
($213,000).

Also in April 2002,  the Company  contracted  for the issue of 803,046  Ordinary
Shares  at a price  of  GBP0.044  ($0.07)  per  Ordinary  Share  under a  Salary
sacrifice  arrangement,  representing  an aggregate  purchase price of GBP35,000
($56,000).  At the same time, a further  102,000  Ordinary  Shares at a price of
GBP0.044  ($0.07) per Ordinary  Share were agreed to be issued in  settlement of
outstanding invoiced charges for work done for the Company.


                                      F25
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.   CHANGES IN SHAREHOLDER EQUITY (continued)

In May, 2002, the Company  issued 454,400  Ordinary  Shares at a market price of
GBP0.0690  ($0.10) per Ordinary share pursuant to the stock  transaction for the
acquisition of C2W limited.

In September  2002, the Company issued  7,644,346  Ordinary Shares at a price of
GBP0.0458  ($0.065) per Ordinary Share for aggregate  proceeds of  approximately
GBP350,000 ($560,000) pursuant to a Regulation 'S' placement.

In October 2002,  the Company  issued  2,727,647  Ordinary  Shares at a price of
GBP0.055  ($0.085) per Ordinary  Share for aggregate  proceeds of  approximately
GBP150,000 ($232,000) pursuant to a Regulation 'S' private placement.

In December  2002,  the Company  issued  231,396  Ordinary  Shares at a price of
GBP0.0484  ($0.075)  for an  aggregate  of  GBP11,000  ($17,000)  pursuant to an
agreement for the payment of sales commissions to a third party.

In April  2003,  the Company  issued  16,706,000  Ordinary  shares at a price of
GBP0.064  ($0.10) per Ordinary  share for  aggregate  proceeds of  approximately
GBP1,071,000  ($1,670,000)  pursuant to a Regulation 'S' private  placement.  At
April  30,  2003,  $202,000  of the  $1,670,000  was  outstanding  and  received
subsequently to the year-end.

Also in April 2003, the Company issued  2,250,000  Ordinary shares at a price of
GBP0.051  ($0.08) per Ordinary  share for  aggregate  proceeds of  approximately
GBP115,000  ($180,000)  pursuant to a  Regulation  'S' private  placement.  This
investment  agreement  also  provided  for the issue of  1,594,334  warrants  to
purchase an equivalent number of Ordinary Shares at a price of GBP0.053 ($0.085)
per  Ordinary  Share,  valid for three  years.  The  proceeds of  $180,000  were
outstanding at April 30, 2003 and were received subsequently to the year-end.

Also in April 2003, the Company issued  4,685,315  Ordinary Shares at a price of
GBP0.0625  ($0.10)  per  Ordinary  Share  pursuant  to an  agreement  to acquire
3,350,000  shares  in  Luvit AB from  the  present  holder,  Volito  AB,  for an
aggregate price of GBP300,000 ($480,000) approximately.

Also in April 2003, the Company issued 3,500,000  Ordinary Shares pursuant to an
agreement to acquire the entire share capital of Activna Objects Limited.

At April 30, 2003 there were 854,240 warrants outstanding for the purchase of an
equivalent  number of Ordinary shares,  issued in August 1993 at the time of the
Company's initial float, at a price of $5.65 per Ordinary Share,  which were due
to expire in August 2003.  The Company  decided not to extend these warrants for
any further period, and consequently these warrants lapsed in August 2003. There
were also 1,594,334  warrants  outstanding at April 30, 2003  redeemable for the
purchase  of an  equivalent  number of  Ordinary  shares at a purchase  price of
$0.085 per Ordinary Share, issued in April 2003, which expire in April 2006. All
these warrants were exercised in the year to April 30, 2004. Consequently, as at
April 30, 2004, there were no warrants outstanding.

In June 2003, the Company issued 500,000  Ordinary shares at a price of GBP0.045
($0.08) per Ordinary share as a consequence of Waverton  Holdings  exercising an
equivalent  number of warrants to purchase  Ordinary  shares,  for an  aggregate
purchase price of GBP24,000 ($42,000) gross, GBP22,000 ($39,000) net.


                                      F26
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.   CHANGES IN SHAREHOLDER EQUITY (continued)

In July 2003, the Company issued 1,125,000 Ordinary shares in the acquisition of
the entire share capital of Temp Limited,  into which had been  transferred  the
business and assets of IQDos Limited,  valuing the acquisition at  approximately
GBP302,000 ($536,000) gross, GBP282,000 ($500,000) net.

