*Table
          of Contents*





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      20-F**




(Mark
      One)





o
            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 June 30, 2007.





OR




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




For
      the
      transition period from ______________ to _______________





OR





o
            SHELL
                COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
                ACT OF 1934





Date
                of event requiring this shell company report




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 1,000 Ordinary Shares); Ordinary Shares
      of
      0.01p 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: 338,548,904
      Ordinary Shares of 0.01p each.







*Table
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Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.





Yes
o No x





If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934.





Yes
oNox




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
oNox




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a no-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-Accelerated
                Filerx




Indicate
      by check mark which financial statement item the registrant has elected to
      follow:




Item
      17o Item
      18 x





If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).





Yes
oNox




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          of Contents*




**TABLE
      OF CONTENTS**




EXPLANATORY
                  NOTE
              3COMMUNICATIONS
                  WITH HOLDERS OF ADSS
              4NOTE
                  ON FOREIGN ISSUER EXEMPTIONS UNDER IM-4350-6 OF THE
                  NASDAQ RULES
              4FORWARD-LOOKING
                  STATEMENTS
              6PART
                  I
              7ITEM
                  1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
                  ADVISORS.
              7ITEM
                  2. OFFER STATISTICS AND EXPECTED
                  TIMETABLE
              7ITEM
                  3. KEY INFORMATION
              8ITEM
                  4. INFORMATION ON THE COMPANY
              20ITEM
                  4A. UNRESOLVED STAFF COMMENTS
              33ITEM
                  5. OPERATING AND FINANCIAL REVIEW AND
                  PROSPECTS
              34ITEM
                  6. DIRECTORS, SENIOR MANAGEMENT AND
                  EMPLOYEES
              50ITEM
                  7. MAJOR SHAREHOLDERS AND RELATED PARTY
                  TRANSACTIONS
              60ITEM
                  8. FINANCIAL INFORMATION
              63ITEM
                  9. THE OFFER AND LISTING
              65ITEM
                  10. ADDITIONAL INFORMATION
              67ITEM
                  11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK
              72ITEM
                  12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
                  SECURITIES
              73PART
                  II
              73ITEM
                  13. DEFAULTS, DIVIDEND ARREARAGES AND
                  DELINQUENCIES
              73ITEM
                  14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
                  HOLDERS AND USE OF PROCEEDS
              73ITEM
                  15. CONTROLS AND PROCEDURES
              73ITEM
                  16A. AUDIT COMMITTEE FINANCIAL
                  EXPERT
              74ITEM
                  16B. CODE OF ETHICS
              74ITEM
                  16C. PRINCIPAL ACCOUNTANT FEES AND
                  SERVICES
              75ITEM
                  16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
                  COMMITTEES
              75ITEM
                  16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
                  AFFILIATED PURCHASERS
              76PART
                  III
              77ITEM
                  17. FINANCIAL STATEMENTS
              77ITEM
                  18. FINANCIAL STATEMENTS
              77ITEM
                  19. EXHIBITS
              78SIGNATURES
              87CERTIFICATIONS
              Exhibits
                  12.1 - 13.2





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**EXPLANATORY
      NOTE**





As
      used
      herein, except as the context otherwise requires, the terms “Company”, “we”,
“our”, “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 headquarter 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 also has offices relating to its Button
      Group
      PLC business at 32 Percy Street, London W1T 2DE England; 4223 Glencoe Avenue,
      Suite A100, Marina del Rey, California, 90292 USA; and 8 Rue Macé, 06400 Cannes,
      France.




Except
      as
      the context otherwise requires, “Ordinary Shares” or “Shares” refers to the
      Ordinary Shares with par value of 0.01 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 FMDA. Each ADS represents the right
      to receive 1,000 Ordinary Shares 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. Prior to January 3, 2007, our ADSs each represented the right to
      receive one Ordinary Share. On January 3, 2007, we changed the ratio of our
      ADSs
      to Ordinary Shares to 1:50 from 1:1. On December 3, 2007, we changed the ratio
      of our ADSs to Ordinary Shares to 1:1,000 from 1:50. Unless otherwise noted,
      all
      references to Ordinary Shares and ADSs in these accounts are included on a
      “post-amendment” basis, i.e. using the current ADS:Ordinary Share ratio of
      1:1,000.




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. For information regarding
      rates of exchange between pounds sterling and US dollars for the period ended
      June 30, 2007 to the present see "Item 3.A. Selected Financial Data - Exchange
      Rates."




The
      Company's fiscal year ends on June 30 of each year. References in this document
      to a particular year are to the fiscal year unless otherwise indicated.
      Effective August 7, 2006, the Company changed its fiscal year end from April
      30
      to June 30. As a result, results of operations are presented herein for the
      years ended April 30, 2006 and 2005, for the transition period from May 1,
      2006
      to June 30, 2006, and for the year ended June 30, 2007.




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 Annual Report and is not
      incorporated by reference herein.




3
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**COMMUNICATIONS
      WITH HOLDERS OF ADSs**




In
      advance of the Company’s General Meeting held on July 31, 2007, 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.




**NOTE
      ON FOREIGN ISSUER EXEMPTIONS UNDER IM-4350-6 OF THE NASDAQ
      RULES**




IM-4350-6
      provides, in part, that “[a] foreign issuer . . . listed on Nasdaq may follow
      the practice in such issuer’s home country . . . in lieu of some of the
      provisions of Rule 4350”. The Company is incorporated and registered under the
      laws of England and Wales. The Company is not listed on any other stock market
      or securities exchange except for the Nasdaq-CM (formerly the Nasdaq Small
      Cap
      Market). Accordingly, the laws applicable to the Company under its home country
      are the laws of England and Wales applicable to privately held, unlisted
      companies incorporated and registered in England and Wales. As a result, in
      many
      cases, following home country law and practice may mean that there is no rule
      or
      requirement similar to the relevant provision of Rule 4350.





**Exemption
      From Shareholder Approval for Share Issuances in Excess of 20% of the Number
      of
      Shares Outstanding Under Rule 4350(i)(1)(C)**




The
      Company has complied and may in the future comply with applicable law and
      accepted practices in England and Wales for privately held, unlisted companies
      in lieu of some of the provisions of Rule 4350(i) in cases where such actions
      are not prohibited by English law.




Rule
      4350(i) requires issuers to obtain advance shareholder approval for certain
      issuances of designated securities. In particular, Rule 4350(i)(1)(C), in
      relevant part, requires shareholder approval of issuances “in connection with
      the acquisition of stock or assets of another company if . . . where, due to
      the
      present or potential issuance of common stock, or securities convertible into
      or
      exercisable for common stock . . . the number of shares of common stock to
      be
      issued is or will be equal to or in excess of 20% of the number of shares .
      . .
      outstanding before the issuance.”




The
      Company has closed several transactions in excess of the 20% limitation
      contained in Rule 4350(i)(1)(C) without shareholder approval. On April 25,
      2006
      the Company closed its acquisition of Executive Business Channels Limited
      (“EBC”) and on May 26, 2006 the Company closed its acquisition of Bingham and
      Bingham Limited, which was subsequently renamed Button Communications Holdings
      Limited (“Button”), both of which involved the issuance or possible issuance of
      the Company’s Ordinary Shares (the English equivalent of common stock). On
      August 3, 2006 the Company closed a $9,000,000 (GBP4,796,000) convertible debt
      financing with Cornell Capital Partners, LP (“Cornell”), Certain Wealth, Ltd.
      (“Certain Wealth”) and TAIB Bank, B.S.C. (“TAIB”), which was made in two
      tranches, the first closing on April 25, 2006 and the second on August 3, 2006.
      On September 28, 2006 the Company closed on a separate $550,000 (GBP289,000)
      convertible debt financing with Cornell. On October 25, 2006 the Company closed
      on a $5,000,000 (GBP2,671,000) equity financing with an investor in accordance
      with Rule 903 of Regulation S, promulgated under the United States Securities
      Act of 1933, as amended. On November 6, 2006 the Company closed on a $800,000
      (GBP421,000) equity financing with Le Shark Limited in accordance with Rule
      903
      of Regulation S, promulgated under the United States Securities Act of 1933,
      as
      amended. On June 1, 2007 the Company completed a separate $4,600,000
      (GBP2,327,000) convertible debt financing with Cornell. On August 20, 2007
      the
      Company completed a separate convertible debt financing with YA Global
      Investments LP (formerly known as Cornell Capital Partners; for ease of
      understanding, YA Global Investments LP will hereinafter be referred to as
      “Cornell”) that provided the Company with $6,050,000 (GBP3,028,000). ** On
      January 9, 2008, we completed a financing arrangement whereby we (1) entered
      into the January 2008 Loan with Cornell with a face value of $2,000,000
      (GBP1,013,000), and (2) completed a private placement of 100,000 Ordinary Shares
      for an aggregate purchase price of $100,000 (GBP51,000) with National Air Cargo
      Middle East FMZ (“NACME”).




4
 *Table
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Each
      of
      these financing transactions involved the issuance or possible issuance of
      the
      Company’s Ordinary Shares in excess of the 20% limitation contained in Rule
      4350(i)(1)(C). Due
      to
      the Company’s status as a foreign registrant, shareholder approval is not
      required under the Nasdaq rules as long as the Company complies with the rules
      and regulations of its country of incorporation.  For
      additional information on these transactions, see “Item
      4.
      Information on the Company. A. History and Development of the Company. Recent
      Developments.”




**Exemption
      From Shareholder Approval for Shares Issued at a Discount to Market to Directors
      Under Rule 4350(i)(1)(A)**





Rule
      4350(i) requires issuers to obtain advance shareholder approval for certain
      issuances of designated securities. In particular, Rule 4350(i)(1)(A) requires
      shareholder approval of issuances of
      common stock or securities convertible into or exercisable for common stock
      by
      the company to its officers, directors, employees, or consultants, at a price
      less than the market value of the stock because such issuances are considered
      a
      form of "equity compensation". Due
      to
      the Company’s status as a foreign registrant, shareholder approval is not
      required under the Nasdaq rules as long as the Company complies with the rules
      and regulations of its country of incorporation.





**Exemption
      from Annual Meeting Requirement Under Rule 4350(e)**





Under
      Rule 4350(e), all Nasdaq Stock Market issuers are required to hold an annual
      meeting of shareholders. The annual meeting must be held within twelve months
      of
      the end of the Company’s fiscal year end. However, English law (Companies Act
      1985, section 366) allows an interval of up to 15 months between the annual
      meeting of one year and that of the next. In its fiscal year 2005 the Company’s
      annual meeting was held on March 17, 2005. In fiscal year 2006 the Company’s
      annual meeting was held on June 8, 2006 (approximately 13 months after the
      2005
      annual meeting). In fiscal year 2007 the Company’s annual meeting was held on
      July 31, 2007 (approximately 14 months after the 2006 annual meeting).




5
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**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.
      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”, “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 (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;




·
            the
                benefits anticipated from acquisitions by the Company; 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.




6
 *Table
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**PART
      I**




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




Not
      Applicable




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




Not
      Applicable




7
 *Table
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**ITEM
      3. KEY INFORMATION**





**A.**  **SELECTED
      FINANCIAL DATA**




The
      selected consolidated financial data as of June 30, 2007 and 2006, and for
      the
      year ended June 30, 2007, the two month period ended June 30, 2006, and years
      ended April 30, 2006 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, 2006, 2005, 2004 and 2003
      and for the years ended April 30, 2004 and 2003 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.




**(A)****Two****Year**
            
            **Months****Ended**
            
            **Ended**
            
            **Years
                Ended April 30,****June
                30,**
            
            **June
                30,**
            
            **(A)****Income
                Statement Data**
            
            **2007**
            
            **2006**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**(GBP'000,
                except per share data)Net
                sales
            
            
            13,490
            
            
            3,112
            
            
            16,642
            
            
            15,398
            
            
            18,661
            
            
            1,342Operating
                profit (loss)
            
            
            (7,552
            )
            
            (385
            )
            
            (4,627
            )
            
            (3,733
            )
            
            (1,391
            )
            
            (1,041
            )Income
                (loss) from continuing operations
            
            
            (9,037
            )
            
            3,044
            
            
            (6,179
            )
            
            (3,973
            )
            
            (1,662
            )
            
            0Income
                (loss) from discontinued operations
            
            
            (384
            )
            
            (37
            )
            
            (355
            )
            
            16
            
            
            0
            
            
            0Net
                income (loss)
            
            
            (9,421
            )
            
            3,007
            
            
            (6,534
            )
            
            (3,957
            )
            
            (1,662
            )
            
            (1,088
            )All
              per share amounts reflected in British Pounds SterlingIncome
                (loss) from continuing operations per share -- basic
            
            
            (0.04
            )
            
            0.02
            
            
            (0.07
            )
            
            (0.04
            )
            
            (0.02
            )
            
            (0.02
            )Income
                (loss) from continuing operations per share -- fully
                diluted
            
            
            (0.04
            )
            
            
            
            
            (0.07
            )
            
            (0.04
            )
            
            (0.02
            )
            
            (0.02
            )Net
                income (loss) per share - basic
            
            
            (0.04
            )
            
            0.02
            
            
            (0.07
            )
            
            (0.04
            )
            
            (0.02
            )
            
            (0.02
            )Net
                income (loss) per share - fully diluted
            
            
            (0.04
            )
            
            
            
            
            (0.07
            )
            
            (0.04
            )
            
            (0.02
            )
            
            (0.02
            )Income
                (loss) from continuing operations per ADS -- basic (B)
            
            
            (36.06
            )
            
            20.36
            
            
            (65.58
            )
            
            (44.86
            )
            
            (19.83
            )
            
            (23.40
            )Income
                (loss) from continuing operations per ADS -- fully diluted
                (B)
            
            
            (36.06
            )
            
            
            
            
            (65.58
            )
            
            (44.86
            )
            
            (19.83
            )
            
            (23.40
            )Net
                income (loss) per ADS - basic (B)
            
            
            (37.59
            )
            
            20.11
            
            
            (69.35
            )
            
            (44.68
            )
            
            (19.83
            )
            
            (23.40
            )Net
                income (loss) per ADS - fully diluted (B)
            
            
            (37.59
            )
            
            
            
            
            (69.35
            )
            
            (44.68
            )
            
            (19.83
            )
            
            (23.40
            )





(A)
            -
                Amounts restated and represented from previously published results.
                Please
                refer to Note 3 to the enclosed consolidated financial statements
                for
                discussion of the restatement, and Note 4 for a discussion of the
                representation of discontinued operations.




(B)
            -
                Each ADS represents 1,000 Ordinary
                Shares.




8
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**A.**  **SELECTED
      FINANCIAL DATA (continued)**




**As
                of June 30,**
            
            **As
                of April 30,****(A)**
            
            **(A)****Balance
                Sheet Data**
            
            **2007**
            
            **2006**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**(GBP'000,
                except number of shares)Cash
                and cash equivalents
            
            
            709
            
            
            1,574
            
            
            1,155
            
            
            1,084
            
            
            4,651
            
            
            437Total
                assets
            
            
            12,191
            
            
            18,869
            
            
            13,216
            
            
            5,609
            
            
            10,545
            
            
            3,156Total
                current liabilities
            
            
            14,113
            
            
            14,791
            
            
            15,787
            
            
            7,189
            
            
            8,813
            
            
            1,581Long-term
                liabilities
            
            
            57
            
            
            1,345
            
            
            1,085
            
            
            0
            
            
            0
            
            
            0Stockholders’
                (deficit)/equity
            
            
            (1,979
            )
            
            2,733
            
            
            (3,656
            )
            
            (1,580
            )
            
            1,732
            
            
            1,575Number
                of shares outstanding (B)
            
            
            338,548,904
            
            
            161,960,188
            
            
            133,373,349
            
            
            91,769,479
            
            
            87,239,486
            
            
            78,194,457Dividends
                declared per share
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0







(A)
            -
                Amounts restated from previously published results. Please refer
                to Note 3
                to the enclosed consolidated financial statements for discussion
                of the
                restatement.




(B)
            -
                Each ADS represents 1,000 Ordinary
                shares.





**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 February 1, 2008 was
                GBP1=$1.9883.




(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**January
                2008
            
            
            2.01
            
            
            1.93December,
                2007
            
            
            2.07
            
            
            1.97November,
                2007
            
            
            2.12
            
            
            2.04October,
                2007
            
            
            2.07
            
            
            2.02September,
                2007
            
            
            2.05
            
            
            1.99August,
                2007
            
            
            2.05
            
            
            1.97





9
 *Table
          of Contents*


**A.**  **SELECTED
      FINANCIAL DATA (continued)**




(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,
            
            Average2003
            
            
            1.572004
            
            
            1.722005
            
            
            1.852006
            
            
            1.77





Period/Year
                Ended June 30,
            
            
            Average


2006
            
            
            1.862007
            
            
            1.93





**B.**  **CAPITALIZATION
      AND INDEBTEDNESS.**




Not
      Applicable




**C.**  **REASONS
      FOR THE OFFER AND USE OF PROCEEDS.**




Not
      Applicable




**D.**  **RISK
      FACTORS.**




This
      Annual 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
      Annual Report.




**Risks
      Relating to Our Financial Condition**





***We
      have a history of significant losses and may not be profitable in the
      future.*** ****




With
      the
      exception of the two months ended June 30, 2006 we have reported losses in
      each
      of our last five full fiscal years. Our accumulated deficit as of June 30,
      2007
      was GBP34,678,000. We had stockholders’ deficit of GBP1,979,000 as of June 30,
      2007. During the year ended June 30, 2007, the two month period ended June
      30,
      2006, and the years ended April 30, 2006, 2005, and 2004, respectively, we
      generated (used) cash flows from our operating activities in the amount of
      (GBP6,744,000), GBP644,000, (GBP3,217,000), (GBP3,725,000), and GBP3,052,000,
      respectively. We have experienced significant cash constraints on our operations
      during these periods. Our cash balances as of June 30, 2007 were GBP709,000,
      and
      we had net current liabilities of GBP11,790,000. Although we are attempting
      to
      reduce overhead expenses and expand sales of our current products, we may
      continue to operate at a loss for the foreseeable future. If we continue to
      incur operating losses and cash outflows, there is no certainty that we will
      have the financial resources to continue in business.




These
      conditions have resulted in our auditors including an emphasis of matter in
      their audit report that states that there is substantial doubt about our ability
      to continue as a going concern. Our financial statements have been prepared
      on a
      going concern basis and do not include any adjustments that might result from
      the outcome of this uncertainty.




10
 *Table
          of Contents*




***Our
      liquidity may be significantly impaired and we may go out of business if we
      have
      problems raising capital we need in the future.***




As
      of
      June 30, 2007, we had a working capital deficit of GBP11,790,000. Historically,
      we have financed our operations and met our capital requirements primarily
      through funds generated from revenues, the issuance of our Ordinary Shares
      and
      ADSs, and the issuance of convertible debt. Market and other conditions largely
      beyond our control may affect our ability to engage in future sales of such
      securities, the timing of any such sales, and the amount of proceeds therefrom.
      Even if we are able to sell any such securities in the future, we may not be
      able to sell at favorable prices or on favorable terms. We may be required
      to
      issue such new securities with greater rights than those currently possessed
      by
      holders of our ADSs. We may also be required to take other actions, which may
      lessen the value of our Ordinary Shares and ADSs or dilute our Ordinary Shares
      and ADSs, including borrowing money on terms that are not favorable to us or
      issuing additional Ordinary Shares or ADSs. If we experience difficulties
      raising capital in the future, we could be unable to continue in business,
      and
      the value of our assets may be significantly reduced.




**Risks
      Relating to Our Button Business**





***Button’s
      key businesses are relationship driven***





Button’s
      business activities are heavily focused on client relationships, and,
      specifically, on the close collaboration and interaction between teams from
      the
      client and Button. This relationship requires the account team to become attuned
      to the client’s desires and expectations in order to provide top-quality
      service. Accordingly, there is a risk of customer loss and loss of market share
      in the event that the account team is not able to timely respond to the
      customers’ needs. Additionally, since customer relationships are focused through
      key account team members, the departure by senior sales and project management
      staff could lead to loss of customers.





***Exhibition
      rotation may impact overall profitability and makes comparisons between periods
      difficult***





The
      business activities of Button are largely dependent upon the frequency, timing
      and location of exhibitions and events as certain large exhibitions are not
      held
      annually (they may be held once every two or three years or longer), and some
      large exhibitions may be held at a different time of year than when they have
      historically been held. In addition, the same exhibition may be held in
      different locations in different years. Button’s results of operations can
      fluctuate significantly as a result of this rotation. The rotation of
      exhibitions requires Button to maintain a high degree of flexibility of
      resources (including personnel and equipment) and may result in a business
      generating lower margins in a given period if exhibitions shift to higher-cost
      cities. As a consequence of these factors, the operating results for these
      businesses may fluctuate significantly from year to year, making periodic
      comparisons difficult.





***Button
      competes in competitive industries and increased competition could negatively
      impact operating result.***





Button
      competes in highly competitive industries. Competition in the exhibition and
      event services and exhibit design and construction services industries is on
      the
      basis of price and service level, among other things. To the extent competitors
      seek to gain or retain their market presence through aggressive pricing
      strategies, Button may be required to lower its prices and rates, thereby
      adversely affecting operating results. If Button were unable to meet the
      challenges presented by the competitive environment, it could have a material
      adverse effect on our business, financial condition and results of
      operations.




11
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          of Contents*




***A
      recession could significantly impact Button’s sales***





Because
      Button’s product offering is marketing related and our target customer group is
      corporate in nature, a UK, European, or global recession could materially harm
      our net sales, as marketing costs, and specifically trade show expenditures,
      tend to be among the first items removed from marketing budgets during an
      economic downturn.





**Risks
      Relating to Our e-Learning Business**





***We
      may not be able to compete successfully***




The
      net-based e-Learning business evolves rapidly and is subject to continuous
      technological change. We currently compete both with smaller UK-based companies
      as well as larger multinational firms in the development and implementation
      of
      net-based learning products. Some of these competitors are more established,
      better capitalized and have a better market position than us.




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 us. We may also have a cost
      disadvantage compared to competitors who have greater direct buying power from
      suppliers or who have lower cost structures. As a result, we may be forced
      to
      lower our prices to compete, resulting in lower profit margins.




***The
      sales cycle for our e-Learning products, marketed toward corporate customers,
      is
      lengthy and there is no guarantee of resulting sales***




Some
      of
      our customers do not have exclusive or long-term purchase obligations with
      us.
      They may source third party e-Learning content products that compete with our
      products. These customers could give higher priority to the use of competing
      products. The failure of customers to decide to purchase our products after
      we
      spend significant marketing resources and the possibility that customers may
      source third party competing products could harm our business. The marketing
      and
      sales cycle for our products is lengthy. The time lag from initiation of
      marketing efforts to final sales can be lengthy and expensive and there is
      no
      guarantee that the expenditure of significant time and resources will results
      in
      sales.




***The
      e-Learning market is highly volatile and
      unpredictable***




Revenues
      derived from the sale of our 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 ours are directly affected by
      these fluctuations. We expect that our operations will continue to depend on
      these factors. Fluctuations, downturns or slowdowns in these markets could
      have
      a material adverse effect on our business, financial condition and results
      of
      operations.




***The
      markets for some of our e-Learning products are in the early stages of
      development.***




The
      markets for some of our products are at relatively early stages of development
      and customer acceptance. Broader acceptance of our products will depend on
      customer and end-user reaction to those products and the price and performance
      of our products and our competitors' products. We believe that the development
      of these markets will, in part, depend on the success of our efforts to inform
      and demonstrate to our customers the perceived efficacy of our products. These
      markets may never develop further and our products may not achieve broader
      market acceptance, which could have a material adverse effect on our business,
      financial condition and results of operations.




12
 *Table
          of Contents*




**Risks
      Relating to Our Learning for All Business**





***The
      termination of the Home Computing Initiative by the UK Government has harmed
      our
      business*** ***.***




On
      March
      22, 2006, the UK Government announced, as part of its bi-annual treasury budget
      statement, the termination of the Home Computing Initiative (“HCI”) tax
      exemption. The termination became effective on April 6, 2006. The elimination
      of
      the HCI tax exemption by the UK Government has harmed our business. Revenues
      from our Learning for All business unit, which was comprised substantially
      of
      sales under the HCI scheme, for the year ended June 30, 2007 were GBP2,316,000,
      as compared with revenues of GBP15,224,000 in the year ended April 30, 2006.
      Ongoing revenues arise from deferred recognition of sales made prior to the
      termination of the HCI scheme. The deferred portion of revenues will expire
      during 2009 as our obligations expire. There are no further positive cash flows
      arising from sales in the Learning for All Business.




**Risks
      Relating to Our Business in General**





***Our
      business may be harmed by acquisitions we have completed and may complete in
      the
      future.***




We
      have
      acquired businesses and may pursue additional acquisitions in the future. We
      cannot guarantee that we will realize any anticipated benefits from acquisitions
      that we have recently completed or may complete in the future. In connection
      with the businesses we have recently acquired (including EBC and Button) and
      other businesses we may acquire in the future, the process of integrating
      acquired operations into our existing operations may result in unforeseen
      operating difficulties and may require significant financial resources that
      would otherwise be available for the ongoing development or expansion of our
      existing business.





Our
      identification of suitable acquisition candidates involves risks inherent in
      assessing the values, strengths, weaknesses, risks and profitability of
      acquisition candidates, including the effects of the possible acquisition on
      our
      business, diversion of our management’s attention and risks associated with
      unanticipated problems or latent liabilities. If we are successful in pursuing
      future acquisitions, we will be required to expend significant funds, incur
      additional debt or issue additional securities to finance such acquisitions,
      which may negatively affect our results of operations and be dilutive to our
      stockholders. We cannot guarantee that we will be able to finance additional
      acquisitions on terms satisfactory to us, if at all. If we spend significant
      funds or incur additional debt, our ability to obtain financing for working
      capital or other purposes could decline which could harm our business and
      prospects.





***Our
      business could be harmed if we are unable to protect our proprietary
      technology.***




We
      have
      no patents with respect to our product design or production processes. In
      choosing not to seek patent protection, we instead have relied on the complexity
      of our technology, our trade secret protection policies, common law trade secret
      laws, copyrights, and confidentiality and/or license agreements entered into
      with our employees, suppliers, sales agents, customers and potential customers.
      As a part of our trade secret protection policies, we try to limit access to,
      and distribution of, our software, related documentation and other proprietary
      information. We cannot assure that such strategy will prevent or deter others
      from using our products to develop equivalent or superior products or
      technology, or from doing so independently. Further, we cannot assure that
      we
      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 us with meaningful protection from competitors. Moreover, litigation
      by
      us to enforce or defend our proprietary rights could result in significant
      expense and divert the efforts of our technical and management personnel,
      whether or not such litigation results in a favorable outcome for us. In order
      to avoid expense or diversion of resources, we could agree to enter into a
      license agreement or other settlement arrangement, notwithstanding our
      continuing belief in our position.




13
 *Table
          of Contents*




***Our
      business would be harmed if our products and technology infringe on the
      intellectual property rights of others***




Our
      products and our proposed products may infringe patents or rights of others.
      If
      a patent infringement claim is asserted against us, whether or not we are
      successful in defending such claim, the defense of such claim may be very
      costly. While we are unable to predict what costs would be incurred if we were
      obliged to devote substantial financial or management resources to patent
      litigation, our ability to fund our operations and to pursue our business goals
      may be substantially impaired.




***If
      we fail to renew critical licensing arrangements our business and prospects
      could be harmed.***




We
      market
      a number of products under license from several suppliers and under varying
      terms of exclusivity and tenure. While we believe that these licensing
      arrangements will continue and, if considered in our best interest, will be
      renewed, we cannot assure that licenses will be extended with us on satisfactory
      terms, if at all. While we believe that the failure to extend licensing
      arrangements with respect to one or a small number of products would not
      substantially affect us, the failure to renew a significant number of the
      present licenses could have an adverse effect on the future profitability of
      our
      business and prospects.




***Our
      business could be harmed if our products contain undetected errors or defects
      or
      do not meet customer specifications***




We
      are
      continuously developing new products and improving our existing products. Newly
      introduced products can contain undetected errors or defects. In addition,
      these
      products may not meet customer performance specifications under all conditions
      for all applications. If, despite our internal testing and testing by our
      customers, any of our products contain errors or defects or any of our products
      fail to meet customer specifications, then we may be required to enhance or
      improve those products or technologies. We may not be able to do so on a timely
      basis, if at all, and may only be able to do so at considerable expense. In
      addition, any significant reliability problems could result in adverse customer
      reaction, negative publicity or legal claims and could harm our business and
      prospects.