In August  2003,  the Company  issued  4,786,362  Ordinary  shares at a price of
GBP0.14  ($0.22) per  Ordinary  share for  aggregate  proceeds of  approximately
GBP662,000  ($1,174,000)  gross,  GBP618,000  ($1,091,000)  net,  pursuant  to a
Regulation 'S' private placement.

Also in August 2003, the Company issued  387,597  Ordinary  shares at a price of
GBP0.24 ($0.387) per Ordinary share for aggregate  proceeds of approximately GBP
94,000 ($167,000) gross,  GBP88,000 ($156,000) net, pursuant to a Regulation 'S'
private placement.

In September  2003,  the Company issued  188,838  Ordinary  shares at an average
price of GBP0.66 ($0.109) per Ordinary share for aggregate proceeds of GBP12,000
($21,000)  gross,  GBP11,000  ($20,000) net pursuant to several members of staff
exercising share options.

In November  2003 the Company  issued  1,094,344  Ordinary  shares at a price of
GBP0.047  ($0.08) per  Ordinary  share as a  consequence  of  Waverton  Holdings
exercising an equivalent number of warrants to purchase Ordinary shares,  for an
aggregate purchase price of GBP53,000 ($94,000) gross, GBP50,000 ($89,000) net.

Also in November 2003, the Company issued 404,500  Ordinary shares at an average
price  of  GBP0.074  ($0.125)  for an  aggregate  purchase  price  of  GBP30,000
($51,000)  gross,  GBP28,000  ($50,000)  net,  pursuant to the exercise of share
options by an Affiliate member of the Board.

In the period  February 2004 to April 2004, the Company issued 558,389  Ordinary
shares at an average price of GBP0.068 ($0.122) for an aggregate  purchase price
of GBP38,000 ($68,000) gross,  GBP35,000 ($62,000) net, pursuant to the exercise
of share options by a number of members of Futuremedia staff, one of whom was an
Affiliate.

In February,  2005, the Company issued  926,972  Ordinary,  shares at an average
price of GBP0.408  ($0.76) for a total  aggregate  purchase  price of GBP379,000
($704,000 gross, GBP357,000 net, pursuant to a Regulation 'S' private placement.

Also in  February  2005,  the Company  issued  1,735,840  Ordinary  shares at an
average  price  of  GB0.310  ($0.58)  for a total  aggregate  purchase  price of
GBP539,000  ($1,028,000)  gross,  GBP379,000 net, pursuant to the acquisition of
Open Training AB.

Also in February,  2005, the Company issued 69,803 Ordinary shares at an average
price of GBP0.387  ($0.716) for a total  aggregate  purchase  price of GBP27,000
($50,000) gross, GBP25,000 net, pursuant to a Regulation 'S' private placement.

In April 2005, the Company issued 388,614 Ordinary shares at the market price of
$0.401 per  Ordinary  share for a total  aggregate  purchase  price of GBP83,000
($158,000) gross, GBP75,000 net, pursuant to a Regulation 'S' private placement.

During  the year to April 30,  2005,  the  Company  issued a total of  1,408,759
Ordinary  shares at an average  price of GBP0.10  ($0.19) for a total  aggregate
price of GBP 141,000 ($269,000) gross,  GBP135,000 net, pursuant to the exercise
of share options by a number of members of Futuremedia staff, three of whom were
Affiliates.


                                      F27
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS

In July 1993, the Company  adopted three employee  profits share or share option
schemes, as follows.

Under the Company's "Approved Executive Share Option Scheme", options to acquire
the Company's Ordinary Shares may be granted to all or selected  employees.  Any
full time employee,  other than a director, of the Company who is not within two
years of his or her due date for retirement  and who,  within one year preceding
the grant,  did not hold more than 10% of the share  capital of the Company,  is
eligible to participate.  The exercise price of the options must be no less than
85% of the  fair  market  value  of the  Company's  American  Depositary  Shares
("ADSs")  on the date of  grant.  The  value of shares  underlying  the  options
granted to any employee may not exceed the greater of 100,000 ($177,000) or four
times earnings.  An option generally  becomes  exercisable three years after the
date on which it was granted, and may not be exercised more than ten years after
the date of grant. In certain circumstances, an option will be exercisable after
the death or termination  of the  employment of the option holder.  No UK income
tax will be  payable,  even if the  options  are granted at a discount to market
value, either at the time of the grant or the exercise of the options,  although
there are certain conditions that must be satisfied concerning the timing of any
exercise.  UK  capital  gains  tax may be  payable  at the time of the  ultimate
disposition of the underlying shares.

Under the Company's "Unapproved  Executive Share Option Scheme",  options may be
granted to selected full-time  employees,  including  directors,  based on their
performance. The exercise price of the options granted must be at least the fair
market value of the  Company's  ADSs.  The value of options to be granted is not
subject to any  financial  limit,  although  the number of shares over which the
options  may be granted is subject to an overall  restriction.  The  granting of
options  under  this  scheme  was  terminated  in  January  2005,   pending  the
introduction of replacement schemes.

The 'Employee Share  Ownership Plan' (the "Approved Net Profit Sharing  Scheme")
was  terminated  with effect from  September  2000.  No payments were due and no
monies were set aside at the termination of the scheme.


In January  2005,  the  Company  adopted a new  option  plan,  the  "Futuremedia
Unapproved  Executive  Share Option  Scheme for Len Fertig".  Under this scheme,
options were granted to the Option Holder on his  appointment as Chief Executive
Officer,  for the  purposes of  inducement  to retain the services of the Option
Holder, to provide  long-term  incentive and rewards to the Option Holder and to
associate  more  closely the  interests  of the Option  Holder with those of the
Company's  shareholders.  At April 30, 2005, no options  granted under this plan
had been  exercised,  and  options  to  purchase  500,000  Ordinary  shares at a
purchase price of $0.74 per Ordinary share remained outstanding.

--------------------- ------------------- ------------------ -------------------
         No of            Subscription           Date
         SHARES               PRICE          EXERCISABLE        EXPIRY DATE
--------------------- ------------------- ------------------ -------------------

        500,000              $0.740           01/24/2006        01/24/2015
--------------------- ------------------- ------------------ -------------------


                                      F28
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS (continued)



In March 2005, the Company  adopted two further option plans,  the  "Futuremedia
Plc 2005 Unapproved  Scheme for New Employees",  and the  "Futuremedia  Plc 2005
Unapproved Share Option Scheme".

Under the Company's  Unapproved  2005 Scheme for New  Employees,  Options may be
granted  exclusively  to persons not  previously  employees  or directors of the
Company (or  following a bona fide period of  non-employment)  as an  inducement
material to entering into employment with the Company.  As at April 30, 2005, no
options granted under this plan had been exercised,  and the following have been
issued and remain outstanding:

         No of             Subscription             Date
         SHARES                PRICE            EXERCISABLE        EXPIRY DATE
         ------                -----            -----------        -----------
        100,000               $0.7163            02/14/2006        02/14/2015
        100,000               $0.7163            02/14/2007        02/14/2015
        100,000               $0.7163            02/14/2008        02/14/2015
         83,333               $0.5995            03/01/2006        03/01/2015
         83,333               $0.5995            03/01/2007        03/01/2015
         83,334               $0.5995            03/01/2008        03/01/2015
         20,000               $0.4735            04/04/2006        04/04/2015
         20,000               $0.4735            04/04/2007        04/04/2015
         20,000               $0.4735            04/04/2008        04/04/2015

        610,000
        =======

A summary of the option  outstanding under the Company's  "Unapproved Scheme for
New Employees" as at April 30, 2005 is as follows:



                                       Number of Shares        Weighted Average
                                       Under Option            Option Price Per
                                                               Share
                                        ---------------        ----------------
Options granted and outstanding         610,000                   $0.6445
  at April 30,                          =======
2005...............


Under the Company's 2005 Unapproved Share Option Scheme,  Options may be granted
for the purpose of  providing  Options to (a)  employees,  officers,  directors,
consultants and advisors of the Company and its Subsidiaries,  and (b) any other
person who is determined by the Directors (or a committee  thereof) to have made
(or is expected to make)  contributions  to the Company of  inducement to retain
the services of the Option holder. As at April 30 2005, no options granted under
this plan had been  exercised,  and the  following  have been  issued and remain
outstanding:


                                      F29
<PAGE>



FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS (continued)

--------------------- ------------------ ------------------- -------------------
       No of            Subscription            Date
       Shares               Price           Exercisable         Expiry Date

--------------------- ------------------ ------------------- -------------------
       18,081              $0.535            05/01/2005         03/17/2015
--------------------- ------------------ ------------------- -------------------


Determinations as to the granting of options to  employee-directors  are made by
the Remuneration Committee.

Under the Approved  Executive  Share Option  Scheme,  759 options at an exercise
price of $4.25,  947 options at an exercise  price of $2.55 and 1,500 options at
an exercise price of $1.594 lapsed  without being  exercised on August 19, 2003.
At April 30, 2005,  20,500  options  were  outstanding  at an exercise  price of
$0.90625 and may be  exercised  until  January 16, 2008 and 13,500  options were
outstanding at an exercise price of $1.5938 and may be exercised  until July 25,
2010.