***Compliance
      with changing regulation of corporate governance and public disclosure may
      result in additional expenses or our ability to attract and retain qualified
      board members and executive officers***




Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002, new United States
      Securities and Exchange Commission (“SEC”) regulations and Nasdaq-CM rules, are
      creating uncertainty for companies such as ours. These new or changed laws,
      regulations and standards are subject to varying interpretations in many cases
      due to their lack of specificity, and as a result, their application in practice
      may evolve over time as new guidance is provided by regulatory and governing
      bodies, which could result in continuing uncertainty regarding compliance
      matters and higher costs necessitated by ongoing revisions to disclosure and
      governance practices. As a result, our efforts to comply with evolving laws,
      regulations and standards have resulted in, and are likely to continue to result
      in, increased general and administrative expenses and a diversion of management
      time and attention from revenue-generating activities to compliance activities.
      We expect these efforts to require the continued commitment of significant
      resources. Further, our board members, chief executive officer and chief
      financial officer could face an increased risk of personal liability in
      connection with the performance of their duties. As a result, we may have
      difficulty attracting and retaining qualified board members and executive
      officers, which could harm our business. If our efforts to comply with new
      or
      changed laws, regulations and standards differ from the activities intended
      by
      regulatory or governing bodies due to ambiguities related to practice, our
      reputation may be harmed.





***Our
      success depends partially upon our ability to adapt to rapid changes in
      products, technology and customer requirements***




Our
      business will be significantly influenced by technological changes and
      innovations. The market for our products is characterized by rapidly changing
      technology, evolving industry standards and frequent introductions of new
      products. We have historically derived a significant portion of our revenues
      from the sale of new and enhanced products. Our future success will depend
      upon
      our ability to enhance our 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.




14
 *Table
          of Contents*




Our
      products could be rendered obsolete by new customer requirements or the
      emergence of new technologies. Our failure 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 our business, financial condition and
      results of operations.




As
      new
      products are introduced, we must attempt to monitor closely the range of our
      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 we will be successful in identifying, developing, and marketing new
      products or enhancing our existing products.




The
      development of new products has required, and will continue to require, that
      we
      spend significant financial and management resources. Our business would be
      materially adversely affected if we 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 our present or potential competitors could not
      render obsolete both our present and future products.




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





**Risks
      Relating to the Market for Our Securities**





***The
      market price of our ADSs has been and may continue to be
      volatile***





The
      market price of our ADSs has been and may continue to be highly volatile.
      Consequently, the current market price of our ADSs may not be indicative of
      value. We believe that a variety of factors could cause the price of our ADSs
      to
      fluctuate including:





·
            announcements
                and rumors of developments related to our business, or the industry
                in
                which we compete;




·
            quarterly
                fluctuations in our actual or anticipated operating results;




·
            general
                conditions in the trade show and e-Learning
                markets;




·
            new
                products or product enhancements by us or our competitors;




·
            announcements
                of technological innovations;




·
            developments
                in our relationships with our customers and suppliers;
                and




·
            general
                conditions in the worldwide
                economy.




15
 *Table
          of Contents*





***Our
      ADSs may be affected by volume fluctuations and may fluctuate significantly
      in
      price.***





Our
      ADSs
      are currently traded on the Nasdaq-CM. The average daily trading volume of
      our
      ADSs for the thirty trading days ending February 1, 2008 was 14,933 ADSs per
      day. Between January 1, 2006 and February 1, 2008, our ADSs have closed as
      high
      as $360.00 and as low as $1.25 per share, on an adjusted basis reflecting our
      1
      to 1,000 ADS to Ordinary Shares ratio change that became effective on December
      3, 2007. Our ADSs have experienced, and are likely to experience in the future,
      significant price and volume fluctuations, which could adversely affect the
      market price of our ADSs without regard to our operating
      performance.





***Our
      ADSs may become*** ***delisted
      from trading on the Nasdaq-CM and would therefore be*** ***subject to penny stock regulation.***




On
      January 16, 2008, the Company received a notice of non-compliance from the
      staff
      of the Listing Qualifications Department of The Nasdaq Stock Market. The notice
      indicated that based upon the Company's failure to timely file the Annual Report
      on Form 20-F for the fiscal year ended June 30, 2007 with the SEC, as required
      by Nasdaq Marketplace Rule 4320(e)(12), the Company's common stock is subject
      to
      delisting from The Nasdaq Capital Market unless the Company requests a hearing
      before a Nasdaq Listing Qualifications Panel. The Company has a hearing
      scheduled for February 21, 2008.




As
      a
      result of our potential delisting from the Nasdaq-CM, our ADSs could become
      subject to the "penny stock" rules of the SEC. A "penny stock" is generally
      an
      equity security with a market price of less than $5.00 per share which is not
      quoted through (i) the Nasdaq system; (ii) a national securities exchange in
      the
      US; or (iii) a national securities exchange in the US that has been continuously
      registered since April 20, 1992 and that has maintained initial and continued
      listing standards that are substantially similar to or stricter than the listing
      standards that were in place at that exchange on January 8, 2004. 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 we become subject to the SEC's rules relating to
      penny stock, the trading market for the ADSs may be materially adversely
      affected.




16
 *Table
          of Contents*




**Risks
      Relating to the Financing Arrangements with Cornell**




***Cornell
      could hold up to an aggregate of 78.15% of our Ordinary Shares, which could
      allow Cornell to control or influence shareholder
      vote.***




Cornell
      currently holds debentures that are convertible into our Ordinary Shares at
      various discounts to market price at the time of conversion. Each convertible
      instrument contains a provision such that the holder is limited to 4.9%
      ownership of our outstanding Ordinary Shares. However, the holder has the right
      to waive such limitation upon 65 days written notice. As a result, in the event
      of default Cornell, could own the following number and percentage of our
      Ordinary Shares upon conversion of all outstanding convertible
      instruments:





**Pro
                forma Ordinary Shares issued upon conversion of:
                (1)**April
                2006 Loan
            
            
            689,120,769August
                2006 Loan
            
            
            174,418,605June
                2007 Loan
            
            
            403,508,772Warrants
                - Cornell $2.5m loan (December 2005)
            
            
            250,000Warrants
                - April 2006 loan
            
            
            4,750,000Warrants
            
            
            17,086,800Pro
                forma shares issuable
            
            
            1,289,134,946Ordinary
                shares outstanding at June 30, 2007
            
            
            338,548,904Pro
                forma Ordinary shares outstanding at June 30, 2007 (3)
            
            
            1,627,683,850**Pro
                forma percentage owned by Cornell (2)**
            
            
            78.15
            %





(1)
            Represents
                number of shares that would be issued to Cornell upon conversion
                of
                outstanding convertible notes and warrants, using the conversion
                price
                that would have been applicable on June 30, 2007. Future changes
                in the
                share price will affect the conversion price. Each of the convertible
                instruments held by Cornell is convertible at a discount to the trading
                market price of the Company’s ADSs, and as a result Cornell’s pro forma
                ownership fluctuates with the market price of the Company’s ADSs.
                Ownership as of June 30, 2007 is shown for illustrative purposes
                only.




(2)
            Cornell
                is limited to 4.9% ownership, except that they may waive this right
                upon
                65 days’ written notice under the terms of the various financing
                arrangements.




(3)
            Table
                does not include Ordinary Shares that may be issued pursuant to the
                additional financing by Cornell which took place in January
                2008.




As
      of
      June 30, 2007, the Company was technically in default of its convertible loans
      with Cornell, TAIB, and Certain Wealth dated April 19, 2006 with a face value
      of
      $7,500,000, and August 3, 2006 with a face value of $1,500,000, due to the
      Company’s failure to register shares underlying the convertible loans by the
      prescribed due date, and subsequently due to failure to file its Form 20-F
      for
      the year ended June 30, 2007. The Company is also in default of the loan dated
      June 1, 2007 in the amount of $4,600,000, which stipulates default on any prior
      loans as a condition of default. As a result, Cornell has the right to call
      the
      full face value of each note. However, the Company expects to receive a waiver
      of default shortly after filing of this Form 20-F. The Company has recorded
      the
      carrying value of these notes as current liabilities as of June 30, 2007.





If
      all or
      most of these Ordinary Shares are issued to, and held by, Cornell, they would
      be
      able to control or influence the disposition of any matter submitted to a vote
      of shareholders. This concentration of ownership may also have the effect of
      delaying or preventing a change of control of us. In addition, if Cornell
      chooses to sell a substantial number of our ADSs in the public market at or
      about the same time, such sales could cause the market price of our ADSs to
      decline. In addition, the sale of these ADSs could impair our ability to raise
      capital through the sale of additional Ordinary Shares or ADSs.




17
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          of Contents*




***Cornell’s
      interests may conflict with the interest of our shareholders***




Cornell
      owns, controls and has interest in a wide array of companies, some of which
      may
      compete directly or indirectly with us. As a result, Cornell’s interests may not
      always be consistent with our interests or the interests of our shareholders.
      There are no specific agreements or arrangements in place between us and Cornell
      to address potential or actual conflicts that may arise. To the extent that
      conflicts of interest may arise between us and Cornell, those conflicts may
      be
      resolved in a manner adverse to us or to you or other holders of our securities.




***The
      Secured Convertible Notes provide for various events of default that would
      entitle the holders to require us to immediately repay the outstanding principal
      amounts, plus accrued and unpaid interest, in cash. If an event of default
      occurs, we may be unable to immediately repay the amounts owed, and any
      repayment may leave us with little or no working capital in our business,
      resulting in our being unable to continue in business and reductions in value
      of
      our assets***




The
      Company is party to secured convertible debentures issued to Cornell, Certain
      Wealth, and TAIB, pursuant to which the Company secured convertible debentures’
repayment with substantially all of its assets.
      In the event the Company is unable to repay the secured convertible debentures,
      it could lose all of its assets and be forced to cease its operations. If the
      Company is found to be in default under the debentures, the full principal
      amount of the debentures, together with interest and other amounts owing, may
      become immediately due and payable.




We
      will
      be considered in default of the convertible instruments held by Cornell, Certain
      Wealth and TAIB if certain events occur. If an event of default occurs, Cornell,
      Certain Wealth or TAIB may elect to require us to pay all of the outstanding
      principal amount of each convertible instrument, plus all other accrued and
      unpaid amounts under each convertible instrument. Some of the events of default
      include matters over which we may have some, little or no control. If a default
      occurs and we cannot pay the amounts payable under the convertible instruments
      in cash (including any interest on such amounts and any applicable late fees
      under the convertible instruments), Cornell, Certain Wealth or TAIB may protect
      and enforce their rights or remedies either by suit in equity or by action
      at
      law, or both, whether for the specific performance of any covenant, agreement
      or
      other provision contained in the convertible instruments, in the related
      securities purchase agreement or in any document or instrument delivered in
      connection with or pursuant to the convertible instruments. This would have
      an
      adverse effect on our continuing operations.




As
      of
      June 30, 2007, the Company was technically in default of its convertible loans
      with Cornell dated April 19, 2006 with a face value of $7,500,000, and August
      3,
      2006 with a face value of $1,500,000, due to the Company’s failure to timely
      file its Form 20-F for the year ended June 30, 2007. The Company was also in
      default of the loan dated June 1, 2007 in the amount of $4,600,000, which
      stipulates default on any prior loans as a condition of default. As a result,
      Cornell has the right to call the full face value of each note. However, the
      Company expects to receive a waiver of default shortly after filing of this
      Form
      20-F. The Company has recorded the carrying value of these notes as current
      liabilities as of June 30, 2007.




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***We
      will issue additional Ordinary Shares or ADSs upon conversion of outstanding
      convertible securities, which will be dilutive to our
      stockholders*** ****





The
      market price of our ADSs could decline as a result of sales of a large number
      of
      shares of our ADSs in the market or the perception that these sales could occur.
      These sales also might make it more difficult for us to sell equity securities
      in the future at a time and at a price that we deem appropriate. The issuance
      of
      any additional Ordinary Shares or ADSs, whether upon the exercise of derivative
      securities, including options, warrants or debentures, in connection with a
      financing or otherwise, including additional Ordinary Shares issuable 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 shareholders.





**Risks
      Relating to Operations in the United Kingdom**




***Fluctuations
      in the exchange rates of European currencies and the other foreign currencies
      in
      which we conduct business, in relation to the U.S. dollar, have harmed and
      could
      continue to harm our business and prospects***




A
      majority of our revenues to date have been received in pounds sterling and
      we
      maintain our 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 our
      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. We currently do not engage in any hedging transactions that
      might have the effect of minimizing the consequences of currency exchange
      fluctuations. Fluctuations in exchange rates may adversely affect the reported
      results of our operations.




***English
      courts may not enforce judgments rendered outside
      England***




We
      are
      incorporated under English law. The rights of holders of the ADSs are largely
      governed by English law, including the Companies Act 1985, and by our Memorandum
      and Articles of Association. These rights differ in certain respects from the
      rights of shareholders 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 our shareholders may
      differ from those that would apply if we were incorporated in another country.
      Also, English employment law imposes substantial severance obligations on
      companies. Additionally, substantially all of our assets are located in the
      United Kingdom and France. As a result, it may not be possible to enforce
      against us any judgments of United States courts predicated upon civil liability
      provisions of the securities or other laws of the United States.




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**ITEM
      4. INFORMATION ON THE COMPANY**





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





**Who
      We Are**




Our
      legal
      and commercial name is "Futuremedia Public Limited Company" or "Futuremedia
      PLC".




We
      were
      incorporated in England and Wales as a private limited company in 1982 and
      re-registered in 1993 as a public company.




We
      are
      domiciled in England and Wales. We are incorporated in and under the legislation
      of England and Wales. The address of our 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.




Our
      American Depositary Shares, also known as ADSs, have traded since May 29, 1993,
      on the Nasdaq-CM under the symbol FMDA. Each ADS represents the right to receive
      1,000 of our Ordinary Shares. Ordinary Shares refer to our Ordinary Shares
      of
      0.01 pence each. ADSs are evidenced by American Depositary Receipts, also known
      as ADRs. ADSs evidenced by ADRs are issued by the Bank of New York as
      Depositary, also known as the Depositary of our ADR facility, in accordance
      with
      the terms of a deposit agreement between us and the Depositary.




**What
      We Do**




Since
      our
      inception, we have striven to ensure our product offerings meet market
      requirements. Recognizing the potential impact on the learning market of the
      developments being made in Intranet and Internet environments, we started the
      development of our first proprietary Learning Management System, also known
      as
      LMS, called Solstra TM in 1997
      together with BT Group PLC, also known as BT. We launched the first version
      of
      the product to the market in February 1998. In March 2000, we launched
      easycando, which was our first Internet learning portal. Today, we offer the
      following products and services:




·
            Button
                - a leading design, exhibition and events agency, combining two-
                and
                three-dimensional designs to provide creative solutions in the production
                and management of branded environments and
                content.




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




·
            Customer
                Designed Content Products - specifically designed content to meet
                our
                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;
                and




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





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In
      addition, we are currently developing our on-line branded learning business.
      The
      branded learning business enables companies to use learning as a tool to
      leverage their brands and stay connected with their customers. Branded learning
      is the application of eLearning to marketing communications through online
      learning communities, academies and portals. Branded learning provides our
      customers with the opportunity to reach new customers and develop additional
      revenue streams while enhancing overall brand recognition.




We
      continue to outsource a portion of our production activity and consequently
      the
      equipment we now use comprises network hardware, desktop personal computers,
      laptops and servers required to support our ongoing business. Where appropriate
      we own our capital equipment, and endeavor to maintain a program of upgrading
      to
      ensure the cost-effective provision of desktop and laptop tools to our
      employees. All equipment acquired for this purpose is industry-standard. For
      servers to support the Internet portal business, we constantly review the
      buy/lease options available and have in the past used both options when
      appropriate. This equipment is located in secure co-location sites.




**Material
      Developments Since Last Fiscal Year End**




On
      May 4,
      2006, we announced a private placement of ADSs for subscriptions totalling
      $4,315,000 (GBP2,344,000). We used the proceeds of this placement to finance
      the
      acquisition of Button, which we completed on May 26, 2006, and for additional
      working capital. The purchase price for the Button acquisition was GBP5,571,000,
      consisting of a combination of cash of GBP800,000, payment immediately following
      the acquisition of a note payable to the principal shareholders of Button in
      the
      amount of GBP1,500,000, Ordinary Shares valued at GBP3,000,000 issued at the
      share closing price on May 25, 2006, and acquisition related costs of
      GBP271,000. Button is an integrated design and brand communications agency providing strategic marketing
      solutions to blue chip European and US companies. Headquartered in London,
      Button was established in 1972 and has offices in Los Angeles and Cannes. The
      company offers consumer marketing, business-to-business marketing, internal
      communications, exhibition design, corporate events and marketing services.
      Button brings a strong client group across many industries with particular
      strength in the media, telecommunications and financial services sectors. Major
      clients include NBC Universal, CBS Paramount and Hitachi. Button is a technical
      services provider for the Mobile World Congress in Barcelona where it also
      designs and builds exhibition environments for clients. The company has a strong
      presence at the Cannes markets and festivals, including the MIP television
      markets, the Cannes Film Festival, the Lions Advertising Festival and the MIPIM
      international real estate marketplace.





On
      August
      3, 2006, we entered into a secured
      convertible note (the “August 2006 Loan”) with Cornell with a face value of
      $1,500,000 (GBP799,000) that may be
      converted from time to time at Cornell’s option (subject to certain restrictions
      and limitations on the amount of shares converted) and must be entirely
      converted by maturity. The
      conversion rate is the lesser of $0.30 ($300.00 on an adjusted basis to reflect
      the change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on
      December 3, 2007), or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that the holder cannot exceed 4.9% ownership, unless
      the holders waive their right to such limitation with 65 days’ written
      notice .
      The
      Company can
      limit
      Cornell to conversion of 1/12 th of face
      value per month, but must allow conversion of a minimum of 25% of the face
      value
      by August 3, 2007, and an additional 25% of the face value by August 3, 2008,
      if
      Cornell chooses to convert. No conversions were made through December 31, 2007
      with respect to this loan. The
      loan
      has a term of three years and bears interest initially at an annual rate of
      10%
      (reducing to 8% in year two and 7% in year three).  The
      Company can redeem the instrument at a 20% premium if the bid price of the
      Company’s ADSs is less than $0.30 ($300.00 on an adjusted basis to reflect the
      change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on December
      3, 2007) at the time of redemption. Cornell
      received a commitment fee of $150,000 (GBP80,000), resulting in net proceeds
      to
      the Company of $1,350,000 (GBP719,000). In connection with the August
      2006 Loan ,
      Futuremedia issued to Cornell 165,000 Ordinary Shares at nominal value. No
      conversions or repayments have been made with respect to the August 2006
      Loan.




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On
      August
      7, 2006 we announced that we changed
      our fiscal year end to June 30 from April 30, effective immediately. This change
      brings our group of companies under the same reporting calendar and better
      corresponds to our business cycle. Previously, Button and EBC were on a June
      30
      and December 31 fiscal year end, respectively.





On
      September 19, 2006 we announced that we unconditionally reduced the $0.61 ($610.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) per
      share
      exercise price of our 6,175,104 warrants issued to M.A.G. Capital, LLC through
      its designated funds including the Monarch Pointe Fund, Ltd., Mercator Momentum
      Fund, LP and Mercator Momentum Fund III, LP, (collectively, “MAG”) , in
      connection with our July 21, 2005 financing with MAG. The exercise price of
      the
      warrants were unconditionally reduced to $0.11 ($110.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) beginning
      on September 19, 2006. We would receive net proceeds of approximately $679,261
      (GBP357,000) if all of the warrants were exercised. The repricing resulted
      in an
      increase in the fair value of the warrants of approximately GBP110,000.





On
      September 22, 2006, we
      announced that we unconditionally reduced (i) the $0.70 ($700.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) per
      share
      exercise price of the 250,000 ADS warrant issued to Cornell in connection with
      our December 19, 2005 $2,500,000 (GBP1,410,000) financing with Cornell; (ii)
      the
      $0.20 ($200.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) per
      share
      exercise price of the 4,000,000 ADSs warrant issued to Cornell in connection
      with the August 2006 Loan; and (iii) the $0.70 ($700.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) per
      share
      exercise price of its 750,000 ADSs warrant issued to Cornell in connection
      with
      the April 19, 2006 financing with Cornell. The exercise price of the warrants
      was unconditionally reduced to $0.095 ($95.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) beginning
      on September 22, 2006. We would receive net proceeds of approximately $475,000
      (GBP251,000) assuming all of the warrants were exercised. The repricing resulted
      in an increase in the fair value of the warrants of approximately
      GBP4,000.




On
      September 28, 2006, we entered into a secured
      convertible note (the “September 2006 Loan”) with Cornell with a face value of
      $550,000 (GBP289,000) that may be
      converted from time to time at Cornell’s option (subject to certain restrictions
      and limitations on the amount of shares converted) and must be entirely
      converted by maturity. The
      conversion rate is the lesser of $0.12 ($120.00 on an adjusted basis to reflect
      the change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on
      December 3, 2007) per share, or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that Cornell cannot exceed 4.9% ownership, unless
      they waive their right to such limitation with 65 days’ written
      notice .
      The
      loan has a term of three years and bears interest initially at an annual rate
      of
      10% per annum.  The
      Company can redeem the instrument at a 20% premium if the closing bid price
      of
      the Company’s ADSs is less than $0.12 at the time of redemption. Cornell
      received a commitment fee of $55,000 (GBP29,000), resulting in net proceeds
      to
      the Company of $495,000 (GBP260,000). The September 2006 Loan was repaid in
      full
      during October 2006. No conversions were made pursuant to the September 2006
      Loan.





On
      October 25, 2006 we announced that we concluded an offshore equity private
      placement of up to $5,000,000 (GBP2,671,000) with a corporate investor. The
      private placement was conducted in accordance with Rule 903 of Regulation S,
      promulgated under the United States Securities Act of 1933, as amended. The
      investment comprises an initial payment to us of $3,000,000 (GBP1,602,000)
      in
      exchange for 20,000,000 Ordinary Shares at a price of $0.15 per share and
      warrants giving the investor the right to purchase a further 80,000,000 Ordinary
      Shares at $0.025 (80,000
      shares at $25.00 on an adjusted basis to reflect the change in ADS:Ordinary
      Share ratio of 1:1,000 that went into effect on December 3, 2007) per
      share
      which upon exercise would result in additional cash proceeds to the Company
      of
      $2,000,000 (GBP1,068,000). The warrants are exercisable for one year. The use
      of
      the proceeds will be to fund legacy HCI obligations following the UK
      Government’s decision to terminate the program in April 2006, remaining expenses
      connected to the acquisitions of EBC and Button, and to pay down a portion
      of
      the convertible debt owed to Cornell. Pursuant to our agreements with Cornell,
      Cornell consented to our issuance of all the ADSs and the warrants issued
      pursuant to the private placement.




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On
      November 8, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of $800,000 (GBP420,000) with Le Shark Limited
      to provide funding for our continued operations. The private placement was
      conducted in accordance with Rule 903 of Regulation S, promulgated under the
      United States Securities Act of 1933, as amended. The investment comprises
      a
      payment to us of $800,000 (GBP420,000) in exchange for 16,000,000 ADSs at a
      price of $0.05 per share.




On
      January 3, 2007, we announced the ratio of our ADS to Ordinary Shares had been
      changed to 1:50 from 1:1. The Bank of New York, our depositary, contacted
      registered ADS holders with regards to this change. The record date is December
      29, 2006. Shareholders received 1 ADS for each 50 ADSs held. The Bank of New
      York sold a portion of the new ADSs to establish a “cash in lieu” rate for
      fractional ADSs, and ADS holders whose holdings were not exactly divisible
      by 50
      received cash in lieu of fractional amounts, at the rate established by The
      Bank
      of New York. Total number of ADSs outstanding after the ratio change was
      4,690,176. As a result of this ratio amendment, the ADS price automatically
      increased proportionally. However, there is no assurance that the post-amendment
      ADS price will be at least equal to or greater than the pre-amendment ADS price
      multiplied by the ratio change. The ratio reset was in response to a letter
      received by the Company in July 2006 from the Nasdaq Stock Market indicating
      that we were not in compliance with Marketplace Rule 4320(e)(2)(E)(i) which
      requires a minimum bid price of $1.00 per ADS. All references to Ordinary Shares
      and ADSs in these accounts are included on a “post-amendment” basis, using the
      current ADS ratio of 1:1,000.





On
      April
      12, 2007, we completed the sale of our Swedish operations, being the
      holding company, Futuremedia Sverige AB and its subsidiary, Open Training Sweden
      AB (collectively,
      “Open Training”), to Edvantage Group AS. The sale price of GBP519,000 comprised
      an initial payment of GBP109,000 and a loan note in the amount of GBP410,000
      payable in equal annual instalments on the anniversary of the transaction for
      a
      period of four years. Under the terms of the sale, the Company retained the
      full
      rights of ownership and all intellectual property rights for LearngateTM, the
      Learning Management System developed by Open Training on behalf of the Company;
      Edvantage Group AS was also granted a perpetual license to use the intellectual
      property rights for LearngateTM.




On
      May
      30, 2007, the Company appointed George O’Leary as its Chief Executive Officer
      and as a member of the board of directors. Mr. O’Leary is currently the
      President of SKS Consulting of South Florida Corp. (“SKS”) and is working with
      the Company under a consulting agreement. Mr. O’Leary is also acting as the
      Company’s Principal Accounting Officer. Prior to assuming his duties with the
      Company, he was and still is a consultant to NeoGenomics (OTCBB:NGNM) and was
      acting Chief Operating Officer from October 2004 to April 2005 where he helped
      the turn-around of that organization. He is currently a member of the board
      of
      directors of NeoGenomics. Prior to becoming an officer of NeoGenomics, Mr.
      O’Leary was the President and CFO of Jet Partners, LLC from 2002 to 2004. During
      that time annual revenues grew from $12 million to $17.5 million. From 1996
      to
      2000, Mr. O’Leary was CEO and President of Communication Resources Incorporated
      (CRI), where annual revenues grew from $5 million to $40 million during his
      tenure. Prior to CRI, Mr. O’Leary was Vice President of Operations of
      Cablevision Industries, where he ran $125 million of business for this major
      cable operator until it was sold to Time Warner.





On
      May
      31, 2007, we concluded an equity private placement with a corporate investor
      which comprised an initial payment of $500,000 (GBP253,000) in exchange for
      446,428 ADSs at a price of $1.12 per ADS, and warrants giving the investor
      the
      right to purchase a further 3,000,000 ADSs at a price of $1.12 per ADS (3,000
      ADSs at $1,120.00 on an adjusted basis to reflect the change in ADS:Ordinary
      Share ratio of 1:1,000 that went into effect on December 3, 2007) .
      The
      warrants are exercisable for one year from May 2, 2007. The warrant price was
      subsequently reduced to $0.24 ($240.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) on
      October 8, 2007. No exercises had been made under the warrant to
      date.




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On
      June
      1, 2007, we concluded a $4,600,000 (GBP2,327,000) financing with Cornell in
      the
      form of secured convertible debentures (the “June 2007 Loan”). The June 2007
      Loan is convertible (subject to certain terms and conditions) into ADSs of
      Futuremedia and may be converted from time to time at Cornell’s option (subject
      to certain restrictions and limitations on the amount of shares converted).
      The
      conversion rate is based on the lesser of $1.25 ($25.00 on an adjusted basis
      to
      reflect the change in ADS:Ordinary Share ratio of 1:1,000 that went into effect
      on December 3, 2007) or 80% of the lowest volume weighted average price during
      the 30 trading days immediately preceding the time of conversion. The June
      2007
      Loan, secured by the assets of Futuremedia, has a term of three years and bears
      interest at an annual rate of the greater of 12% or the Wall Street Journal
      Prime Rate plus 2%. The Company can redeem the instrument at a 20% premium
      if
      the bid price of the Company’s ADSs is less than $1.25 ($25.00 on an adjusted
      basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000 that went
      into effect on December 3, 2007) at the time of redemption. Cornell
      received a commitment fee of $490,000 (GBP248,000), resulting in net proceeds
      to
      the Company of $4,110,000 (GBP2,079,000), of which $1,128,000 (GBP571,000)
      was
      used to repay obligations to Cornell arising under previous financing
      transactions. In
      connection with the offering of the June 2007 Loan, the Company entered into
      a
      securities purchase agreement with Cornell, pursuant to which the Company is
      required to comply with certain ongoing covenants. These covenants include,
      but
      are not limited to: (1) as long as the June 2007 Loan is outstanding, Mr. George
      O'Leary, Ms. Margot Lebenberg and Mr. Brendan McNutt must be appointed and
      remain directors of the Company for a period of 18 months; (2) within 30
      calendar days, the Company must terminate a minimum of 25 employees whose total
      annualized remuneration is not less than GBP1,133,000, and accordingly reduce
      overhead by such amount; (3) within 60 calendar days, the Company must achieve
      minimum revenue of GBP1,769,458 and EBITDA of (GBP367,419); and (4) within
      90
      calendar days, the Company must achieve minimum revenue of GBP2,957,678 and
      EBITDA of (GBP536,196). The Company achieved the targets.