A summary of the option  outstanding under the Company's  "Approved Share Option
Scheme" as at April 30, 2005 is as follows:

                                            Number of Shares       Weighted
                                              Under Option      Average Option
                                            ----------------    Price Per Share
                                                                ---------------
Outstanding April 30, 2002...............        40,523             $1.5096
                                            ===========
Options forfeited........................        (4,817)            $3.2053
                                            -----------
Outstanding April 30, 2003...............        35,706             $1.2809
                                            ===========
Options forfeited........................        (3,206)            $2.505
                                                -------
Outstanding April 30, 2004 and 2005......        32,500             $1.160
                                            ===========


                                      F30
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS (continued)

The following options have been issued under the Company's "Unapproved Executive
Share Option Scheme", and were outstanding as at April 30, 2005.

            No of         Subscription               Date
           Shares            Price                Exercisable        Expiry Date
           ------            -----                -----------        -----------
           50,000            $0.085                  Oct 2005          Oct 2012
          125,000            $0.910                   Current          Nov 2012
          125,000            $0.910                   Current          Nov 2012
           43,050            $0.100                   Current          Feb 2012
          443,334            $0.100                   Current          Feb 2012
           20,000            $0.150                   Current          Feb 2012
          458,333            $0.150                   Current          Feb 2012
          300,018            $0.150                   Current          Mar 2102
            5,000            $0.1875                  Current          Sep 2010
          100,000            $0.250                   Current          Oct 2006
          165,000            $0.280                   Current          Oct 2013
          165,000            $0.280                  Oct 2005          Oct 2013
          165,000            $0.280                  Oct 2006          Oct 2013
           25,000            $0.286                   Current          Nov 2013
           25,000            $0.286                  Nov 2005          Nov 2013
           25,000            $0.286                  Nov 2006          Nov 2013
           50,000            $0.3318                 Oct 2005          Oct 2013
           50,000            $0.3318                 Oct 2006          Oct 2013
           25,000            $0.3376                  Current          Oct 2013
           25,000            $0.3376                 Oct 2005          Oct 2013
           25,000            $0.3376                 Oct 2006          Oct 2013
           33,500            $0.350                   Current          May 2011
           39,750            $0.350                   Current          May 2011
           39,750            $0.350                   Current          May 2011
           52,250            $0.350                   Current          May 2011
           75,000            $0.3760                  Current          Sep 2013
           60,000            $0.3850                 Jul 2005          Jul 2013
           60,000            $0.3850                 Jul 2006          Jul 2013
            5,000            $0.5940                  Current          Sep 2010
           53,332            $0.6301                  Current          Jan 2014
           53,334            $0.6301                 Jan 2006          Jan 2014
           53,334            $0.6301                 Jan 2007          Jan 2014
           75,000            $0.6380                  Current          Jan 2014
           75,000            $0.6380                 Jan 2006          Jan 2014
           75,000            $0.6380                 Jan 2007          Jan 2014
          328,333            $0.640                   Current          Nov 2013
           10,000            $0.8516                 Jan 2006          Jan 2015
           10,000            $0.8516                 Jan 2007          Jan 2015
           10,000            $0.8516                 Jan 2008          Jan 2015
          100,000            $1.00                    Current          Sep 2010
           15,000            $1.2065                  Current          Mar 2014
           15,000            $1.2065                 Mar 2006          Mar 2014
           15,000            $1.2065                 Mar 2007          Mar 2014
          210,000            $1.4120                  Current          Jun 2014
           15,000            $1.5740                  Current          May 2104
           15,000            $1.5740                 May 2006          May 2104
           15,000            $1.5740                 May 2007          May 2104
           20,000            $1.6040                  Current          May 2104
           20,000            $1.6040                 May 2006          May 2104
           20,000            $1.6040                 May 2007          May 2104
           15,000            $1.6220                  Current          Apr 2014
           15,000            $1.6220                  Current          Apr 2014
           15,000            $1.6220                 Apr 2007          Apr 2014

        4,028,318
        =========


                                      F31
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS (continued)


(1)  Exercisable  only on achievement of the option holders  achieving an agreed
level of customer orders within an agreed period.  Failure to meet these targets
will result in the lapse of the options.

The Company  accounts for options  granted under these plans in accordance  with
the  provisions  of APB No. 25.  Variable  options are  required to be marked to
market  at each  period  end  until  they are  forfeited,  exercised,  or expire
unexercised.  Those options whose  vesting is dependent on  performance  will be
accounted for as variable options until the performance criteria is met.

In February,  2002, 1,075,000 existing options to purchase ordinary shares under
the  Unapproved  Executive  Share Option Scheme at prices  varying from $0.59 to
$3.00 per Ordinary  share were  cancelled  and replaced with options to purchase
556,417  Ordinary shares at $0.10 per Ordinary share and 518,083 Ordinary shares
at $0.15 per Ordinary  share,  vesting between July 2002 and March 2003, and are
now  accounted for as variable  options.  During the fiscal year ended April 30,
2004, a total of 143,333  options were exercised and traded.  As a result of the
difference  between the exercise  price of the variable  options and the trading
price of the Company's  stock at the time of trading and at the year end for the
931,667 variable options that remained,  a compensation  expense was recorded in
the year ended April 30, 2004  amounting to  GBP686,000  . In September  2004, a
total of 845,000  variable  options were excercized and sold. As a result of the
difference  between the exercise  price of the variable  options and the trading
price of the Company's  stock at the time of trading and at the year end for the
86,667  remaining  variable  options,  a  compensation  gain was recorded in the
current fiscal year of GBP306,000 ($584,000).

A summary of the  options  outstanding  under the  Company's  "Unapproved  Share
Option Scheme" as at April 30, 2005 is as follows:

                                             Number of Shares  Weighted Average
                                             ----------------  ----------------
                                             Under Option      Option Price Per
                                             ------------      ----------------
                                                               Share
                                                               -----
Outstanding at April 30, 2002................   4,458,751            $0.1605
Options granted..............................   1,365,000            $0.0883
Options lapsed and cancelled.................    (427,506)           $0.1267
                                                ---------
Outstanding at April 30, 2003................   5,396,245            $0.095
                                                =========
Options granted..............................   2,353,333            $0.469
Options lapsed, cancelled and exercised......  (2,202,502)           $0.2276
                                               ----------
Outstanding at April 30, 2004................   5,547,076            $0.2864
                                               =========
Options granted..............................     345,000            $1.4178
                                                  =======
Options lapsed, cancelled and exercised......  (1,863,758)           $0.2100
                                               ==========
Outstanding at April 30, 2005................   4,028,318            $0.4327
                                               ==========


The Company plans to hold an Extraordinary  General Meeting on July 28, 2005 the
purpose of which is to gain  approval  for the adoption by the Company of an all
employee Share  Incentive Plan, an Enterprise  Management  Incentive Plan and an
Unapproved Share Option Scheme. If adopted, options issued under the Futuremedia
Unapproved Executive Share Option Scheme for Len Fertig and Futuremedia Plc


                                      F32
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS (continued)

Unapproved  2005  Scheme for New  Employees  will be  incorporated  into the new
Unapproved Share Option Scheme.

The weighted average fair value of the 1,473,081 share options granted at market
price in the year ended  April 30,  2005 was  GBP0.011  ($0.217).  The  weighted
average fair value of the 428,333 share  options  granted at market price in the
year ended April 30, 2004 was GBP0.028  ($0.049).  No share options were granted
at market price in the years to April 30, 2003.

There were no options  granted at below market price in the year ended April 30,
2005. The weighted  average fair value of the 430,000  options  granted at below
market  price in the year  ended  April 30,  2004 was  GBP0.118  ($0.210),  2003
GBP0.030. There were no options granted at below market price in 2003.

There were no options  granted at above market price in the year ended April 30,
2005.  The weighted  average fair value of the 1,495,000  options  granted above
market  price in the year ended April 30, 2004 was  GBP0.023  ($0.040)  and 2003
GBP0.023.  The  determination  of the fair value of all stock options granted in
2005,  2004 and 2003 was calculated  using the Black Scholes method based on (i)
risk-free  interest rates of 3.63% (2004:  2.38% and 2003:  4.0%), (ii) expected
option lives of 3 to 5 years (weighted average 3.3 years),  (iii) dividend yield
of 0% and iv) a volatility of 0.610 (2004: 0.267 and 2002: 0.190).



13.   NEW ACCOUNTING PRONOUNCEMENTS

FIN No. 46, Consolidation of Variable Interest Entities

In January 2003,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation  of ARB No. 51" ("FIN No. 46").  The guidance  expanded  upon and
clarified  existing  accounting  guidance that  addresses  when a company should
include in its financial  statements the assets,  liabilities  and activities of
variable interest entities,  including  special-purpose  entities or off-balance
sheet  structures.  In December  2003,  the FASB issued a revision to FIN No. 46
("FIN No. 46R") that modified some of the provisions and effective  dates of FIN
No. 46, and provided exemptions to certain entities from the original guidance.