On
      June
      21, 2007 we announced that we received a letter from the Nasdaq Stock Market
      indicating that we had regained compliance with Marketplace Rule 4350 which
      requires a company’s audit committee to be composed of at least three
      independent directors.





Due
      to
      the decline in the market price of our ADRs, the Company was being required
      to
      issue shares for a consideration of less than their current nominal value of
      one
      and one-ninth pence each; which is prohibited by English company
      law.  As a result, on July 28, 2007 Futuremedia sub-divided each
      existing Ordinary Share of one and one-ninth pence into one new
      Ordinary Share of 0.010 pence and one deferred share of approximately 1.101
      pence. The new Ordinary Shares of 0.010 pence have all the rights and are
      subject to all the restrictions of the existing Ordinary Shares of one and
      one
      ninth pence, and the sub-division should not affect the value of such shares.
      ADR holders retain the same number of Ordinary Shares and ADRs as held
      currently, representing the same percentage of the Company's issued share
      capital as were held prior to the sub-division. The deferred shares have no
      rights as to voting, dividend entitlement and only very limited rights on return
      of capital. The deferred shares will not be admitted to trading on any stock
      exchange. In addition, the deferred shares have no right to receive notice
      of,
      or attend or vote at, any general or class meeting (other than a class meeting
      of the deferred shareholders). No share certificates will be issued in respect
      of the deferred shares (which the Company is taking authority to buy back for
      a
      nominal amount or cancel for no consideration).





On
      August
      23, 2007, we entered into a private placement with Cornell to provide financing
      of up to $6,050,000 (GBP3,047,000) in convertible secured debentures, together
      with warrants to purchase up to 1,500,000 shares of common stock at an exercise
      price of $0.77 ($15.40
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) per
      share. The first tranche of $3,200,000 (GBP1,521,000) was funded at closing.
      The
      balance is to be funded in six additional increments through June 15, 2008
      in
      the form of additional secured convertible debentures, subject to the Company
      meeting certain performance conditions. The secured convertible debentures
      have
      a variable interest rate not less than 12% and are secured by all of the assets
      of Futuremedia pursuant to a debenture dated June 1, 2007. The conversion price
      of the secured convertible debentures is equal to the lesser of (1) $1.25 per
      ADS ($25.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) or
      (b) an
      amount equal to 80% of the lowest volume weighted average price of the ADSs,
      as
      quoted by Bloomberg, LP, during the thirty (30) trading days immediately
      preceding the conversion date. During November 2007, Cornell accelerated the
      final three installments and funded a total of $1,435,000 (GBP705,000) that
      had
      been scheduled to be funded through June 2008.




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On
      October 15, 2007, the board of directors of the Company, at the recommendation
      of the audit committee, made a determination to replace its prior auditors,
      BDO
      Stoy Hayward LLP. BDO Stoy Hayward LLP submitted its notice of resignation
      to
      the Company on October 15, 2007 and the Company accepted it on the same date.
      After conducting a search, the determination was made to retain Deloitte &
Touche LLP as Futuremedia's independent auditor. As a result, Deloitte &
Touche LLP became the Company’s the sole independent auditor, effective as of
      October 25, 2007.





On
      November 8, 2007, the Company announced that it has retained its International
      Organization for Standardization 9001:2000 (ISO) Quality Management System
      certification from the SGS Group for the third consecutive year. The ISO
      standard is intended for use in any organizations that develop, manufacture,
      install, service any product or provide any form of service. ISO 9001:2000
      is
      based on eight management principles; Customer Focus, Leadership, Involvement
      of
      People, Process Approach, System Approach, Continual Improvement, Fact-based
      Decision Making and Mutually beneficial Supplier Relationships.





Effective
      December 3, 2007, the ratio of our ADSs to Ordinary Shares was changed to
      1:1,000 from 1:50. The Bank of New York, our depositary, contacted registered
      ADS holders with regards to this change. Shareholders received 1 ADS for each
      1,000 ADSs held. The Bank of New York sold a portion of the new ADSs to
      establish a “cash in lieu” rate for fractional ADSs, and ADS holders whose
      holdings were not exactly divisible by 1,000 received cash in lieu of fractional
      amounts, at the rate established by The Bank of New York. Total number of ADSs
      outstanding after the ratio change was approximately 587,400. As a result of
      this ratio amendment, the ADS price automatically increased proportionally.
      However, there is no assurance that the post-amendment ADS price will be at
      least equal to or greater than the pre-amendment ADS price multiplied by the
      ratio change. The ratio reset is expected to bring the Company in compliance
      with Marketplace Rule 4320(e)(2)(E)(i) which requires a minimum bid price of
      $1.00 per ADS.





On
      December 20, 2007, the Company announced the appointment of Sabine Steinbrecher
      to Director and George O'Leary, CEO and Director, to Chairman of the Board
      of
      Directors, and the resignation of Jan Vandamme from his position as Director
      and
      Chairman of the Board.





On
      January 9, 2008, we completed a financing arrangement whereby we (1) entered
      into a convertible debenture with Cornell with a face value of $2,000,000
      (GBP1,013,000) (the “January 2008 Loan”), and (2) completed a private placement
      of 100,000 Ordinary Shares for an aggregate purchase price of $100,000
      (GBP51,000) with NACME. The January 2008 Loan is convertible into ADSs (each
      representing 1,000 Ordinary Shares) at a rate
      equal to the lesser of $1.00, or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that Cornell cannot exceed 4.99% ownership, unless
      they waive their right to such limitation with 65 days’ written
      notice .
      The
      loan has a term of three years and bears interest at an annual rate equal to
      the greater
      of twelve percent (12%) or The Wall Street Journal Prime Rate, as quoted by
      the
      print edition of the United States version of The Wall Street Journal, plus
      two
      percent (2.00%) . The
      January 2008 Loan is secured by all of the Company’s assets. The
      Company can redeem the instrument at a 15% premium if the closing bid price
      of
      the Company’s ADSs is less than $1.00 at the time of redemption. In connection
      with the private placement with NACME, the Company issued NACME a warrant to
      purchase 5,000,000 ADSs at an exercise price of $2.00 per ADS. The Company
      paid
      fees of $129,000 (GBP66,000) to Cornell and NACME, resulting in net funding
      of
      $1,971,000 (GBP999,000).




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On
      January 16, 2008, the Company received a notice of non-compliance from the
      staff
      of the Listing Qualifications Department of The Nasdaq Stock Market. The notice
      indicated that based upon the Company's failure to timely file the Annual Report
      on Form 20-F for the fiscal year ended June 30, 2007 with the SEC, as required
      by Nasdaq Marketplace Rule 4320(e)(12), the Company's common stock is subject
      to
      delisting from The Nasdaq Capital Market unless the Company requests a hearing
      before a Nasdaq Listing Qualifications Panel. The Company has a hearing
      scheduled for February 21, 2008.




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**B.**  **BUSINESS
      OVERVIEW**




**The
      Design, Exhibition and Events Industry** ******





Within
      the Design, Exhibition and Events Industry, the Company provides services to
      corporate clients by taking responsibility for designing, installing and
      managing exhibitions, events and conferences for those clients worldwide. The
      successful market players take responsibility for concept, design, construction,
      logistics, project management and liaison with all local venue organizers,
      including technical and health and safety departments. In addition, key market
      players provide further “value add” services, advising clients on their
      strategies and implementation for brand design, marketing, and internal and
      external communications more generally.




On
      May
      26, 2006 the Company announced that it had completed the acquisition of Button,
      which has over 32 years of experience of working in the Design, Exhibition
      and
      Events Industry. Button’s 3-D design team has extensive experience of designing
      and managing stands at some of the world’s largest exhibitions, including Mobile
      World Congress, Marché International des Professionnels (MIPIM, MIPTV, MAPIC and
      MIPCOM), ITU Telecom World, and Centrum Buero Information Telekommunikation
      (CEBIT). In addition, Button is an integrated global design agency committed
      to
      building dynamic and cost-effective brand relationships between its clients
      and
      their customers. Button works closely on the strategy and positioning of a
      customer and its brand identity, providing a range of services from initial
      naming development to the creation of a new brand, service or product.




Button
      combines very strong design skills with extensive strategic planning and
      implementation. Over the past few years Button has worked with many leading
      organizations on their brand strategy, expression and experience requirements.
      The team has extensive experience of successfully designing and delivering
      exhibitions, exhibition stands, interiors, corporate events, internal
      communications (conferences, collateral, and websites), business-to-business
      marketing, business-to-customer marketing, public events and experimental
      marketing. Button’s account managers seamlessly manage venue liaison, contractor
      liaison and monitor catering, health & safety requirements, local
      legislation and event coordination.  They are available on-site throughout
      the exhibitions, conferences, events and seminars that they
      coordinate.





**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 Intranet. Hosting
      services are provided to reduce the technological hurdles to e-Learning. Service
      providers can host technology and content on an Applications Service Provider
      (ASP) model, removing any hardware or software requirements for the clients’
organization.




27
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          of Contents*




The
      Company has expanded its products and service range 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. 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.




An
      example of the challenges e-Learning presents to training departments is that
      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 positioned itself to deliver complete business solutions, rather than an
      inventory of discrete components from which the customer 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 AllTM business unit, which
      was focused on helping organizations derive the maximum strategic value from
      the
      UK’s HCI and other similar schemes in continental Europe. HCI was a government
      scheme that gave tax breaks to employers who provided personal computers for
      their employees at low cost. On March 22, 2006, the UK Government announced,
      as
      part of its bi-annual treasury budget statement, the termination of the tax
      benefits associated with HCI. The termination became effective on April 6,
      2006.
      Those employers and employees who signed up for the HCI benefit prior to April
      6, 2006 remain eligible to receive this benefit for its three year term. We
      continue to provide certain services to HCI clients and their employees and
      recognize the revenue associated with those services and which was previously
      deferred at each balance sheet date. However new-business related HCI revenues
      have been immaterial since the termination became effective. We do not expect
      additional significant revenue in the future due to the program’s termination.




28
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          of Contents*




**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.




**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.




**Revenue
      Streams**




During
      the year ended June 30, 2007, the Company derived approximately 68% of its
      gross
      revenues from sales generated through its Button business, 17% from its Learning
      for All business, and 15% from its e-Learning business. During the two months
      ended June 30, 2006, the Company derived approximately 41%, 43%, and 16% of
      its
      gross revenues from its Button, Learning for All, and e-Learning businesses,
      respectively. During the year ended April 30, 2006, the Company derived
      approximately 91% of its revenue from Learning for All, and 9% from E-Learning.
      No revenue was generated from Button during these periods, as it was acquired
      in
      May 2006. These sales mix changes resulted primarily from the acquisition of
      Button in May 2006 and the discontinuation of the HCI scheme in April
      2006.




29
 *Table
          of Contents*




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





(A)TwoYear
            
            
            
            MonthsEnded
            
            
            
            EndedJune
                30,
            
            
            
            June
                30,
            
            
            
            Years
                Ended April 30,2007
            
            
            
            2006
            
            
            
            2006
            
            
            
            2005GBP'000
            
            %
            
            GBP'000
            
            %
            
            GBP'000
            
            %
            
            GBP'000
            
            %United
                Kingdom
            
            
            9,133
            
            
            67.7
            
            
            2,062
            
            
            66.3
            
            
            16,642
            
            
            100.0
            
            
            15,398
            
            
            100.0Rest
                of Europe
            
            
            1,788
            
            
            13.3
            
            
            934
            
            
            30.0
            
            
            0
            
            
            0.0
            
            
            0
            
            
            0.0North
                America
            
            
            2,569
            
            
            19.0
            
            
            116
            
            
            3.7
            
            
            0
            
            
            0.0
            
            
            0
            
            
            0.0Totals
            
            
            13,490
            
            
            100.0
            
            
            3,112
            
            
            100.0
            
            
            16,642
            
            
            100.0
            
            
            15,398
            
            
            100.0





(A)
                  -
                      Amounts restated and represented from previously published
                      results. Please
                      refer to Note 3 to the enclosed consolidated financial statements
                      for
                      discussion of the restatement, and Note 4 for a discussion
                      of the
                      representation of discontinued
                      operations.


**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 June 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.




**Marketing
      and Sales**




In
      the
      Design, Exhibition and Events industry, the Company markets its products through
      a direct sales force located in France, the UK, and the U.S. Project
      implementation involves a team of sales, creative and technical project delivery
      personnel to provide both pre-sale support and post-sale project delivery.




The
      Company’s sales process for its e-Learning products and services usually
      involves a team drawn from sales, 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
      activity includes participation in trade shows. 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.




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**




In
      the
      Design, Exhibition and Events industry, there are many companies that offer
      similar services to Button, and price is often used as a point of difference
      to
      win business. Therefore pressure on profit margins is often strong. Button’s
      intention is to differentiate itself by providing an excellence of service
      and
      experience which justifies a higher profit margin for Button. Button’s direct
      competitors include 2Heads, Mayridge, and 2LK.




30
 *Table
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In
      the
      Design, Exhibition and Events industry, customers are often reluctant to move
      from their incumbent suppliers, which means that Button must proactively propose
      alternative ways that prospective clients could achieve their corporate and
      marketing objectives by doing business with Button. Button must also defend
      its
      existing clients from similar initiatives by competitors.





e-Learning
      is a market that has shown a tremendous 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 become the
      most creative solutions provider in the UK.




Developments
      in the market since 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. 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 Thomson, 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 possess 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.




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. 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.




**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.




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The
      Solstra TM 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 AllTM, AktivnaTM 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.




**C.**  **ORGANIZATIONAL
      STRUCTURE**




Futuremedia
      PLC, Button Group Limited, Eventures SARL(France), Button Group, Inc. (USA),
      and
      Executive Business Channel Limited are the principal operating entities in
      the
      Futuremedia Group. Futuremedia also had the following wholly owned
      subsidiaries:




NAME
            
            COUNTRY
                OF INCORPORATIONButton
                Communications Holdings Limited
            
            EnglandButton
                  International Events Limited
            
            EnglandLexon,
                Inc.
            
            British
              Virgin IslandsBetter
                Note, Ltd.
            
            England




32


**D.**  **PROPERTY,
      PLANT AND EQUIPMENT**





The
      Company has entered into a lease arrangement for its headquarters office
      facilities in Brighton, England until March 1, 2014. 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. This was reduced back to the
      original 4,700 square feet in December 2006 as a direct result of the abolition
      of the tax incentives provided under the UK Government’s Home Computing
      Initiative scheme. The annual cost, including service charges, is approximately
      GBP115,000.




Button
      occupies premises in (i) London, England, pursuant to a lease arrangement which
      expires in October 2009, the annual cost of which is approximately GBP90,000
      (the Company renegotiated this lease in October 2007 from its previous
      expiration of October 2011 at an annual rate of GBP170,000), (ii) Cannes,
      France, pursuant to a lease arrangement which expires in December 2010, the
      annual cost of which is approximately GBP16,000, and (iii) Marina del Rey,
      California, USA, pursuant to a lease arrangement which expires in May 2008,
      the
      annual cost of which is approximately GBP42,000.




EBC
      occupied premises in Milton Keynes, England, pursuant to a lease arrangement
      which originally expired on March 31, 2008. The Company closed the office during
      August 2006. In connection with the closure, the Company paid a fee of GBP15,000
      for termination of the balance of the lease after March 24, 2007.




**ITEM
      4A. UNRESOLVED STAFF COMMENTS**




Not
      applicable.




33


**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 Annual
      Report.




**A.**  **OPERATING
      RESULTS**




**Critical
      Accounting Policies**




The
      SEC
      issued Financial Reporting Release No. 60, “ *Cautionary
      Advice Regarding Disclosure About Critical Accounting Policies* ”
(“FRR
      60”), suggesting companies provide additional disclosure and commentary on their
      most critical accounting policies. In FRR 60, the SEC defined the most critical
      accounting policies as the ones that are most important to the portrayal of
      a
      company’s financial condition and operating results, and require management to
      make its most difficult and subjective judgments, often as a result of the
      need
      to make estimates of matters that are inherently uncertain. Based on this
      definition, the Company’s most critical accounting policies include: intangible
      asset valuation, which affects amortization and impairment of goodwill and
      other
      intangibles; financial instruments and concentrations of credit risk, which
      affects gains and losses from derivative financial instruments; stock based
      compensation; and revenue recognition. The methods, estimates and judgments
      the
      Company uses in applying these most critical accounting policies have a
      significant impact on the results we report in our consolidated financial
      statements.





**Intangible
      Asset Valuation**





The
      Company is required to determine the fair value of intangible assets when
      allocating the purchase price of an acquired business and when calculating
      the
      amount of an impairment write down. The carrying value of intangible assets
      other than goodwill as of June 30, 2007 and 2006 was GBP3,743,000 and
      GBP4,844,000, respectively. The carrying value of goodwill as of June 30, 2007
      and 2006 was GBP5,675,000 and GBP8,194,000, respectively.





*Goodwill*




At
      the
      time of the acquisition to which it relates, goodwill is calculated based on
      the
      excess of the purchase price paid over the identifiable net assets and
      liabilities acquired at fair value. Goodwill is tested at least annually for
      impairment and is carried at cost less any recognized losses. To identify
      potential impairment of the goodwill, the fair value of the reporting unit
      to
      which the goodwill is allocated is compared with its carrying amount. If the
      carrying amount of the reporting unit, including the goodwill, exceeds its
      fair
      value, the goodwill is tested for impairment based on its implied fair value.
      The implied fair value of goodwill represents the excess of the fair value
      of
      the reporting unit over the fair value of its identifiable assets, liabilities
      and contingent liabilities at the date of the impairment test. An impairment
      loss is recognized if and to the extent that the carrying amount of the goodwill
      exceeds its implied fair value. Estimating fair value of an asset requires
      the
      use of several assumptions that are highly subjective in nature, most notably
      sales and cost projections associated with the asset group, and discount rate
      applicable to the asset. Relatively minor movements in these assumptions could
      cause material changes to the estimated fair value, and any relating impairment
      charge. To form its assumptions, management uses its best estimates based on
      available empirical data, as well as its plans and expectations for the asset
      group begin tested.





*Other
      Intangible Assets*





The
      Company primarily uses the discounted cash flow analysis to estimate the value
      of other intangible assets acquired. This method requires management judgment
      to
      forecast the future operating results used in the analysis and to determine
      other significant estimates required, such as residual growth rates and discount
      factors. The estimates the Company has used are consistent with the plans and
      estimates that we use to manage our business, based on available historical
      information and industry averages.




34
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          of Contents*




The
      assumptions used in developing expected cash flow estimates are similar to
      those
      used in developing other information used by the Company for budgeting and
      other
      forecasting purposes. In instances where a range of potential future cash flows
      is possible, the Company uses a probability-weighted approach to weigh the
      likelihood of those possible outcomes. In such instances, the Company uses
      a
      discount rate equal to the yield on zero-coupon treasury instrument with a
      life
      equal to expected life of the assets being tested.




Other
      intangible assets are reviewed for impairment when events or circumstances
      indicate that the carrying amount of the asset or asset group may not be
      recoverable. In that event, an impairment loss is recognized to the extent
      that
      the carrying amount of the asset or asset group exceeds its fair value. Fair
      value is determined based on quoted market prices, where available, or is
      estimated as the present value of the expected future cash flows from the asset
      or asset group discounted at a rate commensurate with the risk involved.




Estimating
      fair value of an asset requires the use of several assumptions that are highly
      subjective in nature, most notably sales and cost projections associated with
      the asset group, and discount rate applicable to the asset. Relatively minor
      movements in these assumptions could cause material changes to the estimated
      fair value, and any relating impairment charge. To form its assumptions,
      management uses its best estimates based on available empirical data, as well
      as
      its plans and expectations for the asset group begin tested.




**Financial
      Instruments and Concentrations of Credit Risk**





The
      Company’s financial instruments consist of cash and cash equivalents, accounts
      receivable, amounts recoverable on contracts, accrued income, amounts
      recoverable from vendors, fees paid in advance, accounts payable, accrued
      expenses, derivative financial instruments, and convertible debenture financing.
      Management believes the carrying values of all financial instruments except
      convertible debentures approximate their fair values due to their short-term
      nature.




The
      Company utilizes convertible debentures and other instruments indexed to the
      Company’s own stock to fund its business needs. The embedded derivative features
      utilized in these instruments require periodic measurement of the fair value
      which was estimated on June 30, 2007 to be a liability of approximately
      GBP5,729,000.





The
      Company does not use derivative financial instruments to hedge exposures to
      cash-flow risks or market risks that may affect the fair values of its financial
      instruments. However, certain other financial instruments, such as warrants
      and
      embedded conversion features that are indexed to the Company’s common stock, are
      classified as liabilities when either the holder possesses rights to net-cash
      settlement or physical or net-share settlement is not within the control of
      the
      Company. In such instances, net-cash settlement is assumed for financial
      accounting and reporting, even when the terms of the underlying contracts do
      not
      provide for net-cash settlement. Such financial instruments are initially
      recorded at fair value and subsequently adjusted to fair value at the close
      of
      each reporting period.





The
      caption “Derivative Financial Instruments” consists of the fair values
      associated with derivative features embedded in the various convertible
      debentures issued by the Company, and the fair values of the detachable warrants
      that were issued in connection with the convertible debentures. In accordance
      with Statements on Financial Accounting Standards No. 133, ‘Accounting for
      Derivative Instruments and Hedging Activities’ (“FAS 133”), the Company
      determined that the conversion features of the convertible loans met the
      criteria of embedded derivatives and that the conversion features of these
      instruments needed to be bifurcated and accounted for as derivative instrument
      liabilities. In addition, certain of the put and call features embedded within
      the convertible loans met the criteria of embedded derivatives and were also
      bifurcated as derivative instruments. For each convertible instrument, the
      Company evaluated all significant features and, as required under current
      accounting standards, aggregated the components into one compound derivative
      financial instrument for financial reporting purposes. For financings recorded
      in accordance with FAS 133, the compound embedded derivative instruments are
      valued using the Flexible Monte Carlo methodology because that model embodies
      certain relevant assumptions (including, but not limited to, interest rate
      risk,
      credit risk, and conversion/redemption privileges) that are necessary to value
      these complex derivatives. Certain of the assumptions used in the Flexible
      Monte
      Carlo methodology are subjective and changes in these assumptions can have
      a
      significant impact on the estimated fair value.




35
 *Table
          of Contents*




Freeestanding
      derivative instruments, consisting of warrants that arose from the financings,
      are valued using the Black-Scholes-Merton valuation methodology because that
      model embodies all of the relevant assumptions that address the features
      underlying these instruments.





Derivative
      financial instruments arising from the issuance of convertible financial
      instruments are initially recorded, and continuously carried, at fair value.
      Upon conversion of any derivative financial instrument, the change in fair
      value
      from the previous reporting date to the date of conversion is recorded to income
      (loss), and then the carrying value is recorded to paid-in capital, provided
      all
      other criteria for equity classification are met.





Changes
      in the fair values of derivative instrument liabilities (including warrants
      and
      the bifurcated embedded derivative features of convertible instruments not
      carried at fair value) are reported as “Gain (loss) on derivative financial
      instruments” in the consolidated statement of operations.





**Stock-based
      Compensation**





Stock-based
      compensation is provided to employees,
      officers, directors, consultants and advisors under
      the
      Company’s share option schemes. The Company adopted FASB Statement No. 123(R) *“Share-based
      Payment”* (“FAS
      123(R)”) using the modified prospective method with an effective date of May 1,
      2006, whereby the standard was applied prospectively to the unvested portion
      of
      awards that were outstanding as at May 1, 2006 and all awards granted, modified
      or settled on or after May 1, 2006. Accordingly, the compensation expense
      recognized in the year ended June 30, 2007 and, the two month period ended
      June
      30, 2006 was based on the fair value of the awards measured by using the Black
      Scholes option-pricing model at the date of grant.





Determining
      the fair value of stock-based awards at the grant date requires judgment,
      including estimating expected dividends, volatility and the expected term.
      Volatility is calculated using a straight backward-looking volatility equal
      to
      the expected life of the relevant option, based on daily closing prices of
      the
      Company’s stock as reported on Yahoo.com.





The
      expected term of an option grant is calculated based on historical activity
      in
      its option plans since inception. Futuremedia uses the actual option grants
      by
      year to calculate the actual life of each option that is forfeited or exercised.
      Options not forfeited or exercised are assumed to remain outstanding until
      contractual expiration, with a forfeiture rate, based on actual forfeitures,
      assumed prior to expiration. A weighted average remaining expected life is
      then
      calculated for each grant year, and this result is used in the Black Scholes
      input for grants in the corresponding year. The expected term of options granted
      pursuant to the Company’s option plans ranged from 0.6 to 5.9 years.




Prior
      to
      adopting SFAS123(R), the Company accounted for stock-based compensation in
      accordance with Accounting Research Bulletin No. 25 *“Accounting
      for Stock Issued to Employees”* (“APB
      25”), whereby the compensation expense was based on the intrinsic value of the
      unvested awards determined at the measurement date. The measurement date was
      the
      first date on which both the number of shares that were subject to the award
      and
      the option or purchase price, if any, was known. Adjustments for forfeitures
      were made to the compensation expense in the period in which they occurred.




36
 *Table
          of Contents*




The
      Company’s consolidated financial statements for the years ended April 30, 2006
      and 2005 have not been restated to reflect the adoption of FAS 123(R) as
      permitted by the prospective application.





**Revenue
      Recognition**





We
      currently derive our revenue primarily from three sources (1) trade show design
      and event management through our Button business, (2) e-Learning services,
      and
      (3) hardware, software and service sales. In previous years, we also derived
      revenue from the sale of hardware and software under the UK Government’s Home
      Computing Initiative Scheme, which was terminated by the UK Government on April
      6, 2006. The revenue recognition accounting treatment is detailed in Footnote
      2
      to the accompanying consolidated financial statements.





Significant
      management judgments and estimates must be made and used in connection with
      the
      revenue recognized in any accounting period. Material differences may result
      in
      the amount and timing of our revenue for any period if our management made
      different judgments or utilized different estimates. Critical assumptions that
      could have a material impact on the timing and amount of revenue we recognize
      include estimates of: the percentage of completion on projects recognized in
      this manner, the relative fair value of each component in a multiple obligation
      arrangement, and percentage of returns.




**Restatement
      of Previously Issued Financial Results**




Subsequent
      to the issuance of the Company’s audited financial statements for the year ended
      April 30, 2006 as filed on Form 20-F on November 14, 2006 and the unaudited
      financial statements for the two months ended June 30, 2006 as filed on Form
      20-F on November 16, 2006, the Company’s management discovered accounting errors
      relating to the accounting for convertible debt instruments issued during the
      year ended April 30, 2006.





The
      principal errors were as follows:




·
            the
                Company did not separately identify all embedded derivative features,
                in
                particular certain default put and call features, within the convertible
                debt instrument and account for these at fair value on its consolidated
                balance sheet; and




·
            detachable
                warrants issued in conjunction with the convertible debt issued to
                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 “MAG”), on July 21, 2005 were
                accounted for as equity instruments rather than as derivative liabilities.





As
      a
      consequence of the identification of additional embedded derivative features
      within the convertible debt the Company has utilized a Flexible Monte Carlo
      simulation model to estimate the fair value of the compound embedded derivatives
      due to the interdependencies between the various embedded features. Previously,
      the Company had utilized a Black Scholes valuation model since it only
      identified the conversion feature as an embedded derivative.





In
      connection with the use of a different valuation model the Company has also
      refined a number of the input assumptions used to estimate the fair value of
      the
      embedded features. In particular, the conversion price used in the model has
      been determined in accordance with the terms of each convertible debt
      instrument, which is generally based upon a weighted average calculation for
      the
      prior 30 days trading, rather than the actual share price at each valuation
      date.





In
      order
      to reflect the changes described in this note, this Form 20-F restates the
      statements of operations, cashflows, and changes in shareholders’ equity for the
      two months ended June 30, 2006 and the year ended April 30, 2006.




37


A
      complete discussion and tabular presentation of the effect of the changes is
      presented in Note 3 to the consolidated financial statements presented herein.




**Overview
      of Operating Results**




For
      the
      fiscal year ended June 30, 2007, two month period ended June 30, 2006, and
      fiscal years ended April 30, 2006 and 2005, the Company reported net income
      (losses) of (GBP9,421,000), GBP3,007,000, (GBP6,534,000), and (GBP3,957,000),
      respectively, on revenues of GBP13,490,000, GBP3,112,000, GBP16,642,000, and
      GBP15,398,000, respectively. As a consequence of its operating results, the
      Company has encountered significant cash constraints on its operations.
      Operationally, management regards the business as falling into one of three
      business streams: E-Learning, Button, or Learning for All. The summary income
      statement analyzed into the three operating segments is as follows for the
      year
      ended June 30, 2007, the two month period ended June 30, 2006 and years ended
      April 30, 2006 and 2005:




**(A)**
            
            **(A)****Two****Year**
            
            **Months**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****June
                30,**
            
            **June
                30,**
            
            **April
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**
            
            **2005**(GBP'000)**Net
                sales:**E-learning
            
            
            1,942
            
            
            485
            
            
            1,418
            
            
            1,362Learning
                for All
            
            
            2,316
            
            
            1,361
            
            
            15,224
            
            
            14,036Button
            
            
            9,232
            
            
            1,266
            
            
            0
            
            
            013,490
            
            
            3,112
            
            
            16,642
            
            
            15,398**Net
                (loss)/income from continuing operations:**E-learning
            
            
            (2,750
            )
            
            90
            
            
            (267
            )
            
            (325
            )Learning
                for All
            
            
            836
            
            
            (5
            )
            
            490
            
            
            (513
            )Button
            
            
            (401
            )
            
            128
            
            
            0
            
            
            0Charges
                not associated with a particular segment
            
            
            (6,722
            )
            
            2,831
            
            
            (6,402
            )
            
            (3,135
            )(9,037
            )
            
            3,044
            
            
            (6,179
            )
            
            (3,973
            )







(A)
            -
                Amounts restated and represented from previously published results.
                Please
                refer to Note 3 to the enclosed consolidated financial statements
                for
                discussion of the restatement, and Note 4 for a discussion of the
                representation of discontinued operations.




38


**Year
      ended June 30, 2007 Compared with Year ended April 30,
      2006**




*Net
      Sales*




The
      Company achieved net sales of GBP13,490,000 in the year ended June 30, 2007,
      a
      decrease of GBP3,152,000, or 19%, when compared to GBP16,642,000 in the previous
      year. The decrease results from lower sales of GBP12,908,000 in 2007 as a
      consequence of the termination of the HCI scheme by the UK government in April
      2006, which is offset by higher sales of GBP9,232,000 from newly acquired Button
      business (May 2006), and higher sales of GBP524,000 in the e-Learning business
      resulting from sales related to EBC, which was acquired in April 2006.




*Cost
      of Sales*




Cost
      of
      sales for the year ended June 30, 2007 were GBP8,025,000, a decrease of
      GBP5,763,000, or 42%, as compared with cost of sales of GBP13,788,000 during
      the
      year ended April 30, 2006. The decrease results from lower cost of sales of
      GBP11,194,000 in 2007 corresponding with lower sales as a consequence of the
      termination of the HCI scheme by the UK government in April 2006, and is offset
      by cost of sales of GBP5,381,000 associated with Button’s operations, and
      GBP50,000 from the e-Learning business.




*Gross
      Profit*




The
      gross
      profit for the year ended June 30, 2007 increased to GBP5,465,000, an increase
      of GBP2,611,000, or 91%, compared with gross profit of GBP2,854,000 for the
      year
      ended April 30, 2006. The improvement arises from a fundamental shift from
      lower-margin hardware sales under the HCI scheme in 2006, to higher-margin
      service revenue from the Button and e-Learning businesses in 2007.





*Operating
      Expenses*




Operating
      expenses increased in the year ended June 30, 2007 to GBP13,017,000, a change
      of
      GBP5,536,000, or 74%, compared with operating expenses of GBP7,481,000 for
      the
      year ended April 30, 2006. The change arose as a result of (i) operating
      expenses in 2007 relating to the Button business, acquired in May 2006, of
      GBP5,204,000, (ii) an impairment charge of GBP2,519,000 relating to intangibles
      acquired in connection with EBC, and (iii) higher operating expenses related
      to
      the e-Learning business of GBP364,000, offset by (iv) lower operating expenses
      in the Learning for All business of GBP1,255,000 and (v) lower corporate and
      overhead costs of GBP1,296,000 realized through reduction in personnel and
      overhead costs.





*Interest
      Income and Expense*




Interest
      income for 2007 was GBP14,000 compared to interest income for 2006 of GBP41,000,
      a decrease of GBP27,000, or 66%. The reduction results from lower average
      surplus cash balances in interest-bearing accounts during 2007 as compared
      with
      2006.




Interest
      expense for the year ended June 30, 2007 was GBP1,510,000 compared to
      GBP1,354,000 for 2006, an increase of GBP156,000, or 12%. Interest expense
      consists primarily of interest on the convertible loan instruments and
      amortization of debt discount associated with convertible debt instruments
      issued by the Company. Higher interest expense in 2007 as compared with 2006
      results from higher average debt balances during 2007.




*Foreign
      Currency Gains*




The
      Company recognized gains of GBP521,000 and GBP263,000 in the years ended June
      30, 2007 and April 30, 2006, respectively. The gains result primarily from
      the
      restatement into British Pounds Sterling of financing instruments denominated
      in
      U.S. Dollars.




39
 *Table
          of Contents*




*Gain
      (loss) on Derivative Financial Instruments*




Loss
      on
      derivative financial instruments was GBP1,154,000 for the year ended June 30,
      2007, compared with GBP502,000 for the year ended April 30, 2006, an increase
      of
      GBP652,000 or 130%.  The gains and losses are associated with convertible
      debentures issued by the Company.  Certain features, including the
      conversion feature, are accounted for as a compound embedded derivative and
      are
      recorded at fair value on the accompanying balance sheet *.* The
      gains
      (losses) represent the reduction (appreciation) in value of the compound
      embedded derivatives from the beginning of each reporting period presented
      to
      the end of the period.




*Income
      Taxes*




The
      Company recognized income tax income during the year ended June 30, 2007
      relating primarily to the recognition of deferred
      tax assets in the
      amount of GBP644,000. The income tax expense was GBPnil in the year ended April
      30, 2006. The income in the year ended June 30, 2007 reflects the recognition
      of deferred
      tax assets to
      offset deferred tax liabilities recognized in the acquisitions of EBC and
      Button, offset by current income tax expense.  At June 30, 2007, potential deferred
      tax assets amounted
      to GBP9,444,000, of which GBP781,000 was recognized and netted against potential
      deferred tax liabilities of GBP1,124,000.




*Loss
      from Operations of Discontinued Operations*




Loss
      from
      operations of discontinued operations consists of the operations of Open
      Training, which was sold during April 2007. Loss from this business was
      GBP256,000 for the year ended June 30, 2007, compared with GBP355,000 for the
      year ended April 30, 2006, an improvement of GBP99,000 or 28%. The 2007 loss
      represents approximately 9 months of operations, compared with a full year
      in
      2006.




*Loss
      on Disposal of Discontinued Operations*




The
      Company recognized a loss on the disposal of Open Training in the amount of
      GBP128,000 in the year ended June 30, 2007, resulting from the excess carrying
      value of the business at the time of sale over the fair value of proceeds
      received by the Company.




40


**Two
      Months Ended June 30, 2006**




Effective
      August 7, 2006, the Company changed its fiscal year end from April 30 to June
      30. As a result, results of operations are presented herein for the transition
      period from May 1, 2006 to June 30, 2006.




The
      Company recognized revenue of GBP3,112,000 during the two month period ended
      June 30, 2006, with gross profit margin of GBP983,000, or 32% of sales.
      Operating expenses for the two month period were GBP1,368,000. The Company
      recognized a gain on derivative financial instruments of GBP3,556,000 during
      the
      two months ended June 30, 2006, as a result of changes in fair value of
      derivative and embedded derivative financial instruments associated with the
      Company’s financing arrangements. Net income for the period was GBP3,007,000. In
      the absence of the derivative gain, which resulted primarily from a decrease
      in
      the fair value of derivative liabilities that are indexed to the Company’s
      shares corresponding to a decrease in the Company’s stock price, the Company’s
      net loss was GBP549,000.




During
      the two month period, the Company completed its acquisition of Button. Button
      results are included in the Company’s consolidated financial results from the
      acquisition date of May 26, 2006, through June 30, 2006.




41


**Year
      Ended April 30, 2006 Compared with Year Ended April 30,
      2005**




*Revenues*




The
      Company achieved sales of GBP16,642,000 in the year ended April 30, 2006, an
      increase of 8% when compared to GBP15,398,000 in the year ended April 30, 2005.
      The increase in revenues occurred in both operating segments. In the Learning
      for All segment, the delay in revenues experienced in the latter quarter of
      the
      year ended April 30, 2005 led to an upturn in revenues in the early part of
      the
      year ended April 30, 2006 following the removal of the uncertainty introduced
      into this segment whilst the UK government completed its review of Consumer
      Credit legislation. The revenues arising from the traditional e-Learning
      business showed a moderate increase of GBP56,000 over the year ended April
      30,
      2005.




*Cost
      of Sales*




The
      Company's cost of sales for the year ended April 30, 2006 includes an inventory
      write off of GBP375,000 arising from the disposal of excess Learning for All
      inventory, which had been purchased in advance to ensure security and timeliness
      of supply, but which were found to be excess following the unexpected withdrawal
      of the tax benefits arising from the UK’s HCI scheme. Including this item, the
      cost of sales as a percentage of revenues was 83% compared to 93% for the year
      ended April 30, 2005, which also included GBP568,000 of inventory write offs.
      Excluding the inventory write offs, the cost of sales as a percentage of sales
      was 81% and 90% for the years ended April 30, 2006 and 2005, respectively.
      The
      improvement in the current year is due mainly from cost benefits arising in
      the
      HCI segment following a change of distribution partner.




*Gross
      Profit*




The
      gross
      profit of GBP2,854,000 for the year ended April 30, 2006, after including the
      inventory write off discussed above, showed a significant increase over the
      year
      ended April 30, 2005 at GBP1,040,000. The improvement arises both from savings
      achieved in cost of sales in the HCI segment, but also reflects the impact
      of
      improved revenues achieved in the year, which, due to the fixed nature of
      certain of the cost of sales, resulted in improved margins. The margins for
      both
      the years ended April 30, 2006 and 2005 were net of GBP375,000 and GBP568,000
      respectively resulting from inventory write offs in the HCI segment. Excluding
      these items, the margin arising from trading in the year ended April 30, 2006
      was GBP3,229,000, compared to GBP1,608,000 in the year ended April 30, 2005,
      and
      the resultant margin as a percentage of sales was 19% and 10%, respectively.




*Operating
      Expenses*




Operating
      expenses increased significantly for the year ended April 30, 2006 to
      approximately GBP7.5 million or 45% of revenue from approximately GBP4.8 million
      or 31% of total revenues for the year ended April 30, 2005. These cost increases
      arose primarily due to additional investment in marketing of Learning for All
      campaigns of approximately GBP600,000; additional facilities expense of
      approximately GBP200,000 as the company expanded in the early part of fiscal
      2006; and restructuring costs incurred as a result of the demise of the UK
      HCI
      market in April 2006 of approximately GBP400,000. Fiscal 2005 enjoyed the
      benefit from write backs of provisions of approximately GBP199,000 and
      GBP306,000 associated with National Insurance due on stock options and variable
      options accounting respectively arising as a result of the difference in the
      Company’s traded stock price between April 30, 2005 and 2004, which was not
      repeated in the year ended April 30, 2006.




*Interest
      Income and Expense*




Interest
      income for the year ended April 30, 2006 was GBP41,000 compared to a net
      interest income for the year ended April 30, 2005 of GBP119,000, as a result
      of
      the reduced ability for the tactical investment of cash surpluses in 2006.




42
 *Table
          of Contents*




Interest
      expense for the year ended April 30, 2006 was GBP1,354,000 compared to GBP45,000
      for 2005, due to charges associated with amortizing the debt discount associated
      with convertible loan arrangements entered into during 2006.




*Foreign
      Currency Gains (Losses)*




The
      Company recognized gains of GBP263,000 and (GBP9,000) in the years ended April
      30, 2006 and April 30, 2005, respectively. The 2006 gains result primarily
      from
      the restatement into British Pounds Sterling of financing instruments
      denominated in U.S. Dollars.




*Gain
      (loss) on Derivative Financial Instruments*




Gain
      (loss) on derivative financial instruments was (GBP502,000) for the year ended
      April 30, 2006.  The gains and losses are associated with convertible
      debentures issued by the Company.  Certain features, including the
      conversion feature, are accounted for as a compound embedded derivative and
      are
      recorded at fair value on the accompanying balance sheet *.* The
      gains
      (losses) represent the reduction (appreciation) in value of the compound
      embedded derivatives from the beginning of each reporting period presented
      to
      the end of the period. No such charge was recorded in fiscal 2005, as the
      offerings were not completed until fiscal 2006.




*Income/loss
      from Equity investment*




Under
      equity accounting rules with regard to its investment in Luvit AB, the Company
      took a charge of GBP343,000 in fiscal 2005 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).




*Income
      (Loss) from Operations of Discontinued Operations*




Income
      (loss) from operations of discontinued operations consists of the operations
      of
      Open Training, which was sold during April 2007. Income (loss) from this
      business was (GBP355,000) for the year ended April 30, 2006, compared with
      GBP16,000 for the year ended April 30, 2005, being a reduction from profit
      to
      loss of GBP371,000. The 2005 income represents approximately 2 months of
      operations, compared with a full year in 2006.




*Income
      Tax Expense*




There
      was
      no income tax charge to the Company in fiscal 2006 and in fiscal 2005. The
      Company possesses significant tax losses in the UK that are available for offset
      against future profits without limit of time, provided there is no substantial
      change in the nature of trade. At April 30, 2006, potential deferred tax assets
      amounted to GBP6,519,000, of which none were recognized, compared to
      GBP5,434,000 at April 30, 2005, of which none were recognized.




43


**Recent
      Accounting Pronouncements**




In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
      No. 109* (“FIN
      48”), which clarifies the accounting for uncertainty in tax positions. The
      evaluation of a tax position under FIN 48 is a two-step process. The first
      step
      is recognition: Tax positions taken or expected to be taken in a tax return
      should be recognized only if those positions are more likely than not of being
      sustained upon examination, based on the technical merits of the position.
      In
      evaluating whether a tax position has met the more likely than not recognition
      threshold, it should be presumed that the position will be examined by the
      relevant taxing authority that would have full knowledge of all relevant
      information. The second step is measurement: Tax positions that meet the
      recognition criteria are measured at the largest amount of benefit that is
      greater than 50 percent likely of being recognized upon ultimate settlement.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. FIN 48
      is
      effective for fiscal years beginning after December 15, 2006 and is effective
      for the Company in the fiscal year beginning July 1, 2007. The Company is
      currently assessing FIN 48 and has not yet determined the impact that the
      adoption of this interpretation will have on its financial position or results
      of operations.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      (“SFAS”) No. 157, *Fair
      Value Measurements* (“FAS
      157”). FAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. FAS 157 does not require any new fair value
      measurements, but provides guidance on how to measure fair value by providing
      a
      fair value hierarchy used to classify the source of the information. FAS 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Earlier
      adoption is permitted. The Company will adopt FAS 157 effective July 1, 2008
      but
      has not yet assessed the impact of the adoption of FAS 157 on its overall
      results of operations, financial position or cash flows.




On
      November 29, 2006, the FASB ratified EITF Issue No. 06−6, *Application
      of EITF Issue No. 05−7, ‘Debtor’s Accounting for a Modification (or Exchange) of
      Convertible Debt Instruments* ’
(“EITF
      06−6”). EITF 06−6 addresses the modification of a convertible debt instrument
      that changes the fair value of an embedded conversion option and the subsequent
      recognition of interest expense for the associated debt instrument when the
      modification does not result in a debt extinguishment pursuant to EITF 96−19.
      The consensus should be applied to modifications or exchanges of debt
      instruments occurring in interim or annual reporting periods beginning after
      November 29, 2006.  Earlier application of this Issue is permitted for
      modifications or exchanges of debt instruments in periods for which financial
      statements have not yet been issued.  Retrospective application is not
      permitted. The Company does not expect the adoption of EITF 06−6 to have a
      material impact on its consolidated financial position, results of operations
      or
      cash flows.





In
      December 2006, FASB Staff Position EITF 00-19-2, *Accounting
      for Registration Payment Arrangements,* was
      issued. This FSP addresses an issuer’s accounting for registration payment
      arrangements. This FSP specifies that the contingent obligation to make future
      payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, Accounting for
      Contingencies. The guidance in this FSP amends FASB Statements No. 133,
      Accounting for Derivative Instruments and Hedging Activities, and No. 150,
      Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity, and FASB Interpretation No. 45, Guarantor’s Accounting
      and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
      Indebtedness of Others, to include scope exceptions for registration payment
      arrangements. This FSP further clarifies that a financial instrument subject
      to
      a registration payment arrangement should be accounted for in accordance with
      other applicable GAAP without regard to the contingent obligation to transfer
      consideration pursuant to the registration payment arrangement. This FSP is
      effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to December 21, 2006.  For registration payment arrangements and
      financial instruments subject to those arrangements that were entered into
      prior
      to the issuance of this FSP, the guidance is for financial statements issued
      for
      fiscal years beginning after December 15, 2006, and interim periods within
      those
      fiscal years. The Company follows the guidance in FSP 00-19-2 in assessing
      its
      liabilities related to the liquidated damages potentially arising from any
      default position on its convertible financing arrangements. This has not yet
      been adopted for pre-existing instruments but the effect is not expected to
      be
      material.




44
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In
      February 2007 the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115* ”
(“FAS
      159”). FAS 159 permits an entity to choose to measure many financial instruments
      and certain other items at fair value. The unrealized gains and losses on items
      for which the fair value option has been elected will be reported in earnings
      at
      each subsequent reporting date. The fair value option: (a) may be applied
      instrument by instrument, with a few exceptions, such as investments otherwise
      accounted for by the equity method; (b) is irrevocable (unless a new election
      date occurs); and (c) is applied only to entire instruments and not to portions
      of instruments. FAS 159 is effective for fiscal years beginning after November
      15, 2007 and for interim periods within those fiscal years. The Company is
      required to adopt FAS 159 on July 1, 2008 but has not yet assessed the impact
      of
      the adoption of FAS 159 on its financial position or results of operations.




**B.**  **LIQUIDITY
      AND CAPITAL RESOURCES**




**Current
      Period Activity**




*Net
      cash from operations.* Net cash
      used in operating activities was GBP6,744,000, GBP3,217,000, and GBP3,725,000
      for the years ended June 30, 2007 and April 30, 2006 and 2005, respectively.
      The
      increased cash usage in 2007 resulted from increased overhead and operating
      expenses following the acquisition of Button, combined with the demise of the
      HCI scheme and ongoing losses in the group companies.




*Net
      cash used in investing.* The
      Company’s net cash flow used in investing activities (net of cash used in
      investing in discontinued business units) was GBP206,000, GBP4,475,000, and
      GBP386,000 for the years ended June 30, 2007 and April 30, 2006 and 2005,
      respectively. The changes resulted primarily from cash used to acquire EBC
      during 2006. In the two months ended June 30, 2006 the Company had a cash
      outflow of GBP2,704,000 primarily as a result of the acquisition of Button.





*Net
      cash provided by financing activities* .
      Net
      cash provided by financing activities was GBP5,978,000, GBP7,745,000, and
      GBP545,000 for the years ended June 30, 2007, April 30, 2006 and 2005,
      respectively. The Company raised GBP3,631,000 in the form of convertible debt
      and GBP2,775,000 through the exercise of warrants during the year ended June
      30,
      2007. The Company raised GBP7,898,000 in the form of convertible debt during
      2006.





*Net
      cash used in discontinued operations* .
      Net
      cash (used in) / generated from the Company’s discontinued Open Training
      operations for the years ended June 30, 2007, April 30, 2006 and 2005 was
      (GBP367,000), (GBP102,000), and GBP360,000, respectively, of which (i)
      GBP367,000, GBP76,000, and GBP59,000, respectively was used in operating
      activities, (ii) GBPnil, GBP26,000, and GBPnil, respectively was used in
      investing activities, and (iii) GBPnil, GBPnil, and GBP301,000, respectively
      was
      borrowed from the parent company.




45
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As
      of
      June 30, 2007, the Company has a working capital (defined as current assets
      less
      current liabilities) deficiency of GBP11,790,000, of which GBP5,729,000 relates
      to the fair value of derivative financial instruments. The Company intends
      to
      fund its working capital deficiency as described in “Sources of Cash and
      Projected Cash Requirements”.




**Going
      Concern**




The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America,
      which contemplate continuation of the Company as a going concern. Net loss
      for
      the year ended June 30, 2007 was GBP9,421,000 and net cash used for continuing
      operations was GBP6,774,000. The Company also has an accumulated deficit of
      GBP34,678,000 and a working capital deficit of GBP11,790,000 as of June 30,
      2007. In addition, as of June 30, 2007, the Company was technically in default
      of its convertible loans with Cornell, TAIB, and Certain Wealth dated April
      19,
      2006 with a face value of $7,500,000, and August 3, 2006 with a face value
      of
      $1,500,000, due to the Company’s failure to maintain effectiveness of the
      registration statements filed to register shares underlying the convertible
      loans, and subsequently due to failure to file its Form 20-F timely. The Company
      is also in default of the loan dated June 1, 2007 in the amount of $4,600,000,
      which stipulates default on any prior loans as a condition of default. As a
      result, Cornell has the right to call the full face value of each note. However,
      the Company expects to receive a waiver of default shortly after filing of
      this
      Form 20-F. The Company has recorded the carrying value of these notes as current
      liabilities as of June 30, 2007.





The
      items
      discussed above raise substantial doubts about the Company’s ability to continue
      as a going concern. The Company’s financial resources may be insufficient to
      maintain operations and the Company may require additional financing in order
      to
      execute its operating plan and continue as a going concern. The Company cannot
      predict whether this additional financing will be in the form of equity, debt,
      or another form. The Company may not be able to obtain the necessary additional
      capital on a timely basis, on acceptable terms, or at all. In any of these
      events, the Company may be unable to implement its current plans for expansion,
      repay its debt obligations as they become due or respond to competitive
      pressures, any of which circumstances would have a material adverse effect
      on
      its business, prospects, financial condition and results of operations.





Should
      the Company fail to generate profits to meet is operating capital and growth
      requirements, management would seek funding sources such as the sale of common
      and/or preferred stock, the issuance of debt, or the sale of its marketable
      assets. In the event that these financing sources do not materialize, or that
      the Company is unsuccessful in increasing its revenues and profits, the Company
      will be forced to further reduce its costs, may be unable to repay its debt
      obligations as they become due, or respond to competitive pressures, any of
      which circumstances would have a material adverse effect on its business,
      prospects, financial condition and results of operations. Additionally, if
      these
      funding sources or increased revenues and profits do not materialize, and the
      Company is unable to secure additional financing, the Company could be forced
      to
      reduce or curtail its business operations unless it is able to engage in a
      merger or other corporate finance transaction with a better capitalized entity.




At
      June
      30, 2007, the Company’s cash resources and available guaranteed borrowings may
      be insufficient to fund the current level of operations for the next twelve
      months. Management believes that it is appropriate to prepare the financial
      statements on a going concern basis for the following reasons:





·
            a
                substantial proportion of Button’s revenue will be earned in the four
                months ending June 30, 2008


·
            in
                the period since June 30, 2007 the e-learning business has performed
                strongly and has substantially increased its sales to its principal
                clients


·
            the
                Company’s relationship with Cornell is strong and they have not indicated
                that they plan to demand repayment of their convertible debt as a
                result
                of the technical defaults. Furthermore, since June 30, 2007 they
                have
                advanced further funding to the Company as described in Note 18 to
                the
                accompanying consolidated financial statements, and the Company expects
                to
                receive a waiver of default shortly after filing this Form
                F-20.




46
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Management
      is engaged in various activities to secure the additional funding required
      by
      the Company to meet its working capital needs for the following twelve months,
      including further cost reductions on the integration of its recent acquisitions,
      the securing of bank overdraft facilities, the generation of cash from future
      trading operations and the provision of further equity and/or debt funding.
      There can be no assurance however that the Company will be successful in
      implementing these plans. If these plans are not successful, the Company may
      be
      unable to continue in business and the value of its assets may be substantially
      impaired. The Company’s financial statements do not include any adjustments to
      reflect the possible future effects on the valuation recoverability and
      classification of assets or the amounts and classification of liabilities that
      may result from the outcome of this uncertainty.





Due
      to
      the above factors, there is substantial doubt as to the ability of the Company
      to continue as a going concern, and to the ability of the Company to discharge
      its assets and liabilities in the normal course of business. The Directors
      have
      considered this material uncertainty, and are of the opinion that the Company
      is
      a going concern, and accordingly the financial statements do not include any
      adjustments relating to the recoverability and reclassification of recorded
      asset amounts or amounts and reclassification of liabilities that might be
      necessary, should the Company be unable to continue as a going
      concern.




**Significant
      Liquidity Events**




For
      tabular presentation of our current contractual obligations, refer to “Section
      F. Tabular Disclosure of Contractual Obligations.”





**Sources
      of Cash and Projected Cash Requirements**




As
      of
      June 30, 2007 the Company’s cash balance was GBP709,000. As of June 30, 2007,
      the Company had no long-term obligations other than the convertible loan
      commitments and leases referred to elsewhere in this document. At June 30,
      2007,
      the Company had no material commitments for capital expenditure. As of January
      31, 2008, the Company had no material commitments for capital expenditures.
      Please also refer to contractual obligations in “Section F. Tabular Disclosure
      of Contractual Obligations.”




The
      Company intends to attempt to fund its growth and working capital deficiencies
      from the following sources during 2008 and beyond:




*Additional
      Funds from Cornell* .
      On
      January 9, 2008, we entered into convertible loan arrangement with Cornell
      with
      a face value of $2,000,000 (GBP1,013,000), and completed a private placement
      of
      100,000 Ordinary Shares for an aggregate purchase price of $100,000 (GBP51,000)
      with NACME.




*Strategic
      Investment* .
      We are
      currently in the process of seeking a significant strategic investment to secure
      sources of cash to fund the Company’s growth.




The
      Company’s reliance on Cornell as its primary financing source has certain
      ramifications that could affect future liquidity and business operations. For
      example, pursuant to the terms of certain of the convertible debenture
      agreements between the Company and Cornell signed in connection with the
      convertible debenture sales, without Cornell’s consent the Company cannot issue
      or
      sell any Ordinary Shares without consideration or for consideration per share
      less than the conversion price that would be in effect pursuant to the terms
      of
      the debentures with Cornell at the time of issuance of the shares. The Company
      is also obligated to retain certain individuals as members of its Board of
      Directors pursuant to the terms of the June 2007 Loan. In
      addition, pursuant to security agreements between the Company and Cornell signed
      in connection with the convertible debentures, Cornell has a security interest
      in all of the Company’s assets. Such covenants could severely harm the Company’s
      ability to raise additional funds from sources other than Cornell, and would
      likely result in a higher cost of capital in the event funding were secured.




47
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On
      January 9, 2008, we completed a financing arrangement whereby we (1) entered
      into January 2008 Loan with Cornell with a face value of $2,000,000
      (GBP1,013,000), and (2) completed a private placement of 100,000 Ordinary Shares
      for an aggregate purchase price of $100,000 (GBP51,000) with NACME. The January
      2008 Loan is convertible into ADSs (each representing 1,000 Ordinary Shares)
      at
      a rate
      equal to the lesser of $1.00, or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that Cornell cannot exceed 4.99% ownership, unless
      they waive their right to such limitation with 65 days’ written
      notice .
      The
      loan has a term of three years and bears interest at an annual rate equal to
      the greater
      of twelve percent (12%) or The Wall Street Journal Prime Rate, as quoted by
      the
      print edition of the United States version of The Wall Street Journal, plus
      two
      percent (2.00%) . The
      January 2008 Loan is secured by all of the Company’s assets. The
      Company can redeem the instrument at a 15% premium if the closing bid price
      of
      the Company’s ADSs is less than $1.00 at the time of redemption. In connection
      with the private placement with NACME, the Company issued NACME a warrant to
      purchase 5,000,000 ADSs at an exercise price of $2.00 per share. The Company
      paid fees of $129,000 (GBP66,000) to Cornell and NACME, resulting in net funding
      of $1,971,000 (GBP999,000).