FIN No. 46R sets forth criteria to be used in determining  whether an investment
in a  variable  interest  entity  should  be  consolidated,  and is based on the
general  premise that  companies that control  another entity through  interests
other than voting  interests  should  consolidate  the  controlled  entity.  The
consolidation  requirements of FIN No. 46 apply immediately to variable interest
entities  created  after  January  31,  2003.  As  amended,   the  consolidation
requirements  apply to older entities in the first fiscal year or interim period
ending after March 15, 2004. Certain of the disclosure requirements apply in all
financial  statements  issued after  December 31, 2003,  regardless  of when the
variable  interest  entity was  established.  There was no impact to the Company
upon the adoption of FIN No. 46 and FIN No. 46R.

SFAS No. 123 (revised 2004), Share-Based Payment

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS No.  123(R)").  SFAS No. 123(R) is a revision of FASB Statement
No. 123, "Accounting for Stock-Based  Compensation" ("FASB No. 123"), supersedes
APB No. 25, "Accounting for Stock Issued to Employees" and amends FASB Statement
No. 95, "Statement of Cash Flows." SFAS No. 123(R) requires that


                                      F33
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.   NEW ACCOUNTING PRONOUNCEMENTS (continued)

companies recognize all share-based  payments to employees,  including grants of
employee stock options, in the financial statements. The recognized cost will be
based on the fair value of the equity or liability instruments issued. Pro forma
disclosure of this cost will no longer be an alternative  under SFAS No. 123(R).
The  Statement is effective  for public  companies at the beginning of the first
annual reporting period that begins after June 15, 2005.

As permitted by FASB No. 123, the Company currently accounts for its stock-based
compensation  plans  under APB No.  25's  intrinsic  value  method and, as such,
generally   recognizes  no   compensation   cost  for  employee  stock  options.
Accordingly,  the adoption of SFAS No. 123(R)'s fair value method will have some
impact on the Company's  results of operations,  although it will have no impact
on the  Company's  overall  financial  position  or cash  flows.  The  impact of
adopting SFAS No. 123(R) cannot be predicted at this time because it will depend
on levels of  share-based  payments  granted  in the  future.  However,  had the
Company  adopted  SFAS No.  123(R)  in prior  periods,  the  impact  would  have
approximated  the  amounts  in its pro  forma  disclosure  as  described  in the
disclosure of pro forma net income and earnings per share in Note 1 of the Notes
to Consolidated Financial Statements. Based on SFAS No. 123(R), the Company will
transition to the new requirements by using the modified prospective  transition
method.  This transition method requires  compensation cost to be recognized for
all share-based payments granted after the date of adoption and for all unvested
awards existing on the date of adoption.

SFAS No.  123(R)  also  requires  the  benefits of tax  deductions  in excess of
recognized  compensation  cost be reported as a financing cash flow, rather than
as an operating cash flow as required under current standards.  This requirement
will reduce net operating  cash flows and increase net  financing  cash flows in
periods after  adoption.  The Company cannot estimate what those amounts will be
in the future because they are dependant on, among other things,  when employees
exercise stock options.

The  Company  plans to adopt  SFAS No.  123(R)  as of the first day of the first
quarter of Fiscal 2007, or May 1, 2006, as required.

14.   COMMITMENTS


The Company  entered into a contract with IX Europe Limited for the provision of
the hosting and support elements of its ISP  requirements,  and with MIS Limited
for the firewall and  security  elements.  Both  contracts  are  renewable on an
annual  basis.  The contract  with Royal Mail,  for the  provision of a learning
management system comprising a hosted service was renewed for a period of twelve
months  from April 1, 2005,  at an annual  value of  GBP300,000  ($572,000).  In
October  2003,  the Company  launched its LFA product.  It is expected  that the
Company will continue to make significant commitment to third party suppliers in
the delivery of these  products and services.  Following  the Company's  move to
Brighton, it entered into a lease arrangement for office facilities for a period
of nine years, with a break clause after four years, up to which time the rental
charge is fixed.  Initially,  this  arrangement was for a serviced area of 4,700
square feet, but, in June 2004, due to the rapid expansion of the business,  the
occupied  space  was  increased  to 7,700  square  feet,  on  similar  terms and
conditions.  The  annual  cost,  including  service  charges,  is  approximately
GBP164,000  ($313,000).  Open Training AB occupies three sites in Sweden, all of
which are leasehold  premises,  with an annual cost of GBP89,000  ($170,000) per
annum.