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




**Company
      Sponsored Research and Development**




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 has
      been undertaken in previous periods by a development team whose focus has been
      on the Aktivna TM product
      range and the Learning For All TM program,
      supported by other members of production staff as required. Since the
      termination of the HCI scheme by the UK government business in April 2006,
      the
      Company has discontinued research and development costs related to this
      business. As a result, during the year ended June 30, 2007, the two months
      ended
      June 30, 2006, and the years ended April 30, 2006 and 2005, a total of nil,
      nil,
      GBP275,000, and GBP261,000, respectively, of research costs were expensed.
      No
      staff were employed on research and development activities in the year ended
      June 30, 2007.




**Strategic
      Relationships**




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.




**D.**  **TREND
      INFORMATION**




The
      Company expects to see incremental changes in the e-Learning environment in
      the
      coming years. With increasing bandwidth in traditional internet, Wi-Fi networks,
      and the mobile Web, we expect to see an increase in the use of video for
      e-Learning and training projects in the corporate environment. We also expect
      to
      see increased usage of social networking in learning environments, to share
      knowledge across departments, provide an avenue for self-directed learning,
      and
      allow employees to stay connected and work collaboratively. The Company intends
      to position itself to take advantage of these trends through its e-Learning
      business unit.




In
      the
      Button business, the Company sees continuing growth in the trade show market
      as
      international trade shows continue to attract more participants. However,
      economic difficulties resulting from a recessionary global economy could result
      in reduced sales and marketing expenditures by corporations in general, which
      could potentially harm the Button business.




**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, other than the leasing arrangements noted
        in
        section F.


48
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**F.**  **TABULAR
      DISCLOSURE OF CONTRACTUAL OBLIGATIONS**




The
      following is a summary of the Company’s contractual obligations, as specified
      below, as of June 30, 2007:





**Less**
            
            
            
            
            
            **More****than
                1**
            
            **1-3**
            
            **3-5**
            
            **than
                5****Total**
            
            **Year**
            
            **Years**
            
            **Years**
            
            **Years**Long-term
                debt obligations (1)
            
            
            7,163
            
            
            7,163
            
            
            0
            
            
            0
            
            
            0Operating
                lease obligations (2)
            
            
            1,053
            
            
            260
            
            
            487
            
            
            230
            
            
            77Consulting
                contract obligations (3)
            
            
            802
            
            
            546
            
            
            256
            
            
            0
            
            
            0Total
            
            
            9,018
            
            
            7,969
            
            
            743
            
            
            230
            
            
            77





(1)
                -
                    Long term debt obligations consist of loans that are convertible,
                    at the
                    option of the holder, into the Company's Ordinary Shares at discounts
                    of
                    5-20% to the lowest closing bid price of the Company's ADSs for
                    the thirty
                    days prior to conversion, plus interest thereon. In connection
                    with the
                    loans, the Company also issued stock warrants that are classified
                    as
                    derivative financial instruments on the Company's balance sheet.
                    No
                    liability related to the warrants or the compound derivative
                    embedded in
                    the convertible debt instruments is reflected in this
                    table.




The
      convertible debentures have contractual terms that expire up until June 1,
      2010
      and bear interest at rates that are capped at a maximum of 10%. See Note 5
      of
      the accompanying financial statements for further details on the terms of the
      instruments.




(2)
            -
                As disclosed in Item 4D, Property, Plant and Equipment, the Company
                has
                entered into a number of operating lease arrangement for its head
                quarters
                office facilities and other worldwide
                locations.




(3)
            -
                Consulting contract obligations consists of amounts owed to contractors
                and consultants under non-cancellable consulting arrangements.




As
      of
      June 30, 2007, the Company had no material contractual obligations outstanding
      with respect to capital expenditures.




49


**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
      Annual Report are as follows:




**Name**
            
            **Age**
            
            ******Since**
            
            **Position
                with the Company****Board
                Members**:Margot
                Lebenberg
            
            40
            
            2007
            
            DirectorBrendan
                McNutt(1)
            
            57
            
            2007
            
            DirectorGeorge
                O’Leary
            
            45
            
            2007
            
            Director
                and Chairman of the Board of DirectorsMichiel
                Steel(2)
            
            65
            
            2005
            
            DirectorSabine
                Steinbrecher
            
            41
            
            2007
            
            Director





(1)
      Chairman of the Audit Committee.




(2)
      Chairman of the Remuneration Committee.




**Senior
                Management**:Laurent
                Fiore
            
            44
            
            1997
            
            VP
                Regional DirectorPaul
                Godwin
            
            37
            
            2006
            
            VP
                Button OperationsLeeza
                McGuire
            
            44
            
            1997
            
            VP
                Regional DirectorAndrea
                Miles
            
            40
            
            2004
            
            MD
                FM LearningMary
                O’Dowd
            
            50
            
            2005
            
            HR
                Director FM CorporateJames
                Schnauer
            
            35
            
            2003
            
            VP
                Regional Director





**Board
      Members**





Margot
      Lebenberg was appointed to the Board in June 2007 for a period of not less
      than
      18 months, and brings over fifteen years of diverse experience counseling boards
      of directors for a variety of public companies. Ms. Lebenberg was Secretary,
      Executive Vice President and General Counsel at The Princeton Review, Inc.
      from
      2004 through
      the sale of a substantial amount of shares to Bain and Prides Capital in
      2007 ,
      where
      she was an executive officer and managed the legal, real estate, insurance
      and
      franchise issues for the international company, which provides test preparation
      and educational support services. While at The Princeton Review she was
      instrumental in restructuring the corporation and built the company’s first
      legal department. Prior to that, Ms. Lebenberg was an Executive Vice President
      and General Counsel, Managing Director and Secretary at Soundview Technology
      Group, Inc. Soundview Technology Group was later sold to The Charles Schwab
      Corp. and Ms. Lebenberg played an integral role in the negotiation and
      structuring of the sale. From 2001-2003, Ms. Lebenberg served as Vice President,
      Assistant General Counsel and Assistant Secretary of Cantor Fitzgerald and
      its
      affiliate eSpeed, Inc. From 1996-2000, she was Senior Vice President, Secretary
      and General Counsel of SOURCECORP, Incorporated, a business process outsourcing
      and consulting firm. Ms. Lebenberg is also the founder
      and President of Living Mountain Capital L.L.C a business advisory consulting
      firm specializing in corporate development, strategic alliances and
      restructurings since 1998. Ms.
      Lebenberg started her career at Morgan, Lewis and Bockius, received her Juris
      Doctor from Fordham University School of Law and a B.A. from SUNY Binghamton.
      Ms. Lebenberg is involved in and has served on the Boards of several
      charities.




Brendan
      McNutt was appointed to the Board in May 2007 for a period of not less than
      18
      months and is founder and joint owner of Bryn Melyn Group, a treatment service
      center for adolescents in North Wales, where he uses his educational, social
      work, psychotherapeutic and business management skills to further develop the
      center. Mr. McNutt's career began in the education and social work fields as
      a
      teacher at St Joseph's Community Home. Mr. McNutt holds multiple degrees
      including a B.A. in Social Sciences from Open University, a Master in Education
      from Liverpool University and a Master of Science in the Psychology of Human
      Potential from Liverpool John Moores University.




50
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George
      O'Leary was appointed to the Board in May 2007 for a period of not less than
      18
      months and is currently the founder and President of SKS Consulting of South
      Florida Corp. (SKS) where he helps companies implement and execute their
      strategic plans. Mr. O'Leary started SKS in 2000 with the mission to help
      companies focus on execution of their core business while shedding their
      non-core business assets. Currently, Mr. O’Leary is on the boards of directors
      of multiple public companies. From 1996 to 2000, Mr. O'Leary was CEO and
      President of Communication Resources Incorporated (CRI), where annual revenues
      grew from $5 million to $40 million during his tenure. Prior to CRI, Mr. O'Leary
      was Vice President of Operations of Cablevision Industries, where he ran $125
      million of business until it was sold to Time Warner. Mr. O’Leary holds a B.B.A.
      degree in Accounting with honors from Siena College.




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.




Ms.
      Sabine Steinbrecher was appointed to the Board in December 2007. Ms.
      Steinbrecher is Founder, President and CEO of Learning Library Inc. (“LLI”), a
      leading online professional education management and publishing firm,
      specializing in compliance based education for industry sectors in North America
      such as real estate, finance, and healthcare. LLI's customers include
      associations, corporations, training and academic institutions generally seeking
      to serve stakeholders, reduce costs, or create a profit center through
      Internet-enabled learning management and publishing.





During
      December 2007, Jan Vandamme resigned his position as Director and Chairman
      of
      the Board, a position he had held since 1998.




**Senior
      Management**





Mr.
      Laurent Fiore joined the Company in 1997 as Technical Adviser assuming the
      role
      of Project and Technical Manager. Prior to joining the company, Mr. Fiore worked
      in worked in private practice and for Reed Midem in Cannes, France.





Ms.
      Leeza
      McGuire, joined Button in 1997 as Director of Events and opened the Cannes
      office where she started the Event Management department. Current top clients
      include Microsoft, PriceWaterhouseCoopers, Sandisk and Cannes Lions
      International Advertising Festival. Prior to joining the company, Ms. McGuire
      worked in Los Angeles for TV and Film production and distribution companies
      in
      International Sales and Marketing.





Ms.
      Andrea Miles joined the Company in 2004 as Managing Director of Futuremedia
      Learning. Prior to joining the company, Ms. Miles worked at Epic for 5 years
      as
      Director of Private Sector Sales. Andrea’s operational experience comes from
      being tasked with setting up a southern  subsidiary of a Scottish
      e-learning company.





Ms.
      Mary
      O’Dowd joined the Company in 2005 as Human Resources Director. Prior to joining
      the company, Ms. O’Dowd worked as HR Director for ISL International of
      Switzerland and CME in the US.




51
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Mr.
      James
      Schnauer joined the Company in 2003 as VP Regional Director. Prior to joining
      the company, Mr. Schnauer obtained a wide experience within the retail,
      interiors and exhibition design industry.





**B.**  **COMPENSATION**




The
      amount of compensation paid (including benefits in kind) to the Company’s
      current Directors and senior management during the year ended June 30, 2007
      were
      as follows:





Basic
            
            PerformanceSalary
            
            Related
            
            Sales
            
            Benefitsand
                fees
            
            Bonus
            
            commissions
            
            in
                kind
            
            TotalGBP
            
            GBP
            
            GBP
            
            GBP
            
            GBP**Current
                Board Members**:George
                O’Leary (1)
            
            
            18,000
            
            
            -
            
            
            -
            
            
            -
            
            
            18,000Margot
                Lebenberg (2)
            
            
            3,500
            
            
            -
            
            
            -
            
            
            -
            
            
            3,500Brendan
                McNutt (2)
            
            
            3,500
            
            
            -
            
            
            -
            
            
            -
            
            
            3,500Michiel
                Steel (3)
            
            
            36,500
            
            
            -
            
            
            -
            
            
            -
            
            
            36,500**Current
                Senior Management**:Laurent
                Fiore
            
            
            83,000
            
            
            -
            
            
            -
            
            
            -
            
            
            83,000Paul
                Godwin
            
            
            34,000
            
            
            -
            
            
            -
            
            
            -
            
            
            34,000Leeza
                McGuire
            
            
            83,000
            
            
            -
            
            
            -
            
            
            -
            
            
            83,000Andrea
                Miles
            
            
            103,000
            
            
            -
            
            
            -
            
            
            -
            
            
            103,000Mary
                O’Dowd
            
            
            72,000
            
            
            -
            
            
            -
            
            
            -
            
            
            72,000James
                Schnauer
            
            
            83,500
            
            
            -
            
            
            -
            
            
            -
            
            
            83,500







(1)
            George
                O’Leary’s services are provided to the Company pursuant to the terms of a
                consultancy agreement between the Company and SKS Consulting of South
                Florida Corp (of which corporation Mr. O’Leary is President). Under the
                terms of that consultancy agreement, which is for an initial term
                of 18
                months from May 31, 2007, Mr. O’Leary provides finance consultancy
                services and other leadership services to the Company in the role
                of CEO
                and Principal Accounting Officer. Compensation to Mr. O’Leary under the
                terms of the agreement is $1,500 per day for time spent working on
                behalf
                of the Company, plus a fixed monthly fee of $6,000.


(2)
            The
                services of Ms. Lebenberg and Mr. McNutt are provided to the Company
                under
                the terms of the Company’s standard independent director agreement,
                pursuant to which each Director is paid a fee of GBP3,000 per month
                plus
                an additional monthly fee of GBP250 for each committee of the Board
                on
                which a Director served. Ms. Lebenberg and Mr. McNutt do not receive
                any
                other fees or compensation from the
                Company.


(3)
            The
                services of Mr. Steel are provided to the Company under the terms
                of the
                Company’s standard independent director agreement during the relevant time
                period, pursuant to which the Director was paid a fee of GBP3,000
                per
                month (GBP3,500 effective June 2007). Mr. Steel does not receive
                any other
                fees or compensation from the
                Company.




52


The
      amount of compensation paid (including benefits in kind) to the Company’s former
      Directors and senior management during the period ended June 30, 2007 were
      as
      follows:




BasicSalary
            
            Termination
            
            Benefitsand
                fees
            
            payments
            
            in
                kind
            
            TotalGBP
            
            GBP
            
            GBP
            
            GBP**Former
                Board Members**:Robert
                Bingham (1)
            
            
            9,000
            
            
            0
            
            
            0
            
            
            9,000Leonard
                M. Fertig (2)
            
            
            169,000
            
            
            225,000
            
            
            6,500
            
            
            400,000Michael
                Pilsworth (3)
            
            
            26,000
            
            
            0
            
            
            0
            
            
            26,000John
                Schwallie (3)
            
            
            30,000
            
            
            0
            
            
            0
            
            
            30,000Colin
                Turner (4)
            
            
            40,000
            
            
            0
            
            
            0
            
            
            40,000Jan
                Vandamme (5)
            
            
            60,000
            
            
            0
            
            
            0
            
            
            60,000**Former
                Senior Management**:Andrew
                Bellomy (6)
            
            
            30,000
            
            
            0
            
            
            0
            
            
            30,000Thomas
                Bingham (7)
            
            
            95,500
            
            
            0
            
            
            0
            
            
            95,500Brian
                McArthur Muscroft (8)
            
            
            43,000
            
            
            
            
            
            0
            
            
            43,000Peter
                Machin (9)
            
            
            79,000
            
            
            0
            
            
            0
            
            
            79,000Graham
                Mackie (10)
            
            
            50,000
            
            
            30,000
            
            
            0
            
            
            80,000Andrew
                Haire (11)
            
            
            80,000
            
            
            0
            
            
            0
            
            
            80,000Marc
                Ortmans (12)
            
            
            72,000
            
            
            0
            
            
            2,500
            
            
            74,500







(1)
            Mr.
                R Bingham left the Company on December 13,
                2006.


(2)
            Mr.
                Fertig was appointed as CEO in January 2005 and resigned as a Director
                and
                CEO of the Group on May 31, 2007. Termination payments are to be
                paid in
                21 monthly installments commencing 27 June
                2007.


(3)
            The
                services of Messrs. Pilsworth and Schwallie were provided to the
                Company
                under the terms of the Company’s standard independent director agreement
                during the relevant time period, pursuant to which each Director
                was 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 served. The foregoing
                Directors do not receive any other fees or compensation from the
                Company.
                Messrs. Pilsworth and Schwallie resigned as Directors on May 1,
                2007.


(4)
            Professor
                Turner was paid GBP22,500 for his services during his tenure as a
                Director
                of the Company, from February 20, 2007 to May 1, 2007. On June 4,
                2007 he
                was appointed President of Futuremedia Group, where his services
                were
                provided pursuant to consultancy agreement, which expired on January
                31,
                2008, under which Professor Turner was paid the equivalent, in euros,
                of
                GBP15,000 per month.


(5)
            During
                December 2007, Jan Vandamme resigned his position as Director and
                Chairman
                of the Board, a position he had held since
                1998


(6)
            Andrew
                Bellomy was appointed Interim CFO of the Company on February 5, 2007.
                Mr.
                Bellomy completed his assignment, and left the Company, on May 14,
                2007.


(7)
            Thomas
                Bingham left the Company on January 31,
                2007.


(8)
            Brian
                McArthur Muscroft was appointed CFO of the Company on June 6, 2006
                and
                resigned from the Company on October 6,
                2006.


(9)
            Peter
                Machin acted as Interim CFO of the Company after Mr. McArthur Muscroft
                resigned, until Andrew Bellomy was appointed interim CFO on February
                5,
                2007. Mr. Machin left the Company on July 5,
                2007.


(10)
            Graham
                Mackie left the Company on April 27,
                2007.


(11)
            Andrew
                Haire resigned from the Company on July 31,
                2007.


(12)
            Marc
                Ortmans was appointed Managing Director of Button Group Limited on
                February 6, 2007 and left the Company on October 31,
                2007.




53


As
      of
      December 31, 2007, the Directors and members of senior management held the
      following options to purchase Ordinary Shares:





**Number
                of Ordinary Shares****under
                Option**
            
            **Exercise
                Price**
            
            **Latest
                Expiry Date**George
                O’Leary
            
            
            4,150,000
            
            
            $0.0088
                  to $0.0132
            
            
            October
                  2017Margot
                Lebenberg
            
            
            1,900,000
            
            
            $0.0088
            
            
            October
                2017Brendan
                McNutt
            
            
            1,900,000
            
            
            $0.0088
            
            
            October
                  2017Michiel
                Steel
            
            
            2,050,000
            
            
            $0.0088
                to $0.6106
            
            
            October
                2017Colin
                Turner (1)
            
            
            1,750,000
            
            
            $0.0132
            
            
            July
                2017Laurent
                Fiore
            
            
            750,000
            
            
            $0.0132
            
            
            July
                2017Paul
                Godwin
            
            
            750,000
            
            
            $0.0132
            
            
            July
                2017Leeza
                McGuire
            
            
            750,000
            
            
            $0.0132
            
            
            July
                2017Andrea
                Miles
            
            
            1,260,000
            
            
            $0.132
                to $1.6040
            
            
            July
                2017Mary
                O’Dowd
            
            
            860,000
            
            
            $0.0132-0.5836
            
            
            July
                2017James
                Schnauer
            
            
            750,000
            
            
            $0.0132
            
            
            July
                2017




(1)
                -
                    Professor Turner’s consultancy agreement as President of Futuremedia
                    Learning expired on January 31,
                    2008


During
      the period ending June 30, 2007, no Directors or members of senior management
      exercised options to purchase Ordinary Shares.




**C.**  **BOARD
      PRACTICES**




**Term
      of Office**





At
      the
      General Meeting of Shareholders held on July 26, 2007 all of the following
      Directors were elected of a term ending immediately after the Annual General
      Meeting of 2008, unless their terms are earlier terminated by a vote of the
      shareholders, removal by all of the members of the Board, resignation or death:
      Ms. Lebenberg, Messrs. McNutt, O’Leary, Steel and Vandamme.





**Employment
      and Service Contracts**





Mr.
      O’Leary’s services are provided to the Company pursuant to the terms of a
      consultancy agreement between the Company and SKS Consulting of South Florida
      Corp (of which corporation Mr. O’Leary is President). Under the terms of that
      consultancy agreement, which is for an initial term of 18 months from May 31,
      2007, Mr. O’Leary provides finance consultancy services and other leadership
      services to the Company in the roles of CEO and Principal Accounting Officer.
      Compensation to Mr. O’Leary under the terms of the agreement is $1,500 per day
      for time spent working on behalf of the Company, plus a fixed monthly fee of
      $6,000. The consultancy agreement is subject to English law.





The
      services of Ms. Lebenberg and Messrs. McNutt, Steel and Vandamme are retained
      under independent director service contracts. These contracts will also
      terminate immediately the individual ceases to remain a Director.




54
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**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 43 meetings during
      the
      year ended June 30, 2007.




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 currently comprises Messrs. McNutt
      (Chairman), Ms. Lebenberg, and Mr. Steel. The Audit Committee held one meeting
      during the period ended June 30, 2007. John Schwallie acted as Chairman of
      the
      Audit Committee until November 2006, when he stood down in order to provide
      interim strategic and tactical financial consultancy services to the Company
      for
      a limited period. Michael Pilsworth assumed the chairmanship of the Audit
      Committee in November 2006 until he resigned as a Director and audit committee
      member in May 2007. Mr. McNutt assumed the chairmanship of the Audit Committee
      in June 2007, and Ms. Lebenberg joined June 2007. The Board of Directors has
      determined that Mr. McNutt does not meet the requirements of an "audit committee
      financial expert" as such term is defined under currently applicable rules
      of
      the SEC.




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 is currently
      comprised of Mr. Steel (Chairman), Mr. McNutt, and Ms. Lebenberg. Mr. McNutt,
      and Ms. Lebenberg joined in June 2007, replacing Mr. Pilsworth and Mr.
      Schwallie. Mr. Vandamme resigned as a Director and member of the Compensation
      Committee in December 2007. The Compensation Committee held no meetings during
      the period ended June 30, 2007. All compensation issues were voted on by the
      Board of Directors, therefore the Compensation Committee did not find it
      necessary to meet separately.




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.





Except
      as
      disclosed otherwise, 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 Directors be
      comprised of at least a majority of independent directors. In addition, in
      accordance with the Nasdaq rules, the Company has filed with Nasdaq a “Corporate
      Governance Certification Form” certifying the Company’s compliance with Nasdaq’s
      corporate governance rules governing:





·
            composition
                of the audit committee;




55
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·
            adoption
                and annual review of the audit committee
                charter;




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




·
            regular
                scheduling of executive sessions of independent directors;
                and




·
            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
      June
      30, 2007, the Company employed 89 persons, including those employed by its
      wholly-owned subsidiaries EBC and Button. The breakdown of employees, by
      function by employer within the Futuremedia group, is as follows:




Futuremedia
                PLC
            
            Button
            
            TotalCorporate
                Officers
            
            
            5
            
            
            1
            
            
            6Tech
                Support & Delivery
            
            
            34
            
            
            28
            
            
            62Sales
                & Marketing
            
            
            6
            
            
            3
            
            
            9Admin
                & Finance
            
            
            8
            
            
            4
            
            
            12**Total**
            
            
            **53**
            
            
            **36**
            
            
            **89**




At
      April
      30, 2006, the Company employed 137 persons, 6 of whom were corporate officers.
      Of the remainder, 106 were engaged in technology delivery and support, 9 in
      sales and marketing and 16 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
      January 31, 2008, the Company employed 75 persons.




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
      periods ended June 30, 2007 and 2006 was 20, and during the years ending April
      30, 2006 and 2005 was 12 and 10, respectively.




None
      of
      the Company’s employees is covered by a collective bargaining agreement. As at
      November 30, 2007, 74 of the Company’s employees are employed in the UK, 7 in
      France and 8 in the US. 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.




56
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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.





***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 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. Such conditions typically consist
      of time-based vesting. 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.




57
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***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 GBP1,500 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 GBP3,000 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.





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
      these plans may not exceed 15% of the total authorized ordinary
      shares.





***2007
      Unapproved Share Option Scheme (“2007 Unapproved
      Plan”)*** .
      Pursuant to the 2007 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 2007 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.




58
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The
      following table summarizes the outstanding options and awards under the plans
      and arrangements described above as at November 30, 2007:




**Number
                of Ordinary Shares subject to**
              **Options
                or Awards**
            
            **Exercise
                Price per Share**
            
            **Latest
                Expiry Date**Approved
                Executive Share Option Scheme
            
            
            11,500
            
            
            $0.91
                  to $1.59
            
            
            April
                2008Unapproved
                Executive Share Option Scheme
            
            
            1,845,985
            
            
            $0.10
                to $1.60
            
            
            June
                20142005
                Share Option Plan for New Employees
            
            
            0
            
            
            —
            
            
            —2005
                Unapproved Share Option Plan
            
            
            125,000
            
            
            $0.6106
            
            
            July
                2015Enterprise
                Management Incentive Plan 2005
            
            
            21,803,000
            
            
            $0.01
                to $0.61
            
            
            July
                20172005
                L M Fertig Plan(1)
            
            
            0
            
            
            —
            
            
            —New
                Directors Plan 2005
            
            
            0
            
            
            —
            
            
            —SIP
            
            
            0
            
            
            —
            
            
            —2007
                Unapproved Plan
            
            
            0
            
            
            —
            
            
            —Total
            
            
            23,785,485





(1)
            -In
                January 2005, the Company adopted the "Futuremedia Unapproved Executive
                Share Option Scheme for Len Fertig". Under this scheme, options were
                granted to the Len Fertig on his appointment as Chief Executive Officer.
                Options granted pursuant to this plan have a life of ten years from
                grant,
                and an exercise price of $0.22-$0.74. Options were forfeited on November
                30, 2007, pursuant to Mr. Fertig’s resignation on May 31, 2007.




59
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**ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS**




**A.**  **MAJOR
      SHAREHOLDERS**




The
      following table sets forth certain information, as of January 25, 2008, to
      the
      extent that it is known to the Company or can be ascertained from public
      filings, with respect to the beneficial ownership of the Company’s Ordinary
      Shares 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 842,948,156 Ordinary Shares outstanding as of
      January 25, 2008, including those Ordinary Shares that are issuable pursuant
      to
      the terms of the various convertible loans, warrants and options arrangements
      to
      which the Company is a party.





**Amount
                and****Nature
                of****Beneficial**
            
            **Percent
                of****Name
                and Address of Beneficial Owner (1)**
            
            **Ownership
                (2)**
            
            **Class
                (2)**George
                O'Leary
            
            
            1
            
            
            *Margot
                Lebenberg
            
            
            0
            
            
            *Brendan
                McNutt
            
            
            0
            
            
            *Michiel
                Steel
            
            
            229,258
            
            
            *Sabine
                Steinbrecher
            
            
            0
            
            
            *Laurent
                Fiore
            
            
            0
            
            
            *Paul
                Godwin
            
            
            0
            
            
            *Leeza
                McGuire
            
            
            0
            
            
            *Andrea
                Miles
            
            
            243,333
            
            
            *Mary
                O'Dowd
            
            
            56,667
            
            
            *James
                Schnauer
            
            
            0
            
            
            *Officers
                and Directors as a Group (11 Persons)
            
            
            529,258
            
            
            *





*
      Indicates less than 1%.




(1)
            Unless
                otherwise noted, the address of the referenced individual is c/o
                Futuremedia PLC, Nile House, Nile Street, Brighton, East Sussex BN1
                1HW,
                England.




(2)
            Beneficial
                ownership is determined in accordance with the rules of the SEC and
                generally includes voting or investment power with respect to securities.
                Ordinary Shares subject to securities exercisable or convertible
                into
                Ordinary Shares that are currently exercisable or exercisable within
                60
                days of January 25, 2008, are deemed to be beneficially owned by
                the
                person holding such securities for the purpose of computing the percentage
                of ownership of such person, but are not treated as outstanding for
                the
                purpose of computing the percentage ownership of any other person.
                All
                holders of Ordinary Shares are entitled to one vote per share.




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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 atJune
                          30,
            
            April
                30,
            
            April
                30,2007
            
            2006
            
            2005Rennes/Jobelin
                Foundations
            
            
            *
            
            
            4.55
            
            
            12.9T.
                Bingham
            
            
            *
            
            
            8.89
            
            
            -M.A.G.
                Capital, LLC
            
            
            *
            
            
            8.43
            
            
            9.0J.
                Vandamme
            
            
            *
            
            
            *
            
            
            -L.
                Fertig
            
            
            *
            
            
            *
            
            
            *M.
                Pilsworth
            
            
            *
            
            
            *
            
            
            -M.
                Steel
            
            
            *
            
            
            *
            
            
            -J.
                Schwallie
            
            
            *
            
            
            *
            
            
            -





*
      Indicates less than 1%.




As
      of
      January 31, 2008, the Company had outstanding convertible debentures payable
      to
      Cornell with a face value of $16,874,000 (GBP8,479,000). The debentures are
      convertible into Ordinary Shares at a discount of 5-20% of the lowest closing
      bid price of the Company’s ADSs for the thirty days prior to conversion. The
      Company also issued warrants concurrent with the debentures that are convertible
      into Ordinary Shares. Both the debentures and the warrants contain a provision
      that Cornell cannot beneficially own more than 4.9% of the Company’s Ordinary
      Shares at any given time, unless they give the Company 65 days written notice
      of
      waiver of such limitation. As discussed in Item 3D, “Risk Factors,” if Cornell
      were to exercise all of their warrants and convert all of their convertible
      debt
      their ownership interest would be 78.15%.





The
      company is not directly or indirectly owned or controlled by another corporation
      or foreign government, or any other natural or legal person. There are no other
      arrangements, known to the Company, which may operate at a subsequent date
      to
      cause a change in control of the Company.




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**B.**  **RELATED
      PARTY TRANSACTIONS**




In
      November 2006, former Company Director Mr. Schwallie agreed to provide interim
      financial consultancy services to the Company. During the year ended June 30,
      2007, Mr. Schwallie received approximately GBP39,000 in respect of such
      services.




During
      the year ended June 30, 2007, the following directors received payment for
      board
      services provided through independent service companies: Mr. J. Vandamme
      GBP59,000 and Mr. M Steel GBP36,500. During the two months ended June 30, 2006,
      Mr. J. Vandamme received GBP10,000 and Mr. M Steel GBP6,000.




**C.** **INTERESTS
      OF EXPERTS AND COUNSEL**




Not
      Applicable




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**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 Annual Report.




**Legal
      Proceedings**




The
      Company is involved in various legal actions arising in the normal course of
      business, both as claimant and defendant. While it is not possible to determine
      with certainty the outcome of these matters, it is possible that the eventual
      resolution of the following disputes could have a material adverse effect on
      the
      Company’s financial position or operating results.


The
        Company is involved in two disputes with Royal Mail Group PLC (“Royal
        Mail”). As a supplier of Futuremedia, Royal Mail is claiming GBP403,000,
        together with interest, in relation to overdue invoices for storage and
        logistic services provided by Royal Mail. The Company is disputing the claim
        based on Royal Mail’s performance with respect to the services
        provided. As
        a
        client of Futuremedia under the HCI scheme, Royal Mail have made a claim
        of
        GBP359,000, together with interest, for what they believe is an overcharge
        under the HCI scheme. Futuremedia disputes the claim. The Company are waiting
        for confirmation of a meeting date from Royal Mail. Legal proceedings have
        not
        been initiated in either dispute, and no further response date has been
        set.
 
 The
        Company’s former CEO, Leonard Fertig, has threatened legal
        proceedings to claim in excess of GPB100,000 payable pursuant to his
        termination agreement with the company entered at the time of his
        resignation. No legal proceedings have been initiated to date. The Company
        has
        provided for this balance as at June 30, 2007. The company disputes that
        any
        further sums are due to Mr. Fertig
 The
          Company believes it has made adequate provision in the accounts at June
          30, 2007
          for the outcome of these disputes.


**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. In addition, the
      Company does not have distributable reserves in the parent company from which
      to
      pay dividends.




**B.**  **SIGNIFICANT
      CHANGES**




On
      August
      7, 2006 the Company changed its fiscal year end to June 30 from April 30,
      effective immediately. This change brings the Futuremedia group of companies
      under the same reporting calendar and better corresponds to the Company’s
      business cycle. Subsequently, the consolidated statements of operations and
      cash
      flow statement present the results for the year ended June 30, 2007, the period
      ended June 30, 2006, and the years ended April 30, 2006 and 2005. The balance
      sheets reflect the financial position as at June 30, 2007 and 2006. The
      consolidated statements of changes in stockholders’ equity is presented for the
      year ended June 30, 2007, the period ended June 30, 2006 and the years ended
      April 30, 2006, 2005 and 2004. Previously, Button and EBC were on a June 30
      and
      December 31 fiscal year end, respectively.




On
      January 3, 2007, the Company announced the ratio of its ADSs to Ordinary
      Shares had been
      changed to 1:50 from 1:1. The Bank of New York, our depositary, contacted
      registered ADS holders with regards to this change. The record date is December
      29, 2006. Shareholders received 1 ADS for each 50 ADSs held. The Bank of New
      York sold a portion of the new ADSs to establish a cash in lieu rate for
      fractional ADSs, and ADS holders whose holdings were not exactly divisible
      by 50
      received cash in lieu of fractional amounts, at the rate established by The
      Bank
      of New York. Total number of ADSs outstanding after the ratio change was
      4,690,176. As a result of this ratio amendment, the ADS price automatically
      increased proportionally. However, there is no assurance that the post-amendment
      ADS price will be at least equal to or greater than the pre-amendment ADS price
      multiplied by the ratio change.




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Effective
      December 3, 2007, the ratio of our ADSs to Ordinary Shares was changed to
      1:1,000 from 1:50. The Bank of New York, our depositary, contacted registered
      ADS holders with regards to this change. Shareholders received 1 ADS for each
      1,000 ADSs held. The Bank of New York sold a portion of the new ADSs to
      establish a “cash in lieu” rate for fractional ADSs, and ADS holders whose
      holdings were not exactly divisible by 1,000 received cash in lieu of fractional
      amounts, at the rate established by The Bank of New York. Total number of ADSs
      outstanding after the ratio change was approximately 587,400. As a result of
      this ratio amendment, the ADS price automatically increased proportionally.
      However, there is no assurance that the post-amendment ADS price will be at
      least equal to or greater than the pre-amendment ADS price multiplied by the
      ratio change. The ratio reset brought the Company in compliance with Marketplace
      Rule 4320(e)(2)(E)(i) which requires a minimum bid price of $1.00 per ADS.




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**ITEM
      9. THE OFFER AND LISTING**





**A.** **OFFER
      AND LISTING DETAILS**




The
      Company’s ADSs have traded since May 29, 1996, on the Nasdaq Capital Market, and
      currently trade under the symbol FMDA.




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
      warrants issued on August 19, 1993 lapsed in August 2003.




On
      January 3, 2007, the Company announced the ratio of its ADSs to Ordinary
      Shares had been
      changed to 1:50 from 1:1.




Effective
      December 3, 2007, the ratio of our ADSs to Ordinary Shares was changed to
      1:1,000 from 1:50.





On
      January 16, 2008, the Company received a notice of non-compliance from the
      staff
      of the Listing Qualifications Department of The Nasdaq Stock Market. The notice
      indicated that based upon the Company's failure to timely file the Annual Report
      on Form 20-F for the fiscal year ended June 30, 2007 with the SEC, as required
      by Nasdaq Marketplace Rule 4320(e)(12), the Company's common stock is subject
      to
      delisting from The Nasdaq Capital Market unless the Company requests a hearing
      before a Nasdaq Listing Qualifications Panel. The Company has a hearing
      scheduled for February 21, 2008.




The
      last
      sale 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. ADS trading prices shown are adjusted
      to reflect the change in ratio
      of
      our ADSs to Ordinary Shares to 1:1,000, which became effective December 3,
      2007.





(1)
      Each
      of the last five fiscal years.




ADS
                Price ($)
            
            Warrants
                Price ($)High
            
            Low
            
            High
            
            LowYear
                Ending June 30, 2007
            
            
            220.00
            
            
            10.60
            
            
            n/a
            
            
            n/aTwo
                Months Ending June 30, 2006
            
            
            300.00
            
            
            210.00
            
            
            n/a
            
            
            n/aYear
                Ending April 30, 2006
            
            
            700.00
            
            
            180.00
            
            
            n/a
            
            
            n/aYear
                Ending April 30, 2005
            
            
            1,630.00
            
            
            340.00
            
            
            n/a
            
            
            n/aYear
                Ending April 30, 2004
            
            
            2,080.00
            
            
            100.00
            
            
            n/a
            
            
            n/aYear
                Ending April 30, 2003
            
            
            160.00
            
            
            60.00
            
            
            0.62
            
            
            0.62





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




ADS
                Price ($)High
            
            Low**Year
                Ended June 30, 2007**First
                Quarter
            
            
            220.00
            
            
            100.00Second
                Quarter
            
            
            110.00
            
            
            50.00Third
                Quarter
            
            
            66.80
            
            
            22.20Fourth
                Quarter
            
            
            28.00
            
            
            10.60**Two
                Months Ended June 30, 2006**
            
            
            300.00
            
            
            210.00**Year
                Ended April 30, 2006**First
                Quarter
            
            
            630.00
            
            
            360.00Second
                Quarter
            
            
            700.00
            
            
            490.00Third
                Quarter
            
            
            530.00
            
            
            220.00Fourth
                Quarter
            
            
            350.00
            
            
            180.00





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




ADS
                Price ($)High
            
            LowJanuary
                2008
            
            
            2.10
            
            
            1.25December
                2007
            
            
            4.00
            
            
            2.08November
                2007
            
            
            7.80
            
            
            3.80October
                2007
            
            
            12.00
            
            
            7.40September
                2007
            
            
            13.80
            
            
            9.20August
                2007
            
            
            18.40
            
            
            12.80





The
      last
      reported sale price of our ADSs on February 13, 2008 on the Nasdaq Capital
      Market was $1.21.




**C.**  **PLAN
      OF DISTRIBUTION**




Not
      Applicable




**D.**  **MARKETS**




The
      Company’s ADSs are listed on the Nasdaq-CM under the symbol “FMDA”.




**E.**  **SELLING
      SHAREHOLDERS**




Not
      Applicable




**F.**  **DILUTION**




Not
      Applicable




**G.**  **EXPENSES
      OF THE ISSUE**




Not
      Applicable




66
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**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-1 (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 June 30, 2007.




**C.**  **MATERIAL
      CONTRACTS**




None.




**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**




The
      following discussion describes the material US Federal income tax and UK tax
      consequences of the purchase, ownership and disposition of our Ordinary Shares
      or ADSs (evidenced by American Depository Receipts, also known as ADRs, for
      beneficial owners:




·
            
            who
                are residents of the United States for purposes of the current applicable
                United Kingdom/United States Income Tax Convention (either known
                as the
                Income Tax Convention or the New Income Tax Convention) and the United
                Kingdom/United States Estate and Gift Tax Convention (also known
                as the
                Estate and Gift Tax Convention and, together with the Income Tax
                Convention, known as the Conventions);




·
            
            whose
                ownership of our Ordinary Shares or ADSs is not, for the purposes
                of the
                Conventions, attributable to a permanent establishment in the United
                Kingdom;




·
            
            who
                otherwise qualify for the full benefits of the Conventions; and




·
            
            who
                are US holders (as defined below).




The
      statements of US federal income tax and UK tax laws set out below:




·
            
            are
                based on the laws in force and as interpreted by the relevant taxation
                authorities as at the date of this Registration Statement;




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·
            
            are
                subject to any changes in US law or the laws of England and Wales,
                in the
                interpretation thereof by the relevant taxation authorities, or in
                the
                Conventions, occurring after such date; and




·
            
            are
                based, in part, on representations of the depositary, and assume
                that each
                obligation in the deposit agreement and any related agreement will
                be
                performed in accordance with its terms.





No
      assurance can be given that taxing authorities or the courts will agree with
      this analysis.





**This
      discussion does not address all aspects of US and UK taxation that may be
      relevant to you and is not intended to reflect the individual tax position
      of
      any beneficial owner, including tax considerations that arise from rules of
      general application to all taxpayers or to certain classes of investors or
      that
      are generally assumed to be known by investors.** The
      portions of this summary relating to US Federal taxation are based upon the
      US
      Internal Revenue Code of 1986, as amended, also known as the Code, its
      legislative history, existing and proposed US Treasury regulations promulgated
      thereunder, published rulings by the US Internal Revenue Service, also known
      as
      the IRS, and court decisions, all in effect as at the date hereof, all of which
      authorities are subject to change or differing interpretations, which changes
      or
      differing interpretations could apply retroactively. This summary is limited
      to
      investors who hold our Ordinary Shares or ADSs as capital assets within the
      meaning of Section 1221 of the Code, generally property held for investment,
      and
      this summary does not purport to deal with the US Federal or UK taxation
      consequences for investors in special tax situations, such as dealers in
      securities or currencies, persons whose functional currency is not the US
      Dollar, life insurance companies, tax exempt entities, financial institutions,
      traders in securities that elect to use a “mark-to-market” method of accounting
      for their securities holdings, regulated investment companies, persons holding
      our Ordinary Shares or ADSs as part of a hedging, integrated, conversion or
      constructive sale transaction or straddle or persons subject to the alternative
      minimum tax, who may be subject to special rules not discussed below. In
      particular, the following summary does not address the adverse tax treatment
      to
      you that would follow if you own, directly or by attribution, 10% or more of
      our
      outstanding voting share capital and we are classified as a “controlled foreign
      corporation” for US Federal tax purposes.





As
      used
      herein, the term “US holder” means a beneficial owner of our Ordinary Shares or
      ADSs who or which is:




·
            
            a
                citizen or resident of the United States;




·
            
            a
                corporation (or other entity that is treated as a corporation for
                US
                Federal income tax purposes) created or organized in or under the
                laws of
                the United States or any political subdivision thereof;




·
            
            an
                estate, the income of which is subject to US Federal income taxation
                regardless of its source; or





·
            
            a
                trust (1) that is subject to the supervision of a court within the
                United
                States and the control of one or more US holders as described in
                section
                7701(a)(30) of the Code or (2) that has a valid election in effect
                under
                applicable US Treasury regulations to be treated as a US holder.





If
      a
      partnership (or an entity that is treated as a partnership for US Federal income
      tax purposes) holds our Ordinary Shares or ADSs, the tax treatment of a partner
      will generally depend upon the status of the partner and the activities of
      the
      partnership. If you are a partner of a partnership holding our Ordinary Shares
      or ADSs or ADRs, you should consult your tax advisors.





**The
      summary does not include any description of the tax laws of any State or local
      government or of any jurisdictions other than the United States and the United
      Kingdom that may be applicable to the ownership of our Ordinary Shares, ADSs
      or
      ADRs. You are urged to consult your own tax advisor regarding the US Federal,
      State, and local tax consequences to you of the ownership of our Ordinary Shares
      or ADSs, as well as the tax consequences to you in the United Kingdom and any
      other jurisdictions.**




68
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For
      the
      purposes of the Conventions and the Code, you will be treated as the owner
      of
      our Ordinary Shares represented by the ADSs evidenced by the
      ADRs.





**Taxation
      of Capital Gains**





***United
      Kingdom***





If
      you
      are not resident or not ordinarily resident in the United Kingdom for UK tax
      purposes, you will not be liable for UK tax on capital gains realized or accrued
      on the sale or other disposition of Ordinary Shares or ADSs unless the Ordinary
      Shares or ADSs are held in connection with your trade or business (which for
      this purpose includes a profession or a vocation) carried on in the United
      Kingdom through a branch or agency and the Ordinary Shares or ADSs are or have
      been used, held or acquired for the purposes of such trade or business or such
      branch or agency.




A
      US
      holder who is an individual who ceases to be resident or ordinarily resident
      in
      the United Kingdom and who disposes of Ordinary Shares or ADSs during a five
      year period from the date of ceasing to be UK resident or ordinarily may also
      be
      liable for UK tax on capital gains notwithstanding that the person may not
      be
      resident in the United Kingdom at the time of the disposal.





***United
      States***





Subject
      to the Passive Foreign Investment Company discussion below, gain or loss
      realized by you on the sale or other disposition of the Ordinary Shares or
      ADSs
      will be subject to US Federal income tax as capital gain or loss in an amount
      equal to the difference between your tax basis in the Ordinary Shares or ADSs
      and the amount realized on the disposition. The capital gain or loss will be
      long-term capital gain or loss if the US holder has held the Ordinary Shares
      or
      ADSs for more than one year at the time of the sale or exchange. A gain or
      loss
      realized by you generally will be treated as US source gain or loss for US
      foreign tax credit purposes.





**Passive
      Foreign Investment Company Considerations**




Generally,
      for US Federal income tax purposes, we will be a “passive foreign investment
      company”, or a “PFIC”, for any taxable year if either (1) 75% or more of our
      gross income is “passive” income or (2) 50% or more of the value of our assets,
      determined on the basis of a quarterly average, is attributable to assets that
      produce or are held for the production of passive income. Passive income
      generally includes dividends, interest, royalties and rents not arising from
      the
      active conduct of a trade or business, and gains from the sale of assets that
      produce such income. If we are a PFIC in any taxable year that you own our
      Ordinary Shares or ADSs, you generally would be subject to tax at the highest
      ordinary income rates applicable to you and pay interest on such tax based
      on
      your holding period in the Ordinary Shares of ADSs, on (1) any gain recognized
      on the sale of our Ordinary Shares or ADSs and (2) any “excess distribution”
paid on our Ordinary Shares or ADSs (generally, a distribution in excess of
      125%
      of the average annual distributions paid by us in the three preceding taxable
      years). Alternatively, if we were a PFIC, you could elect to treat your Ordinary
      Shares or ADSs as an interest in a qualifying election fund, in which case
      you
      would be required to include in income currently your proportionate share of
      our
      earnings and profits from PFIC years regardless of whether they were actually
      distributed, but any gain on sale generally would be treated as capital gain.
      As
      a third alternative, you may elect to annually mark to market your Ordinary
      Shares or ADSs, recognizing ordinary income (or subject to limitation, ordinary
      loss) equal to the difference between their fair market value and adjusted
      basis.




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Based
      on
      our current activities and assets, we do not believe that we are a PFIC, and
      we
      do not expect to become a PFIC in the foreseeable future for US Federal income
      tax purposes. Our belief that we are not a PFIC and our expectation that we
      will
      not become a PFIC in the future are based on our current and planned activities,
      and may change in the future. The determination of whether we are a PFIC is
      made
      annually. Accordingly, it may be possible that we will become a PFIC in the
      current or any future year due to changes in our asset or income composition.





**UK
      Inheritance and Gift Tax**




If
      you
      are an individual domiciled in the United States and are not a national of
      the
      United Kingdom for the purposes of the Estate and Gift Tax Convention, any
      Ordinary Share or ADS beneficially owned by you will not be subject to UK
      inheritance tax on your death or on a gift made by you during your lifetime,
      provided that any applicable US Federal gift or estate tax liability is paid,
      except where the Ordinary Share or ADS is part of the business property of
      your
      UK permanent establishment or pertains to your UK fixed base used for the
      performance of independent personal services. The Estate and Gift Tax Convention
      generally provides for tax paid in the United Kingdom to be credited against
      tax
      payable in the United States, based on priority rules set out in that
      Convention, in the exceptional case where an Ordinary Share or ADS is subject
      to
      both UK inheritance tax and US Federal gift or estate tax. Where the Ordinary
      Shares or ADSs have been placed in trust by a settlor who, at the time of the
      settlement, was a US holder, the Ordinary Shares or ADSs will generally not
      be
      subject to UK inheritance tax if the settlor, at the time of the settlement,
      was
      domiciled in the United States for the purposes of the Estate and Gift Tax
      Convention and was not a national of the United Kingdom.




**US
      Gift and Estates Taxes**




If
      you
      are an individual US holder, you will be subject to US gift and estate taxes
      with respect to the Ordinary Shares or ADSs in the same manner and to the same
      extent as with respect to other types of personal property.





**UK
      Stamp Duty and Stamp Duty Reserve Tax**





Subject
      to certain exemptions, stamp duty will be charged at the rate of 1.5% rounded
      up
      to the nearest GBP5, or there will be a charge to the stamp duty reserve tax
      at
      the rate of 1.5% on the amount or value of the consideration paid, or in some
      circumstances the issue price or open market value, on a transfer or issue
      of
      Ordinary Shares to, or to a nominee for, a person whose business is or includes
      the issuing of depositary receipts. The stamp duty reserve tax on the deposit
      of
      Ordinary Shares with the depositary will be payable by the person depositing
      those Ordinary Shares. Where stamp duty reserve tax is charged on a transfer
      of
      Ordinary Shares and ad valorem stamp duty is chargeable on the instrument
      effecting the transfer, the amount of the stamp duty reserve tax charged is
      an
      amount equal to the excess, if any, of the stamp duty reserve tax charge due
      on
      the transfer after the deduction of the stamp duty paid.




You
      will
      not be entitled to a foreign tax credit with respect to any UK stamp duty or
      stamp duty reserve tax, but may be entitled to a deduction subject to applicable
      limitations under the Code. You are urged to consult your own tax advisors
      regarding the availability of a deduction under their particular circumstances.




***Transfers
      of ADRs***




UK
      stamp
      duty will only be payable on an instrument transferring an ADR or on a written
      agreement to transfer an ADR where (i) the instrument of transfer is executed
      in
      the United Kingdom or (ii) there is any matter to be done to perfect the
      transfer in the UK or (iii) the document is brought into the UK. In these cases
      the transfer of an ADR could, depending on the circumstances, attract a charge
      to ad valorem stamp duty at the rate of 0.5% of the value of the consideration
      (rounded up to the nearest GBP5) plus interest and penalties if not stamped
      within 30 days of execution.




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No
      stamp
      duty reserve tax will be payable in respect of an agreement to transfer an
      ADR,
      whether made in or outside the United Kingdom.




Where
      no
      sale is involved and no transfer of beneficial ownership has occurred, a
      transfer of Ordinary Shares by the depositary or its nominee to the holder
      of an
      ADR upon cancellation of the ADR is subject to UK stamp duty of GBP5 per
      instrument of transfer.




***Issue
      and Transfer of Ordinary Shares in Registered Form***




Except
      in
      relation to persons whose business is or includes the issue of depositary
      receipts of the provision of clearance services or their nominees, the allotment
      and issue of Ordinary Shares by us will not normally give rise to a charge
      to UK
      stamp duty or stamp duty reserve tax.




Transfers
      of Ordinary Shares, as opposed to ADRs, will attract ad valorem stamp duty
      normally at the rate of 0.5% of the value of the consideration (rounded up
      to
      the nearest GBP5). A charge to stamp duty reserve tax, normally at the rate
      of
      0.5% of the consideration, arises, in the case of an unconditional agreement
      to
      transfer Ordinary Shares, on the date of the agreement, and in the case of
      a
      conditional agreement the date on which the agreement becomes unconditional.




**Information
      Reporting and Backup Withholding**




Payments
      that relate to the Ordinary Shares or ADSs that are made in the United States
      or
      by a US related financial intermediary will be subject to information reporting.
      Information reporting generally will require each paying agent making payments,
      which relate to an Ordinary Share or ADS, to provide the IRS with information,
      including the beneficial owner’s name, address, taxpayer identification number,
      and the aggregate amount of dividends paid to such beneficial owner during
      the
      calendar year. These reporting requirements, however, do not apply to all
      beneficial owners. Specifically, corporations, securities broker-dealers, other
      financial institutions, tax-exempt organizations, qualified pension and profit
      sharing trusts and individual retirement accounts are all exempt from reporting
      requirements.




If
      you
      are a depositary participant or indirect participant holding Ordinary Shares
      or
      ADSs on behalf of a beneficial owner, or paying agent making payments for an
      Ordinary Share or ADS, you may be required to backup withhold, as a backup
      against the beneficial owner’s US Federal income tax liability, a portion of
      each payment of dividends on our Ordinary Shares or ADSs in the event that
      the
      beneficial owner of an Ordinary Share or ADS:




·
            
            fails
                to establish its exemption from the information reporting requirements;




·
            
            is
                subject to the reporting requirements described above and fails to
                supply
                its correct taxpayer identification number in the manner required
                by
                applicable law; or




·
            
            under-reports
                its tax liability.




This
      backup withholding tax is not an additional tax and may be credited against
      US
      Federal income tax liability if the required information is furnished to the
      IRS.




***Taxation
      of Dividends***




We
      have
      not included a detailed discussion of the tax consequences to holders of
      Ordinary Shares or ADSs of the payment of dividends in light of the Company’s
      present inability to pay dividends. As noted above, pursuant to the English
      Companies Act of 1985 a company may not pay a dividend while it has an
      accumulated deficit. As of June 30, 2007, our accumulated deficit was
      GBP34,678,000.




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Under
      current UK domestic law, if it becomes possible for a dividend to be paid,
      no UK
      withholding tax would be payable in respect of such dividend.





**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 SEC’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 SEC upon payment of certain fees prescribed by the SEC.




**I.** **SUBSIDIARY
      INFORMATION**




Not
      Applicable





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





The
      following discussion about the
      Company’s market
      risk involves forward-looking statements. Actual results could differ materially
      from those projected in the forward-looking statements.





*Equity
      Price Risk.* As of
      June 30, 2007 the Company had outstanding convertible loans with a face value
      of
      GBP6,621,000 that are convertible into its equity at various discounts to market
      ranging from 5-20% of the lowest bid price for the 30 days prior to conversion.
      As a result of the floating conversion price, fluctuations in the Company’s
      stock price affect the number of Ordinary
      Shares which
      are issuable upon conversion of the loans. In addition, warrants that are
      accounted for as derivative liabilities have been issued to various parties.
      The
      fair values of these warrants are effected, inter alia, by charges in the
      Company’s share price. Furthermore, changes in the Company’s share price effect
      the value of the embedded conversion feature. As of June 30, 2007 a hypothetical
      10% decrease in the trading price of our ADSs would have resulted in the
      issuance of an additional 118,693,732 Ordinary Shares to satisfy the outstanding
      principal.





*Interest
      Rate Risk.* The
      Company’s exposure to interest rate risk from changes in market interest rates
      relates primarily to its outstanding convertible loans. Certain
      of the convertible loan arrangements that the Company has entered into carry
      fixed interest rates ranging from 7% to 12%, and certain of the convertible
      loans carry floating interest rates that are pegged to the published rates
      plus
      a 2% premium. Interest rate fluctuations could impact the amount of interest
      expense we record in our statement of operations, and the amount of interest
      we
      are required to pay on the loans, either in cash or through the issuance of
      Ordinary Shares. The
      Company is also exposed to interest rate risk from changes in market interest
      rates relative to its cash balances. The Company does not hold derivative
      financial instruments or equity investments in its investment portfolio. Due
      in
      part to these factors, the
      Company’s future
      interest income may be adversely impacted due to changes in interest rates.
      In
      the event the Company is successful in raising additional capital, and
      generating profits from its core business, the Company expects to have
      additional cash balances to invest in a wider array of short-and long-term
      securities and other investments. There have been no material changes in the
      Company’s investment methodology regarding its cash equivalents and short-term
      investments during the year ended June 30, 2007. Based on the Company’s
      outstanding loans at June 30, 2007, a hypothetical 1% increase/decrease in
      weighted-average interest rates would increase/decrease the Company’s annual
      interest expense by approximately GBP46,000.




72
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          of Contents*





*Foreign
      Currency Risk.* The
      Company conducts business internationally in several currencies, and as such,
      is
      exposed to adverse movements in foreign currency exchange rates. The Company’s
      exposure to foreign exchange rate fluctuations arise in part from:
      (1) translation of the financial results of foreign subsidiaries into
      British Pounds Sterling in consolidation; (2) the re-measurement of
      non-functional currency assets, liabilities and intercompany balances into
      the
      appropriate functional currency for financial reporting purposes; and
      (3) non-British Pounds Sterling denominated sales to foreign customers. The
      Company does not hedge or use foreign currency forward contracts to manage
      its
      foreign currency risks. The Company is exposed to foreign currency risk with
      respect to its Button operations, a significant portion of which are conducted
      in the U.S. and France, and from convertible loans which are denominated in
      U.S.
      Dollars. The Company records gains and losses on financing instruments
      denominated in foreign currency in foreign currency gains and losses, and
      records foreign currency translations from foreign subsidiaries in the
      comprehensive income (loss) section of its consolidated statement of operations.





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




Not
      Applicable.




**PART
      II**




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




As
      of
      June 30, 2007, the Company was technically in default of its convertible loans
      with Cornell, TAIB, and Certain Wealth dated April 19, 2006 with a face value
      of
      $7,500,000, and August 3, 2006 with a face value of $1,500,000, due to the
      Company’s failure to register shares underlying the convertible loans by the
      prescribed due date, and subsequently due to failure to file its Form 20-F
      for
      the year ended June 30, 2007. The Company is also in default of the loan dated
      June 1, 2007 in the amount of $4,600,000, which stipulates default on any prior
      loans as a condition of default. As a result, Cornell has the right to call
      the
      full face value of each note. However, the Company expects to receive a waiver
      of default shortly after filing of this Form 20-F. The Company has recorded
      the
      carrying value of these notes as current liabilities as of June 30,
      2007.