                                      F34
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.   RELATED PARTY TRANSACTIONS

In July 2000,  the Company  completed  an  additional  private  placement  under
Regulation  S  pursuant  to which  the  Rennes  Foundation  purchased  1,944,444
Ordinary Shares at a price of $1.80 per share for an aggregate purchase price of
approximately $4.0 million in cash. See "Major Shareholders".

In March 2002, the Company  contracted and received the cash for the issue of an
aggregate of 4,702,410  Ordinary  Shares at a price of $0.083 per Ordinary Share
representing  an  aggregate  purchase  price  of  approximately   $390,000.  The
following  individuals  and  entities  purchased  the number of Ordinary  Shares
indicated in  connection  with this  private  placement:  the Rennes  Foundation
(1,204,819 shares); Noesis NV (301,205 shares); Mr. M Johansson (361,446 shares)
and Mrs. M.  Pillinger,  wife of S.  Pillinger,  a then  Director of the Company
(100,000 shares).

In April 2002, the Company contracted for the issue of an aggregate of 1,462,600
Ordinary  Shares at a price of $0.10 per  Ordinary  Share  pursuant to the stock
transaction  acquisition  of the assets of Palm  Teach  Limited.  The  following
individuals  and entities  received the number of Ordinary  Shares  indicated in
connection with this transaction:  Mr. Peter Copeland as beneficial  shareholder
of Palm Teach Limited (759,700 shares); Mr. S. Pillinger (209,450 shares).

Also in April 2002,  the Company  contracted and received the cash for the issue
of  3,276,923   Ordinary  shares  at  a  price  of  $0.065  per  Ordinary  Share
representing an aggregate purchase price of approximately  $213,000. At the same
time, the following entity contracted for the purchase of the number of Ordinary
Shares indicated in connection with this private  placement:  Silverdash Limited
(7,646,154  shares).  In September 2002, it became apparent that this GBP350,000
($512,000)  investment,  payable in  installments  by the end of September 2002,
would not be fully paid, but that only some  GBP90,000  would be provided by the
original source.  Alternative  investors were sought and found for the remaining
GBP260,000 ($380,000) during October 2002.

Also in April 2002,  the Company  contracted  for the issue of 803,046  Ordinary
Shares  at a  price  of  $0.07  per  Ordinary  Share  under a  Salary  sacrifice
arrangement,  representing an aggregate purchase price of $56,000. The following
individual  purchased the number of Ordinary Shares indicated in connection with
this transaction: Mr. Mats Johansson (648,183 shares). At the same time, Mr. Jan
Vandamme  agreed  to  accept  102,000  Ordinary  Shares  at a price of $0.07 per
Ordinary Share in settlement of outstanding  invoiced  charges for work done for
the Company.In  October 2002, the Company  completed a new investment round from
existing  investors and  affiliates,  raising a further  GBP150,000  ($230,000),
represented  by the issuance of a further 2.7 million  (approximately)  ordinary
shares  at  a  price  of  $0.085  per  share,  at  market  rate.  The  following
individuals/entities purchased the number of shares indicated in connection with
this  transaction:  Rennes  Foundation  (1,177,647  shares),  Mr. Mats Johannson
(181,176 shares).

In April, 2003, the Company issued of an aggregate of 16,706,000 Ordinary Shares
at a price of $0.10 per Ordinary  Share and an  aggregate of 2,250,000  Ordinary
Shares at a price of $0.08 per Ordinary Share representing an aggregate purchase
price  of  approximately   $1,851,000,   of  which  approximately  $382,000  was
outstanding  at April 30, 2003 and received  subsequently  to the year-end.  The
following  individuals  and  entities  purchased  the number of Ordinary  Shares
indicated in connection with this private  placement:  Mr. Jan Vandamme (200,000
shares),  Mr. Mats  Johansson  (150,000  shares) and Mr. David  Bailey  (150,000
shares) and Volito AB (8,500,000 shares).


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<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.   RELATED PARTY TRANSACTIONS (continued)

Also in April 2003, the Company  contracted for the exchange of 3,350,000 shares
in Luvit AB for the issue of 4,685,315  Ordinary  Shares at a price of $0.10 per
Ordinary Share to Volito AB.

In August 2003,  the Company  contracted  and received the cash for the issue of
387,597  Ordinary  shares at a market price of $0.387 per  Ordinary  share for a
total  aggregate  price of  $150,000.  The  following  individuals  and entities
purchased  the number of  Ordinary  Shares  indicated  in  connection  with this
private placement: Volito AB (387,597 shares).