**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**





The
      Company is required to maintain disclosure controls and procedures that are
      designed to ensure that information required to be disclosed in its 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 Securities and Exchange Commission’s rules and forms, and that such
      information is accumulated and communicated to management, including the
      Company’s Chief Executive Officer (“CEO”) as appropriate, to allow timely
      decisions regarding required disclosure.




73
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          of Contents*





In
      connection with the preparation of this Form 20-F for the year ended June
      30, 2007, management, under the supervision of the CEO, conducted an evaluation
      of disclosure controls and procedures. A control system, no matter how well
      conceived and operated, can provide only reasonable, not absolute, assurance
      that the objectives of the control systems are met. As described in Note 3
      to
      the financial statements the previously reported financial results for the
      two
      months ended June 30, 2006 and the year ended April 30, 2006 have been restated.
      Management concluded that these restatements were due to material weaknesses
      related primarily to the lack of continuity in finance staff, and therefore
      obtaining information relating to historical transactions, and to the lack
      of US
      GAAP knowledge within the Company. Because the material weaknesses identified
      had not been remediated as of June 30, 2007, the CEO concluded that the
      Company’s disclosure controls and procedures were not effective as of June 30,
      2007.





**c)
      Subsequent Changes in Internal Control over Financial
      Reporting**





Due
      to
      its identification of material weaknesses in its internal controls as of June
      30, 2007 as described above, the Company is seeking to improve its controls
      over
      financial reporting. Accordingly, the Company has engaged outside financial
      consultants to assist it with its convertible loan and related derivative
      financial instrument valuations, and with other U.S. GAAP accounting
      principles.





Except
      as
      disclosed above, there were no changes in our internal control over financial
      reporting that occurred during the period covered by this report that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting.




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




The
      Audit
      Committee currently comprises Mr. McNutt (Chairman), Ms. Lebenberg, and Mr.
      Steel. Mr. McNutt assumed the chairmanship of the Audit Committee in June 2007.
      The Board of Directors has determined that Mr. McNutt does not meet the
      requirements of an "audit committee financial expert" as such term is defined
      under currently applicable rules of the SEC. Mr. McNutt is an independent
      director. The Company does not have a financial expert on its audit committee
      due to financial constraints, as well as difficulty in successfully locating
      and
      engaging individuals with expertise in US GAAP, as well as extensive knowledge
      of UK and French business issues and culture.




**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.




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




The
      following table sets forth the total remuneration that was billed to the Company
      and its subsidiaries by the Company’s current and former Independent Registered
      Public Accounting Firm, in each of the Company’s three most recent accounting
      periods:




**(A)**
            
            **(B)**
            
            **(C)****Year**
            
            **Two****Months**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended****June
                30,**
            
            **June
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**(GBP'000)Audit
                Fees
            
            
            227
            
            
            118
            
            
            155Audit-Related
                Fees
            
            
            0
            
            
            0
            
            
            233Tax
                Fees
            
            
            9
            
            
            0
            
            
            18All
                Other Fees
            
            
            43
            
            
            5
            
            
            19Total
            
            
            279
            
            
            123
            
            
            425





(A)
            -
                Audit fees include (i) GBP177,000 billed by Deloitte & Touche LLP who
                were appointed as auditors on October 25, 2007, and (ii) GBP50,000
                billed
                by BDO Stoy Hayward LLP, who were dismissed as auditors on October
                15,
                2007.




(B)
            -
                Amounts billed by Deloitte & Touche LLP who were appointed as auditors
                on October 25, 2007.




(C)
            -
                Amounts billed by BDO Stoy Hayward LLP who were dismissed as auditors
                on
                October 15, 2007.





The *Audit
      Fees* for the
      fiscal year/period ended June 30, 2007 and 2006 and for the fiscal year ended
      April 30, 2006 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 SEC.




The *Audit
      Related Fees* for the
      fiscal year ended April 30, 2006 were for specific accounting and consultation
      issues, as well as fees associated with audit and due diligence activities
      regarding the acquisitions of EBC and Button.




*Tax
      Fees* for
      the
      fiscal year/period ended June 30, 2007 and 2006 and for the fiscal year ended
      April 30, 2006 were for services performed in connection with income tax
      compliance, consulting and tax research services and assistance with tax
      computations.




*Other
      Fees* included
      consultancy work on taxation aspects of the Home Computing
      Initiative.




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.




75
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          of Contents*




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




Not
      applicable.




76
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          of Contents*




**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**
            
            PageReport
                of Independent Registered Public Accounting Firm
            
            
            F-1Report
                of Independent Registered Public Accounting Firm
            
            
            F-2Audited
                Financial StatementsConsolidated
                Balance Sheets at June 30, 2007 and 2006
            
            
            F-3Consolidated
                Statements of Operations for the fiscal year/period ended June 30,
                2007
                and 2006, and fiscal years ended April 30, 2006 and 2005
            
            
            F-5Consolidated
                Statements of Changes in Stockholders’ (Deficit)/Equity for the fiscal
                year/period ended June 30, 2007 and 2006, and fiscal years ended
                April 30,
                2006 and 2005
            
            
            F-6Consolidated
                Statements of Cash Flows for the fiscal year/period ended June 30,
                2007
                and 2006, and fiscal years ended April 30, 2006 and 2005
            
            
            F-8Notes
                to Consolidated Financial Statements
            
            
            F-9




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




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**ITEM
      19. EXHIBITS******




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




Exhibit
                Number
            
            Exhibit
                Description1.1
            
            Amended
                and Restated Articles of Association of Futuremedia PLC (previously
                filed
                as Exhibit 1.1 to Futuremedia PLC’s Annual Report on Form 20-F for the
                year ended April 30, 2005, filed on August 4, 2005, File No. 000-21978
                (the “2005 20-F”).2.1
            
            Description
                of the Registrant’s Ordinary Shares (included in the Amended and Restated
                Articles of Association of the Registrant, previously filed as Exhibit
                1.1
                to the Registrant’s 2005 20-F.)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
            
            Form
                of Subscription Agreement dated February 15, 2005 between Registrant
                and
                Leonard M. Fertig (previously filed as Exhibit 4.10 to the Registrant’s
                2005 20-F, and incorporated herein by reference).2.6
            
            Form
                of Subscription Agreement dated February 15, 2005 between Registrant
                and
                Jan Vandamme (previously filed as Exhibit 4.11 to the Registrant’s 2005
                20-F, and incorporated herein by reference).2.7
            
            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.”) (previously filed as Exhibit
                2.5 to the Registrant’s 2005 20-F, and incorporated herein by
                reference).2.8
            
            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 (previously filed as Exhibit 2.6 to the Registrant’s 2005 20-F,
                and incorporated herein by reference).2.9
            
            Revised
                Extension Agreement dated September 7, 2005 by and among the Registrant,
                the Funds and M.A.G. in connection with the M.A.G. Securities Purchase
                Agreement and the Form of Convertible Debenture filed as Exhibit
                2.10
                herewith (previously filed as Exhibit 4.3 to the Registrant’s Form F-3, as
                amended, originally filed on September 8, 2006, File No. 333-128173
                (the
                “M.A.G. F-3”) and incorporated herein by reference).2.10
            
            Form
                of Convertible Debenture due October 31, 2006 issued in connection
                with
                the M.A.G. Securities Purchase Agreement (previously filed as Exhibit
                2.7
                to the Registrant’s 2005 20-F, and incorporated herein by
                reference).




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2.11
            
            Form
                of Warrant issued in connection with the M.A.G. Securities Purchase
                Agreement (previously filed as Exhibit 2.8 to the Registrant’s 2005 20-F,
                and incorporated herein by reference).2.12
            
            Form
                of Securities Purchase Agreement (the “Cornell Securities Purchase
                Agreement”) dated December 19, 2005 by and between the Registrant and
                Cornell Capital Partners, LP, (previously filed as Exhibit 2 to the
                Registrant’s Form 6-K, filed on December 20, 2005, File No. 000-21978, and
                incorporated herein by reference).2.13
            
            Form
                of Investor Registration Rights Agreement (the “Cornell Registration
                Rights Agreement”) dated December 19, 2005****by
                and between the Registrant and Cornell Capital Partners, LP (previously
                filed as Exhibit 3 to the Registrant’s Form 6-K, filed on December 20,
                2005, File No. 000-21978, and incorporated herein by
                reference).2.14
            
            Form
                of Convertible Note due December 19, 2008 (the “Cornell Convertible Note”)
                issued in connection with the Cornell Securities Purchase Agreement
                (previously filed as Exhibit 4 to the Registrant’s Form 6-K, filed on
                December 20, 2005, File No. 000-21978, and incorporated herein by
                reference ).2.15
            
            Form
                of Warrant with an issuance date of December 19, 2005 issued in connection
                with the Cornell Securities Purchase Agreement (previously filed
                as
                Exhibit 5 to the Registrant’s Form 6-K filed on December 20, 2005, File
                no. 000-21978, and incorporated herein by reference).2.16
            
            Form
                of Escrow Agreement dated December 19, 2005 by and between the Registrant,
                Cornell Capital Partners, LP and David Gonzalez, Esq. as Escrow Agent
                in
                connection with the Cornell Securities Purchase Agreement (previously
                filed as Exhibit 4.5 to the Registrant’s Amendment No. 1 to Form F-3,
                filed on March 2, 2006, File No. 333-131314, and incorporated herein
                by
                reference).2.17
            
            Form
                of Amendment No. 1 to Investor Registration Rights Agreement (the
                “Amendment No. 1 to Investor Registration Rights Agreement”) dated
                April 19, 2006 by and between the Registrant and Cornell Capital
                Partners, LP in connection with the Cornell Securities Purchase Agreement
                and the Cornell Registration Rights Agreement (previously filed as
                Exhibit
                2 to the Registrant’s Form 6-K, filed on April 25, 2006, File No.
                000-21978, and incorporated herein by reference).2.18
            
            Amendment
                No. 2 to Investor Registration Rights Agreement (the “Amendment No. 2 to
                Investor Registration Rights Agreement”) dated June 15, 2006 by and
                between the Registrant and Cornell Capital Partners, LP in connection
                with
                the Cornell Securities Purchase Agreement and the Cornell Registration
                Rights Agreement as amended by Amendment No. 1 to Investor Registration
                Rights Agreement (previously filed as Exhibit 2 on Form 6-K filed
                on June
                16, 2006, File No. 000-21978, and incorporated herein by
                reference).2.19
            
            Amendment
                No. 3 to Investor Registration Rights Agreement (the “Amendment No. 3 to
                Investor Registration Rights Agreement”) dated July 14, 2006 by and
                between the Registrant and Cornell Capital Partners, LP in connection
                with
                the Cornell Securities Purchase Agreement and the Cornell Registration
                Rights Agreement as amended by Amendment No. 1 to Investor Registration
                Rights Agreement and Amendment No. 2 to Investor Registration Rights
                Agreement (previously filed as Exhibit 4.8 to the Registrant’s Amendment
                No. 5 to Form F-3, filed on July 17, 2006, File No. 333-131314, and
                incorporated herein by reference).




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2.20
            
            Amendment
                No. 4 to Investor Registration Rights Agreement (the “Amendment No. 4 to
                Investor Registration Rights Agreement”) dated July 31, 2006 by and
                between the Registrant and Cornell Capital Partners, LP in connection
                with
                the Cornell Securities Purchase Agreement and the Cornell Registration
                Rights Agreement as amended by Amendment No. 1 to Investor Registration
                Rights Agreement, Amendment No. 2 to Investor Registration Rights
                Agreement, and Amendment No. 3 to Investor Registration Rights Agreement
                (previously filed as Exhibit 10 on Form 6-K filed on August 7, 2006,
                File
                No. 000-21978, and incorporated herein by reference).2.21
            
            Amendment
                No. 5 to Investor Registration Rights Agreement (the “Amendment No. 5 to
                Investor Registration Rights Agreement”) dated August 31, 2006 by and
                between the Registrant and Cornell Capital Partners, LP in connection
                with
                the Cornell Securities Purchase Agreement and the Cornell Investor
                Registration Rights Agreement as amended by Amendment No. 1 to Investor
                Registration Rights Agreement, Amendment No. 2 to Investor Registration
                Rights Agreement, Amendment No. 3 to Investor Registration Rights
                Agreement, and Amendment No. 4 to Investor Registration Rights Agreement
                (previously filed as Exhibit 1 on Form 6-K filed on September 1,
                2006,
                File No. 000-21978, and incorporated herein by
                reference).2.22
            
            Amendment
                No. 6 to Investor Registration Rights Agreement (the “Amendment No. 6 to
                Investor Registration Rights Agreement”) dated September 8, 2006 by and
                between the Registrant and Cornell Capital Partners, LP in connection
                with
                the Cornell Securities Purchase Agreement and the Cornell Investor
                Registration Rights Agreement as amended by Amendment No. 1 to Investor
                Registration Rights Agreement, Amendment No. 2 to Investor Registration
                Rights Agreement, Amendment No. 3 to Investor Registration Rights
                Agreement, Amendment No. 4 to Investor Registration Rights Agreement,
                and
                Amendment No. 5 to Investor Registration Rights Agreement (previously
                filed as Exhibit 4.11 on Amendment No. 7 to the Registrant’s Form F-3
                filed on September 12, 2006, File No.333-131314
                (the “Cornell F-3”), and incorporated herein by
                reference).2.23
            
            Waiver
                by and between the Registrant and Cornell Capital Partners, LP effective
                as of July 31, 2006 in connection with the Cornell Registration Rights
                Agreement as amended by Amendment No. 1 to Investor Registration
                Rights
                Agreement, Amendment No. 2 to Investor Registration Rights Agreement,
                Amendment No. 3 to the Investor Registration Rights Agreement and
                Amendment No. 4 to Investor Registration Rights Agreement (previously
                filed as Exhibit 11 on Form 6-K filed on August 7, 2006, File No.
                000-21978, and incorporated herein by reference).2.24
            
            Confirmation
                Agreement issued by the Registrant to Cornell Capital Partners, LP
                effective as of July 31, 2006 in connection with the Cornell Convertible
                Note (previously filed as Exhibit 4.11 on Amendment No. 6 to the
                Registrant’s Form F-3 filed on August 23, 2006, File No. - 333-131314 (the
                “Amendment No. 6 to the Cornell F-3”), and incorporated herein by
                reference).2.25
            
            Form
                of Securities Purchase Agreement (the “Cornell/Certain Wealth/TAIB
                Securities Purchase Agreement”) dated April 19, 2006 by and among the
                Registrant, Cornell Capital Partners, LP, Certain Wealth, Ltd. and
                TAIB
                Bank, B.S.C.(c) (previously filed as Exhibit 3 to the Registrant’s Form
                6-K, filed on April 25, 2006, File No. 000-21978, and incorporated
                herein
                by reference).




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2.26
            
            Amendment
                No. 1 to the Cornell/Certain Wealth/TAIB Securities Purchase Agreement,
                effective as of June 15, 2006, in connection with the Cornell/Certain
                Wealth/TAIB Securities Purchase Agreement (previously filed as Exhibit
                1
                on Form 6-K filed on June 16, 2006, File No.
                000-21978).2.27
            
            Amended
                and Restated Securities Purchase Agreement (the “Amended and Restated
                Cornell/Certain Wealth/TAIB Securities Purchase Agreement”) dated August
                3, 2006 by and among the Registrant, Cornell Capital Partners, LP,
                Certain
                Wealth, Ltd. and TAIB Bank, B.S.C. (previously filed as Exhibit 2
                on Form
                6-K filed on August 7, 2006, File No. 000-121978, and incorporated
                herein
                by reference).2.28
            
            Form
                of Investor Registration Rights Agreement (the “Cornell/Certain
                Wealth/TAIB Investor Registration Rights Agreement”) dated April 19,
                2006****by
                and among the Registrant, Cornell Capital Partners, LP, Certain Wealth,
                Ltd. and TAIB Bank, B.S.C.(c) (previously filed as Exhibit 4 to the
                Registrant’s Form 6-K, filed on April 25, 2006, File No. 000-21978, and
                incorporated herein by reference).2.29
            
            Form
                of Amendment No. 1 to the Cornell/Certain Wealth/TAIB Investor
                Registration Rights Agreement dated June 1, 2006 (filed
                herewith).2.30
            
            Amended
                and Restated Investor Registration Rights Agreement (the “Cornell/Certain
                Wealth/TAIB Amended and Restated Investor Registration Rights Agreement”)
                dated August 3, 2006****by
                and among the Registrant, Cornell Capital Partners, LP., Certain
                Wealth,
                Ltd. and TAIB Bank, B.S.C. in connection with the Amended and Restated
                Cornell/Certain Wealth/TAIB Securities Purchase Agreement (previously
                filed as Exhibit 3 to the Registrant’s Form 6-K, filed on August 7, 2006,
                File No. 000-21978, and incorporated herein by
                reference).2.31
            
            Amendment
                No. 1 to Amended and Restated Investor Registration Rights Agreement
                (“Amendment No. 1 to the Cornell/Certain Wealth/TAIB Amended and Restated
                Investor Registration Rights Agreement”) dated September 28,
                2006****by
                and between Futuremedia PLC, Cornell Capital Partners, LP., Certain
                Wealth, Ltd. and TAIB Bank, B.S.C. in connection with the Cornell/Certain
                Wealth/TAIB Amended and Restated Investor Registration Rights Agreement
                and in connection with the Amended and Restated Cornell/Certain
                Wealth/TAIB Securities Purchase Agreement (previously filed as Exhibit
                6
                to the Registrant’s Form 6-K, filed on September 28, 2006, File No.
                000-21978, and incorporated herein by reference).2.32
            
            Amendment
                No. 2 to the Amended and Restated Investor Registration Rights Agreement
                dated October 30, 2006 by and between Futuremedia PLC, Cornell Capital
                Partners, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C., in connection
                with the Cornell/Certain Wealth/TAIB Amended and Restated Investor
                Registration Rights Agreement, as amended by Amendment No. 1 to the
                Cornell/Certain Wealth/TAIB Amended and Restated Investor Registration
                Rights Agreement, and in connection with the Amended and Restated
                Cornell/Certain Wealth/TAIB Securities Purchase Agreement” (previously
                filed as Exhibit 2 to the Registrant’s Form 6-K, filed on November 3,
                2006, File No. 000-121978, and incorporated herein by
                reference).2.33
            
            Form
                of Secured Convertible Note due April 19, 2009 issued in connection
                with
                the Amended and Restated Cornell/Certain Wealth/TAIB Securities Purchase
                Agreement (previously filed as Exhibit 5 to the Registrant’s Form 6-K,
                filed on April 25, 2006, File No. 000-21978, and incorporated herein
                by
                reference).2.34
            
            Amended
                and Restated $5,500,000 Secured Convertible Note due April 19, 2009
                issued to Cornell Capital Partners, LP in connection with the Amended
                and
                Restated Cornell/Certain Wealth/TAIB Securities Purchase Agreement
                (previously filed as Exhibit 4 on Form 6-K filed on August 7, 2006,
                File
                No. 000-21978, and incorporated herein by
                reference).




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2.35
            
            Amended
                and Restated $1,000,000 Secured Convertible Note due April 19, 2009
                issued to Certain Wealth, Ltd. in connection with the Amended and
                Restated
                Cornell/Certain Wealth/TAIB Securities Purchase Agreement (previously
                filed as Exhibit 5 on Form 6-K filed on August 7, 2006, File No.
                000-21978, and incorporated herein by reference).2.36
            
            Amended
                and Restated $1,000,000 Secured Convertible Note due April 19, 2009
                issued to TAIB Bank, B.S.C. in connection with the Amended and Restated
                Cornell/Certain Wealth/TAIB Securities Purchase Agreement (previously
                filed as Exhibit 6 on Form 6-K filed on August 7, 2006, File No.
                000-21978, and incorporated herein by reference).2.37
            
            $1,500,000
                Secured Convertible Note due August 3, 2009 issued to Cornell Capital
                Partners, LP in connection with the Amended and Restated Cornell/Certain
                Wealth/TAIB Securities Purchase Agreement (previously filed as Exhibit
                7
                on Form 6-K filed on August 7, 2006, File No. 000-21978, and incorporated
                herein by reference).2.38
            
            Form
                of Warrant with an issuance date of April 19, 2006 issued in connection
                with the Amended and Restated Cornell/Certain Wealth/TAIB Securities
                Purchase Agreement (previously filed as Exhibit 6 to the Registrant’s Form
                6-K filed on April 25, 2006, File No. 000-21978, and incorporated
                herein
                by reference).2.39
            
            Form
                of Debenture dated April 19, 2006 issued in connection with the Amended
                and Restated Cornell/Certain Wealth/TAIB Securities Purchase Agreement
                (previously filed as Exhibit 7 to the Registrant’s Form 6-K filed on April
                25, 2006, File No. 000-21978, and incorporated herein by
                reference).2.40
            
            Deed
                of Variation dated August 3, 2006 by and between Futuremedia PLC
                and
                Cornell Capital Partners, LP in connection with the Amended and Restated
                Cornell/Certain Wealth/TAIB Securities Purchase Agreement (previously
                filed as Exhibit 7 on Form 6-K filed on August 7, 2006, File No.
                000-21978, and incorporated herein by reference).2.41
            
            Securities
                Purchase Agreement (the “Cornell $550,000 Securities Purchase Agreement”)
                dated September 28, 2006 by and between Futuremedia PLC and Cornell
                Capital Partners, LP (previously filed as Exhibit 2 to the Registrant’s
                Form 6-K filed on September 28, 2006, File No. 000-21978, and incorporated
                herein by reference).2.42
            
            Investor
                Registration Rights Agreement (the “$550,000 Investor Registration Rights
                Agreement”) dated September 28, 2006****by
                and between Futuremedia PLC and Cornell Capital Partners, LP, in
                connection with the Cornell $550,000 Securities Purchase Agreement
                (previously filed as Exhibit 3 to the Registrant’s Form 6-K filed on
                September 28, 2006, File No. 000-21978, and incorporated herein by
                reference).2.43
            
            Amendment
                No. 1 to the Investor Registration Rights Agreement dated October
                30,
                2006****by
                and between Futuremedia PLC and Cornell Capital Partners, LP, in
                connection with the $550,000 Investor Registration Rights Agreement
                and in
                connection with the Cornell $550,000 Securities Purchase Agreement
                (previously filed as Exhibit 1 to the Registrant’s Form 6-K, filed on
                November 3,2006,
                File No. 000-21978, and incorporated herein by
                reference).2.44
            
            $550,000
                Secured Convertible Note due September 28, 2009 issued to Cornell
                Capital
                Partners, LP in
              connection
                with the Cornell $550,000 Securities Purchase Agreement (previously
                filed
                as Exhibit 4 to the Registrant’s Form 6-K filed on September 28, 2006,
                File No. 000-21978, and incorporated
              herein
                by reference).




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2.45
            
            Deed
                of Variation dated September 28, 2006 by and between Futuremedia
                PLC and
                Cornell Capital
              Partners,
                LP in connection with the Cornell $550,000 Securities Purchase Agreement
                (previously filed as Exhibit 5 to the Registrant’s Form 6-k filed on
                September 28, 2006, File No. 000-21978, and incorporated herein by
                reference).2.46
            
            Subscription
                Agreement dated October 24, 2006 in connection with the $5 Million
                Private
                Placement (previously filed as Exhibit 2 to the Registrant’s Form 6-K
                filed on October 25, 2006, File No. 000-21978, and incorporated herein
                by
                reference).2.47
            
            Warrant
                to purchase 80,000,000 Shares issued on October 24, 2006 in connection
                with the $5 Million Private Placement (previously filed as Exhibit
                3 to
                the Registrant’s Form 6-K filed on October 25, 2006, File No. 000-21978,
                and incorporated herein by reference).2.48
            
            Subscription
                Agreement dated October 27, 2006 in connection with the $800,000
                Private
                Placement (previously filed as Exhibit 1 to the Registrant’s Form 6-K
                filed on November 13, 2006, File No. 000-21978, and incorporated
                herein by
                reference).2.49
            
            Form
                of Deposit Agreement dated as of August 17, 1993, among Futuremedia
                Plc,
                The Bank of New York as Depositary, and all Owners and Beneficial
                Owners****from
                time to time of American Depositary Receipts issued thereunder (previously
                filed as Exhibit 1 to the Registrant’s Form F-6 filed on January 11, 2007,
                File No. 333-139921, and incorporated herein by
                reference).2.50
            
            Opinion
                of Emmet, Marvin & Martin, LLP, counsel for the Depositary, as to
                legality of the securities to be registered (previously filed as
                Exhibit 2
                to the Registrant’s Form F-6 filed on January 11, 2007, File No.
                333-139921, and incorporated herein by reference)2.51
            
            Certification
                under Rule 466 (previously filed as Exhibit 3 to the Registrant’s Form F-6
                filed on January 11, 2007, File No. 333-139921, and incorporated
                herein by
                reference).2.52
            
            Securities
                Purchase Agreement, dated June 1, 2007, between Futuremedia PLC and
                Cornell
              Capital
                Partners, L.P. (previously filed as Exhibit 2 to the Registrant’s Form 6-K
                filed on June 5, 2007, File No.000-21978,
                and incorporated herein by reference).2.53
            
            Secured
                Convertible Debenture (United States), issued on June 1, 2007 by
                Futuremedia PLC to Cornell Capital Partners, L.P. (previously filed
                as
                Exhibit 3 to the Registrant’s Form 6-K filed on June 5, 2007, File No.000-21978,
                and incorporated herein by reference).2.54
            
            Debenture
                (United Kingdom), issued on June 1, 2007 by Futuremedia PLC to Cornell
                Capital Partners, L.P. (previously filed as Exhibit 4 to the Registrant’s
                Form 6-K filed on June 5, 2007, File No.000-21978,
                and incorporated herein by reference).2.55
            
            Registration
                Rights Agreement, dated June 1, 2007, between Futuremedia PLC and
                Cornell
              Capital
                Partners, L.P. (previously filed as Exhibit 5 to the Registrant’s Form 6-K
                filed on June 5, 2007, File No.000-21978,
                and incorporated herein by reference).2.56
            
            Subscription
                Agreement, executed May 2, 2007, between National Air Cargo, Middle
                East,
                FZE and Futuremedia PLC. (previously filed as Exhibit 6 to the
                Registrant’s Form 6-K filed on June 5, 2007, File No.000-21978,
                and incorporated herein by
                reference).




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2.57
            
            Warrant
                Agreement, issued on May 2, 2007 by Futuremedia PLC. (previously
                filed as
                Exhibit 7 to the Registrant’s Form 6-K filed on June 5, 2007, File No.
                000-21978, and incorporated herein by reference).2.58
            
            Form
                of Registration Rights Agreement dated August 20, 2007 by and between
                Futuremedia and Yorkville (previously filed as Exhibit 2 to the
                Registrant’s Form 6-K filed on August 29, 2007, File No. 000-21978, and
                incorporated herein by reference).2.59
            
            Form
                of Securities Purchase Agreement dated August 20, 2007 by and between
                Futuremedia and Yorkville (previously filed as Exhibit 3 to the
                Registrant’s Form 6-K filed on August 29, 2007, File No. 000-21978, and
                incorporated herein by reference).2.60
            
            Form
                of Secured Convertible Debenture in the principal amount of $3,200,000
                due
                August 20, 2010 issued in connection with the Securities Purchase
                Agreement (previously filed as Exhibit 4 to the Registrant’s Form 6-K
                filed on August 29, 2007, File No. 000-21978, and incorporated herein
                by
                reference).2.61
            
            Form
                of Warrant with an issuance date of August 20, 2007 issued in connection
                with the Securities Purchase Agreement (previously filed as Exhibit
                5 to
                the Registrant’s Form 6-K filed on August 29, 2007, File No. 000-21978,
                and incorporated herein by reference).4.1
            
            Consent
                of Cornell Capital Partners, LP (“Cornell”) dated October 24, 2006 in
                connection with the $5 Million Private Placement (previously filed
                as
                Exhibit 4 to the Registrant’s Form 6-K filed on October 25, 2006, File No.
                000-21978, and incorporated herein by reference).
              .4.2
            
            Letter
                from Cornell Capital Partners, LP to Futuremedia PLC dated October
                24,
                2006 setting forth an understanding in connection with certain outstanding
                obligations of Futuremedia PLC pursuant to various secured convertible
                notes issued to Cornell Capital Partners, LP. (previously filed as
                Exhibit
                1 to the Registrant’s Form 6-K filed on October 26, 2006, File No.
                000-21978, and incorporated herein by reference).4.3
            
            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 “2000 S-8 Registration Statement”) and
                amended pursuant to the Registrant’s Registration Statement on Form S-8
                filed October 7, 2005, File No. 333-128873 (the “2005 S-8 Registration
                Statement), and incorporated herein by reference).4.4
            
            Unapproved
                Executive Share Option Scheme, as amended (previously filed as Exhibit
                99.2 to the 2000 S-8 Registration Statement) and amended pursuant
                to the
                Registrant’s 2005 S-8 Registration Statement, and incorporated herein by
                reference).4.5
            
            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).4.6
            
            Incentive
                Profit Sharing Scheme (previously filed as Exhibit 10.6 to the 2000
                20-F,
                and incorporated herein by reference).4.7
            
            Registrant’s
                2005 Unapproved Share Option Scheme for New Employees (previously
                filed as
                Exhibit 4.5 to the Registrant’s 2005 20-F, and incorporated herein by
                reference).