In November 2003, Mr. C Wit,  non-executive  board member,  exercised a total of
404,500 options to purchase an equivalent number of Futuremedia  Ordinary shares
at prices of $0.10 and $0.15 per Ordinary  share,  all of which were sold before
April 30, 2004.

During  the year  ended  April  30,  2004,  Volito  AB sold all its  holding  of
Futuremedia shares.

In October,  2004,  Mr. M  Johansson  and Mr. J Vandamme  exercised  372,500 and
50,000  options  respectively  to purchase an equivalent  number of  Futuremedia
Ordinary shares for a total  aggregate price of $42,250,  and 372,500 and 50,000
respectively to purchase an equivalent number of Futuremedia Ordinary shares for
a total aggregate price of $63,375.

In November 2004, Mr. C Wit exercised  100,000 options to purchase an equivalent
number of Futuremedia  Ordinary shares for a total  aggregate  purchase price of
$64,000, all of which were sold before April 30, 2005.

In February, 2005, the Company contracted and received the cash for the issue of
926,972  Ordinary,  shares at a market price of $0.76 per Ordinary share,  for a
total  aggregate  purchase  price  of  $704,500.   The  following  entities  and
individuals purchased the number of Ordinary Shares indicated in connection with
this private  placement:  Rennes  Foundation  (795,394  shares),  Mr. J Vandamme
(65,789 shares) and Mr. L Fertig (65,789 shares).

Also in February,  2005, Mr. Kleman agreed to accept 69,803  Ordinary  shares at
the market price of $0.716 per Ordinary  share for a total  equivalent  value of
$50,000 in part  payment of an  outstanding  debt owed to him by the  Company in
respect of work undertaken by Mr. Kleman associated with the acquisition of Open
Training AB, which was concluded on April 14, 2005.

In April 2005, Mr. M Johansson,  in accordance  with the terms of the Settlement
Agreement  that had been entered into between Mr.  Johansson  and the Company on
his resignation in January,  2005,  agreed to accept 388,614  Ordinary Shares in
respect of commissions due to him, for a total equivalent value of $155,834.

During the year ended April 30, 2005, the following  directors  received payment
for consultancy  services provided through  independent  service companies:  Mr.
J.Vandamme GBP58,000 ($111,000), Mr. C.Kleman GBP28,000 ($53,000).


16       SUBSEQUENT EVENTS

Subsequent  to the year end, in May 2005,  the Company  contracted  with Network
Rail Infrastructure Limited for the provision of Learning for AllTM products and
services. It is expected that this contract


                                      F36
<PAGE>


FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.   SUBSEQUENT EVENTS (continued)

will result in  revenues  in the order of GBP 1.5  million  over the two planned
phases, which will be recognized over the next three to four years.

Also in May 2005,  recognizing that the Company had too large an  infrastructure
relative to the revised  revenue  expectations  announced  in February  2005,  a
series of cost  reductions were  implemented,  including  headcount  reductions,
which will yield benefits in fiscal 2006.

Subsequent to the year end, on July 21, 2005, the Company entered into a private
placement with M.A.G.  Capital,  LLC (formerly  Mercator  Advisory Group,  LLC),
through its designated funds,  Monarch Pointe Fund, Ltd, Mercator Momentum Fund,
LP and  Mercator  Momentum  Fund III, LP  (collectively,  "M.A.G."),  to provide
financing to the Company in the amount of $4 million.  The  investment  was made
via a  convertible  loan  that is  convertible  (subject  to  certain  terms and
conditions) into Ordinary Shares of the Company. The conversion rate is based on
the volume  weighted  average price of the  Company's  ADSs for the five trading
days prior to July 13, 2005, the date that the Company entered into a term sheet
with M.A.G. for the investment.  The loan bears interest at an annual rate equal
to the  greater  of 8.5% or Wall  Street  Journal  Prime Rate plus 3%, but in no
event  greater  than 10%.  The  Company  also issued  warrants to the  investors
covering an aggregate of 6.2 million  Ordinary  Shares with an exercise price of
$0.61 per share.  The  agreement  with M.A.G also  provides for an additional $2
million of funding that may be available at Futuremedia's  request provided that
Futuremedia achieves certain performance benchmarks. Net proceeds to the Company
from the M.A.G.  investment were  approximately  $3.8 million.  The Company also
issued warrants to purchase 411,692 Ordinary Shares to its financial  adviser on
the  investment on  substantially  the same terms as the warrants  issued to the
investors.


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