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4.8
            
            Registrant’s
                2005 Unapproved Share Option Plan (previously filed as Exhibit 4.6
                to the
                Registrant’s 2005 20-F , and incorporated herein by
                reference).4.9
            
            Registrant’s
                2005 Share Incentive Plan (previously filed as Exhibit 4.7 to the
                Registrant’s 2005 20-F, and incorporated herein by reference).4.10
            
            Registrant’s
                2005 Enterprise Management Incentive Plan (previously filed as Exhibit
                4.8
                to the Registrant’s 2005 20-F, and incorporated herein by
                reference).4.11
            
            Form
                of Subscription Agreement dated February 15, 2005 between the Registrant
                and Rennes Foundation (previously filed as Exhibit 4.9 to the Registrant’s
                2005 20-F, and incorporated herein by reference).4.12
            
            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 (previously filed as Exhibit 4.20 to the
                Registrant’s 2005 20-F, and incorporated herein by
                reference).4.13
            
            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 (previously filed as
                Exhibit 4.22 to the Registrant’s 2005 20-F, and incorporated herein by
                reference).4.14
            
            Form
                of Service Agreement dated February 14, 2005 between Registrant and
                Leonard M. Fertig (previously filed as Exhibit 4.22 to the Registrant’s
                2005 20-F, and incorporated herein by reference).4.15
            
            Form
                of Service Agreement dated February 28, 2005 between Registrant and
                Mark
                Wilshire (previously filed as Exhibit 4.23 to the Registrant’s 2005 20-F,
                and incorporated herein by reference).4.16
            
            Form
                of Non-Executive Director Service Agreement dated February 22, 2005
                (previously filed as Exhibit 4.24 to the Registrant’s 2005 20-F, and
                incorporated herein by reference).4.17
            
            Form
                of Non-Executive Director and Chairman Service Agreement dated February
                22, 2005 (previously filed as Exhibit 4.15 to the Registrant’s 2005 20-F,
                and incorporated herein by reference).8.1
            
            List
                of Subsidiaries of the Registrant (filed herewith).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 and Principal Accounting Officer Certification
                (SEC Rule
                13a-14(a) / 15d-14(a)) (filed herewith).13.1
            
            Chief
                Executive Officer and Principal Accounting Officer Certification
                (18
                U.S.C. 1350) (filed herewith).15.1
            
            Consent
                of BDO Stoy Hayward LLP, previous Independent Registered Accounting
                Firm,
                (filed herewith).




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15.2
            
            Consent
                of Deloitte & Touche LLP, Independent Registered Accounting Firm,
                (filed herewith).15.3
            
            Registrant’s
                Audit Committee Charter, dated as of June 22, 2005 (previously filed
                as
                Exhibit 15.2 to the Registrant’s 2005 20-F, and incorporated herein by
                reference).15.4
            
            Registrant’s
                Compensation Committee Charter, dated as of May 19, 2005 (previously
                filed
                as Exhibit 15.3 to the Registrant’s 2005 20-F, and incorporated herein by
                reference).15.5
            
            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 ).15.6
            
            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).





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**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/George
              O’LearyName:George
              O’LearyTitle:
                Chief Executive Officer, Principal Accounting Officer and Authorized
                Signatory




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**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, 2006 and 2005 (not separately presented herein) and the related
      consolidated statements of operations, stockholders’ deficit, and cash flows for
      each of the years then ended. 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, 2006 and 2005, and the results of its operations and its cash flows for
      the
      years then ended, in conformity with accounting principles generally accepted
      in
      the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company has suffered recurring losses from operations and has
      a
      net capital deficiency that raise substantial doubt about its ability to
      continue as a going concern. Management’s plans in regard to these matters are
      also described in Note 1. The financial statements do not include any
      adjustments that might arise from the outcome of this uncertainty.




As
      described in Note 3, the Company has restated its 2006 financial
      statements.








/s/
      BDO
      Stoy Hayward LLP


London,
      England





August
      25, 2006 (except for Notes 3 and 4, February 19, 2008)


F-1


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




**To
      the Board of Directors and Stockholders of Futuremedia PLC**




We
      have
      audited the accompanying consolidated balance sheets of Futuremedia PLC and
      subsidiaries (the “Company”) as of June 30, 2007 and 2006, and the related
      consolidated statements of operations and comprehensive loss, changes in
      stockholders’ (deficit)/equity, and cash flows for the year ended June 30, 2007
      and for the two month period ended June 30, 2006.  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 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
      audits 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 also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material
      respects, the financial position of Futuremedia PLC and subsidiaries at June
      30,
      2007 and 2006, and the results of their operations and their cash flows for
      the
      year ended June 30, 2007 and the two month period ended June 30, 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As
      discussed in Note 1 to the financial statements, the Company’s recurring losses
      and cash outflows from operations and stockholders’ deficit raise
      substantial doubt about its ability to continue as a going concern. Management’s
      plans concerning these matters are also discussed in Note 1 to the financial
      statements. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.







**/s/
      Deloitte & Touche LLP**


London,
      England


February
      19, 2008




F-2





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**




June
                30,2007
            
            2006Restated*(GBP’000)**ASSETS**Current
                assetsCash
                and cash equivalents
            
            
            709
            
            
            1,574Accounts
                  receivable, less allowance of GBP69,000 in 2007and GBP48,000 in
                  2006 for doubtful accounts
            
            
            730
            
            
            1,842Unbilled
                accounts receivable
            
            
            218
            
            
            1,152Other
                current assets
            
            
            396
            
            
            292Inventories
            
            
            36
            
            
            108Prepaid
                expenses
            
            
            234
            
            
            258Total
                current assets
            
            
            2,323
            
            
            5,226Property
                and equipment, net
            
            
            243
            
            
            605Goodwill
            
            
            5,675
            
            
            8,194Intangible
                assets, net
            
            
            3,743
            
            
            4,844Other
                long term assets
            
            
            207
            
            
            0**TOTAL
                ASSETS**
            
            
            **12,191**
            
            
            **18,869**




*
              -
            The
                balance sheet at June 30, 2006 has been restated for prior period
                accounting errors, as more fully discussed in Note
                3.




See
      accompanying notes to the consolidated financial statements.




F-3


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**




June
                30,2007
            
            2006Restated*(GBP’000)**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Current
                liabilitiesBank
                overdraft
            
            
            273
            
            
            160Deferred
                income
            
            
            1,548
            
            
            3,459Accounts
                payable
            
            
            2,185
            
            
            3,979Other
                taxes and social security costs
            
            
            1,411
            
            
            1,190Deferred
                tax liability
            
            
            343
            
            
            1,041Accrued
                expenses and other current liabilities
            
            
            1,517
            
            
            2,013Convertible
                debentures, face value GBP6,621,000 as of June 30, 2007
            
            
            1,107
            
            
            0Derivative
                financial instruments
            
            
            5,729
            
            
            2,949Total
                current liabilities
            
            
            14,113
            
            
            14,791Commitments
                and contingencies (Note 15)
            
            
            0
            
            
            0Convertible
                debentures, face value of GBP5,854,000 as of June 30, 2006
            
            
            0
            
            
            997Other
                long term liabilities
            
            
            57
            
            
            348Stockholders’
                deficitOrdinary
                shares of 0.01p eachAuthorized
                - 350,000,000Issued
                and outstanding - 338,548,904 at June 30, 2007, 161,960,188 at June
                30,
                2006
            
            
            3,762
            
            
            1,801Preference
                shares of 2p eachAuthorized
                - 2,000,000Issued
                and outstanding - zero
            
            
            0
            
            
            0Additional
                paid-in capital
            
            
            29,019
            
            
            26,285Accumulated
                deficit
            
            
            (34,678
            )
            
            (25,257
            )Accumulated
                other comprehensive loss- cumulative translation
                adjustment
            
            
            (82
            )
            
            (96
            )Total
                stockholders’ (deficit) equity
            
            
            (1,979
            )
            
            2,733**TOTAL
                LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY**
            
            
            **12,191**
            
            
            **18,869**





*
              -
            The
                balance sheet at June 30, 2006 has been restated for prior period
                accounting errors, as more fully discussed in Note 3.




See
      accompanying notes to the consolidated financial statements.




F-4
 *Table
          of Contents*


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)**




**Two****Year**
            
            **Months**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****June
                30,**
            
            **June
                30,**
            
            **April
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**
            
            **2005**Restated*
            
            Restated*(GBP'000,
                except per share data)Net
                salesProducts
            
            
            1,723
            
            
            1,204
            
            
            14,404
            
            
            13,453Services
            
            
            11,767
            
            
            1,908
            
            
            2,238
            
            
            1,945Total
                net sales
            
            
            13,490
            
            
            3,112
            
            
            16,642
            
            
            15,398Cost
                of salesProducts
            
            
            966
            
            
            944
            
            
            13,464
            
            
            11,813Services
            
            
            7,059
            
            
            1,185
            
            
            324
            
            
            2,545Gross
                profit
            
            
            5,465
            
            
            983
            
            
            2,854
            
            
            1,040Operating
                expensesSales
                and marketing
            
            
            1,125
            
            
            142
            
            
            2,022
            
            
            1,687General
                and administrative
            
            
            8,563
            
            
            1,072
            
            
            5,089
            
            
            2,797Facilities
                expenses
            
            
            810
            
            
            154
            
            
            370
            
            
            289Impairment
                charge
            
            
            2,519
            
            
            0
            
            
            0
            
            
            0Total
                operating expenses
            
            
            13,017
            
            
            1,368
            
            
            7,481
            
            
            4,773Operating
                loss
            
            
            (7,552
            )
            
            (385
            )
            
            (4,627
            )
            
            (3,733
            )Interest
                income
            
            
            14
            
            
            6
            
            
            41
            
            
            119Interest
                expense
            
            
            (1,510
            )
            
            (113
            )
            
            (1,354
            )
            
            (45
            )Foreign
                currency gains (losses)
            
            
            521
            
            
            35
            
            
            263
            
            
            (9
            )Share
                    of loss from equity investmentincluding impairment of GBP343,000
                    in the year ended April 30, 2005
            
            
            0
            
            
            0
            
            
            0
            
            
            (359
            )Profit
                on disposal of equity investment
            
            
            0
            
            
            0
            
            
            0
            
            
            54Gain
                (loss) on derivative financial instruments
            
            
            (1,154
            )
            
            3,556
            
            
            (502
            )
            
            0Income
                (loss) from continuing operations before tax
            
            
            (9,681
            )
            
            3,099
            
            
            (6,179
            )
            
            (3,973
            )Income
                taxes
            
            
            644
            
            
            (55
            )
            
            0
            
            
            0Income
                (loss) from continuing operations
            
            
            (9,037
            )
            
            3,044
            
            
            (6,179
            )
            
            (3,973
            )Discontinued
                operationsIncome
                (loss) from operations of discontinued operations
            
            
            (256
            )
            
            (37
            )
            
            (355
            )
            
            16Loss
                on disposal of discontinued operations
            
            
            (128
            )
            
            0
            
            
            0
            
            
            0Gain
                (loss) from discontinued operations (net of tax GBPnil)
            
            
            (384
            )
            
            (37
            )
            
            (355
            )
            
            16**Net
                income (loss)**
            
            
            **(9,421**
            **)**
            
            **3,007**
            
            
            **(6,534**
            **)**
            
            **(3,957**
            **)**Comprehensive
                income (loss):Foreign
                currency translation adjustment
            
            
            14
            
            
            5
            
            
            7
            
            
            (1
            )Comprehensive
                income (loss)
            
            
            (9,407
            )
            
            3,012
            
            
            (6,527
            )
            
            (3,958
            )All
              per share amounts reflected in British
              Pounds SterlingIncome
                (loss) per share from continuing operations -- basic
            
            
            (0.04
            )
            
            0.02
            
            
            (0.07
            )
            
            (0.04
            )Income
                (loss) per share from continuing operations -- fully
                diluted
            
            
            (0.04
            )
            
            
            
            
            (0.07
            )
            
            (0.04
            )Income
                (loss) per share from discontinued operations -- basic
            
            
            (0.00
            )
            
            (0.00
            )
            
            (0.00
            )
            
            0.00Income
                (loss) per share from discontinued operations -- fully
                diluted
            
            
            (0.00
            )
            
            (0.00
            )
            
            (0.00
            )
            
            0.00Net
                income (loss) per share -- basic
            
            
            (0.04
            )
            
            0.02
            
            
            (0.07
            )
            
            (0.04
            )Net
                income (loss) per share -- fully diluted
            
            
            (0.04
            )
            
            
            
            
            (0.07
            )
            
            (0.04
            )Income
                (loss) per ADS from continuing operations -- basic
            
            
            (36.06
            )
            
            20.36
            
            
            (65.58
            )
            
            (44.86
            )Income
                (loss) per ADS from continuing operations -- fully diluted
            
            
            (36.06
            )
            
            
            
            
            (65.58
            )
            
            (44.86
            )Income
                (loss) per ADS from discontinued operations -- basic
            
            
            (1.53
            )
            
            (0.25
            )
            
            (3.77
            )
            
            0.18Income
                (loss) per ADS from discontinued operations -- fully
                diluted
            
            
            (1.53
            )
            
            
            
            
            (3.77
            )
            
            0.17Net
                income (loss) per ADS -- basic
            
            
            (37.59
            )
            
            20.11
            
            
            (69.35
            )
            
            (44.68
            )Net
                income (loss) per ADS -- fully diluted
            
            
            (37.59
            )
            
            
            
            
            (69.35
            )
            
            (44.68
            )Weighted
                average shares outstanding -- basic
            
            
            250,636,202
            
            
            149,536,053
            
            
            94,220,879
            
            
            88,559,952Weighted
                average ADSs outstanding -- basic
            
            
            250,636
            
            
            149,536
            
            
            94,221
            
            
            88,560




*
              -
            Results
                of operations for the two month period ended June 30, 2006 and year
                ended
                April 30, 2006 have been restated for prior period accounting errors,
                as
                more fully discussed in Note 3, and represented for operations of
                the
                discontinuedholding
                company, Futuremedia Sverige AB and its subsidiary, Open Training
                Sweden
                AB (collectively, “Open Training”),
                as more fully discussed in Note 4.




See
      accompanying notes to the consolidated financial statements.




F-5


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT)/EQUITY**




Number
                of Ordinary Shares
            
            Share
                Capital Amount
            
            Additional
                Paid-in Capital
            
            Receivable
                from Subscription
            
            Accumulated
                Deficit
            
            Cumulative
                Translation Adjustment
            
            Total
                Stockholders’ Equity / (Deficit)(GBP‘000)
            
            (GBP‘000)
            
            (GBP‘000)
            
            (GBP‘000)
            
            (GBP‘000)
            
            (GBP‘000)**At
                April 30, 2004**
            
            
            **87,239,486**
            
            
            **969**
            
            
            **18,642**
            
            
            **0**
            
            
            **(17,773**
            **)**
            
            **(107**
            **)**
            
            **1,731**Exchange
                translation adjustments
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            (1
            )
            
            (1
            )Net
                loss
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            (3,957
            )
            
            0
            
            
            (3,957
            )Receivable
                from subscription
            
            
            0
            
            
            0
            
            
            0
            
            
            (18
            )
            
            0
            
            
            0
            
            
            (18
            )Share
                based compensation expense
            
            
            0
            
            
            0
            
            
            (306
            )
            
            0
            
            
            0
            
            
            0
            
            
            (306
            )Issuance
                of shares re acquisition (net of issuance costs of GBP160,000)
            
            
            1,735,840
            
            
            19
            
            
            360
            
            
            0
            
            
            0
            
            
            0
            
            
            379Issuance
                of shares re investment (net of issuance costs of GBP32,000)
            
            
            1,385,392
            
            
            15
            
            
            442
            
            
            0
            
            
            0
            
            
            0
            
            
            457Issuance
                of shares re exercise of options (net of issuance costs of GBP6,000)
            
            
            1,408,758
            
            
            16
            
            
            119
            
            
            0
            
            
            0
            
            
            0
            
            
            135Other
            
            
            3
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0**At
                April 30, 2005**
            
            
            **91,769,479**
            
            
            **1,019**
            
            
            **19,257**
            
            
            **(18**
            **)**
            
            **(21,730**
            **)**
            
            **(108**
            **)**
            
            **(1,580**
            **)**Exchange
                translation adjustments
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            7
            
            
            7Net
                loss
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            (6,534
            )
            
            0
            
            
            (6,534
            )Share
                based compensation expense
            
            
            0
            
            
            0
            
            
            20
            
            
            
            
            
            
            
            
            
            
            
            20Issuance
                of shares re acquisition of Executive Business Channel Limited (net
                of
                issuance costs of GBP24,000)
            
            
            4,776,442
            
            
            53
            
            
            623
            
            
            0
            
            
            0
            
            
            0
            
            
            676Issuance
                of shares re acquisition costs (net of issuance costs of GBP8,000)
            
            
            2,352,348
            
            
            26
            
            
            210
            
            
            0
            
            
            0
            
            
            0
            
            
            236Issuance
                of shares re investment (net of issuance costs of GBP94,000)
            
            
            20,867,473
            
            
            234
            
            
            2,070
            
            
            0
            
            
            0
            
            
            0
            
            
            2,304Issuance
                of shares re exercise of options (net of issuance costs of GBP1,000)
            
            
            300,000
            
            
            3
            
            
            16
            
            
            0
            
            
            0
            
            
            0
            
            
            19Issuance
                of shares re Loan repayment (net of issuance costs of
                GBP55,000)
            
            
            12,780,166
            
            
            142
            
            
            938
            
            
            0
            
            
            0
            
            
            0
            
            
            1,080Issuance
                of shares re financing fee in connection with convertible loans (net
                of
                issuance costs of GBP1,000)
            
            
            187,500
            
            
            2
            
            
            27
            
            
            0
            
            
            0
            
            
            0
            
            
            29Issuance
                of shares re settlement of outstanding accounts (net of issuance
                costs of
                GBP2,000)
            
            
            339,941
            
            
            4
            
            
            83
            
            
            0
            
            
            0
            
            
            0
            
            
            87**At
                April 30, 2006**
            
            
            **133,373,349**
            
            
            **1,483**
            
            
            **23,244**
            
            
            **(18**
            **)**
            
            **(28,264**
            **)**
            
            **(101**
            **)**
            
            **(3,656**
            **)**




F-6


Number
                  of Ordinary Shares
              
              Share
                  Capital Amount
              
              Additional
                  Paid-in Capital
              
              Receivable
                  from Subscription
              
              Accumulated
                  Deficit
              
              Cumulative
                  Translation Adjustment
              
              Total
                  Stockholders’ Equity / (Deficit)**At
                  April 30, 2006**
              
              
              **133,373,349**
              
              
              **1,483**
              
              
              **23,244**
              
              
              **(18**
              **)**
              
              **(28,264**
              **)**
              
              **(101**
              **)**
              
              **(3,656**
              **)**Exchange
                  translation adjustments
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              5
              
              
              5Net
                  income
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              3,007
              
              
              0
              
              
              3,007Share
                  based compensation expense
              
              
              0
              
              
              0
              
              
              50
              
              
              0
              
              
              0
              
              
              0
              
              
              50Issuance
                  of shares re investment (net of issuance costs of GBP6,000)
              
              
              1,348,575
              
              
              15
              
              
              126
              
              
              0
              
              
              0
              
              
              0
              
              
              141Issuance
                  of shares re acquisition of Button Communications Holdings Limited
                  (net of
                  issuance costs of GBP104,000)
              
              
              24,460,435
              
              
              272
              
              
              2,624
              
              
              0
              
              
              0
              
              
              0
              
              
              2,896Issuance
                  of shares to repay convertible loans (net of issuance costs of
                  GBP7,000)
              
              
              1,489,425
              
              
              17
              
              
              102
              
              
              0
              
              
              0
              
              
              0
              
              
              119Issuance
                  of shares re settlement of outstanding accounts (net of issuance
                  costs of
                  GBP6,000)
              
              
              1,288,404
              
              
              14
              
              
              139
              
              
              0
              
              
              0
              
              
              0
              
              
              153Write
                  off of stock subscription receivable
              
              
              0
              
              
              0
              
              
              0
              
              
              18
              
              
              0
              
              
              0
              
              
              18**At
                  June 30, 2006**
              
              
              **161,960,188**
              
              
              **1,801**
              
              
              **26,285**
              
              
              **0**
              
              
              **(25,257**
              **)**
              
              **(96**
              **)**
              
              **2,733**Exchange
                  translation adjustments
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              14
              
              
              14Net
                  loss
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              (9,421
              )
              
              0
              
              
              (9,421
              )Share
                  based compensation expense
              
              
              1,659,314
              
              
              18
              
              
              230
              
              
              0
              
              
              0
              
              
              0
              
              
              248Issuance
                  of shares re investment (net of issuance costs of GBP24,000)
              
              
              19,135,086
              
              
              213
              
              
              300
              
              
              0
              
              
              0
              
              
              0
              
              
              513Issuance
                  of shares re acquisition of EBC additional costs (net of issuance
                  costs of
                  GBP5,000)
              
              
              2,257,319
              
              
              25
              
              
              124
              
              
              0
              
              
              0
              
              
              0
              
              
              149Issuance
                  of shares re Loan repayment (net of issuance costs of
                  GBP56,000)
              
              
              58,521,685
              
              
              649
              
              
              1,070
              
              
              0
              
              
              0
              
              
              0
              
              
              1,719Issuance
                  of shares upon exercise of warrants (net of issuance costs of
                  GBP59,000)
              
              
              92,500,000
              
              
              1,028
              
              
              922
              
              
              0
              
              
              0
              
              
              0
              
              
              1,950Issuance
                  of shares re financing fee in connection with convertible loans
                  (net of
                  issuance costs of GBP2,000)
              
              
              1,165,000
              
              
              13
              
              
              28
              
              
              0
              
              
              0
              
              
              0
              
              
              41Issuance
                  of shares re settlement of outstanding accounts (net of issuance
                  costs of
                  GBP3,000)
              
              
              1,350,312
              
              
              15
              
              
              60
              
              
              0
              
              
              0
              
              
              0
              
              
              75**At
                  June 30, 2007**
              
              
              **338,548,904**
              
              
              **3,762**
              
              
              **29,019**
              
              
              **0**
              
              
              **(34,678**
              **)**
              
              **(82**
              **)**
              
              **(1,979**
              **)**




See
      accompanying notes to the consolidated financial statements.


F-7


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Year**
                  
                  **Two
                      Months**
                  
                  **Year**
                  
                  **Year****Ended**
                  
                  **Ended**
                  
                  **Ended**
                  
                  **Ended****June
                      30,**
                  
                  **June
                      30,**
                  
                  **April
                      30,**
                  
                  **April
                      30,****2007**
                  
                  **2006**
                  
                  **2006**
                  
                  **2005**Restated*
                  
                  Restated*(GBP’000)**Operating
                      activities**Net
                      income (loss)
                  
                  
                  (9,421
                  )
                  
                  3,007
                  
                  
                  (6,534
                  )
                  
                  (3,957
                  )Adjustments
                      to reconcile net income (loss) loss to net cash provided by
                      (used in)
                      operating activitiesDepreciation
                      and amortization
                  
                  
                  995
                  
                  
                  130
                  
                  
                  444
                  
                  
                  290Amortization
                      of discount on notes payable
                  
                  
                  425
                  
                  
                  166
                  
                  
                  1,139
                  
                  
                  0(Gain)
                      loss on derivative financial instruments
                  
                  
                  1,154
                  
                  
                  (3,556
                  )
                  
                  502
                  
                  
                  0Gain
                      on disposal of investment
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0
                  
                  
                  (51
                  )Loss
                      on disposal of equipment
                  
                  
                  177
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0Loss
                      on disposal of Open Training
                  
                  
                  128
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0Share
                      of loss from equity investment
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0
                  
                  
                  343Release
                      of HCI provision
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0Impairment
                      charge
                  
                  
                  2,519
                  
                  
                  0
                  
                  
                  30
                  
                  
                  0Stock
                      based compensation expense
                  
                  
                  248
                  
                  
                  50
                  
                  
                  89
                  
                  
                  (306
                  )Income
                      taxes
                  
                  
                  (644
                  )
                  
                  55
                  
                  
                  0
                  
                  
                  0Non-cash
                      foreign currency (gain)
                  
                  
                  (521
                  )
                  
                  (35
                  )
                  
                  (269
                  )
                  
                  0Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  985
                  
                  
                  1,046
                  
                  
                  (562
                  )
                  
                  915Amounts
                      recoverable on contracts
                  
                  
                  0
                  
                  
                  70
                  
                  
                  74
                  
                  
                  0Unbilled
                      accounts receivable
                  
                  
                  934
                  
                  
                  (406
                  )
                  
                  0
                  
                  
                  0Amounts
                      recoverable from vendors
                  
                  
                  0
                  
                  
                  280
                  
                  
                  0
                  
                  
                  (68
                  )Other
                      current assets
                  
                  
                  (148
                  )
                  
                  1,071
                  
                  
                  117
                  
                  
                  1,072Inventories
                  
                  
                  72
                  
                  
                  294
                  
                  
                  220
                  
                  
                  22Prepaid
                      expenses
                  
                  
                  21
                  
                  
                  350
                  
                  
                  236
                  
                  
                  (195
                  )Deferred
                      income
                  
                  
                  (1,879
                  )
                  
                  (818
                  )
                  
                  593
                  
                  
                  575Accounts
                      payable
                  
                  
                  (1,801
                  )
                  
                  375
                  
                  
                  99
                  
                  
                  184Other
                      taxes and social security costs
                  
                  
                  274
                  
                  
                  484
                  
                  
                  132
                  
                  
                  (1,278
                  )Other
                      accounts payable
                  
                  
                  0
                  
                  
                  (126
                  )
                  
                  (29
                  )
                  
                  33Accrual
                      for National Insurance costs on stock options
                  
                  
                  0
                  
                  
                  (18
                  )
                  
                  0
                  
                  
                  0Accrual
                      for sales commissions due
                  
                  
                  0
                  
                  
                  (268
                  )
                  
                  0
                  
                  
                  0Other
                      accrued expenses
                  
                  
                  (262
                  )
                  
                  (1,507
                  )
                  
                  502
                  
                  
                  (1,304
                  )**Net
                      cash provided by/(used in) operating activities**
                  
                  
                  **(6,744**
                  **)**
                  
                  **644**
                  
                  
                  **(3,217**
                  **)**
                  
                  **(3,725**
                  **)**Investing
                      activitiesAcquisition
                      of Executive Business Channel Limited, net of cash
                      acquired
                  
                  
                  0
                  
                  
                  0
                  
                  
                  (3,750
                  )
                  
                  (419
                  )Acquisition
                      of Button Communications Holdings Limited, net of cash
                      acquired
                  
                  
                  0
                  
                  
                  (2,300
                  )
                  
                  0
                  
                  
                  0Acquisition
                      costs
                  
                  
                  0
                  
                  
                  (119
                  )
                  
                  (553
                  )
                  
                  0Capital
                      expenditures
                  
                  
                  (238
                  )
                  
                  (29
                  )
                  
                  (172
                  )
                  
                  (321
                  )Proceeds
                      on disposal of investments and fixed assets
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0
                  
                  
                  354Proceeds
                      from sale of Open Training AB, net of cash sold
                  
                  
                  32
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0**Net
                      cash provided used in investing activities**
                  
                  
                  **(206**
                  **)**
                  
                  **(2,448**
                  **)**
                  
                  **(4,475**
                  **)**
                  
                  **(386**
                  **)**Financing
                      activitiesProceeds
                      from convertible loans, net
                  
                  
                  3,631
                  
                  
                  0
                  
                  
                  7,898
                  
                  
                  0Repayment
                      of debt
                  
                  
                  (866
                  )
                  
                  0
                  
                  
                  0
                  
                  
                  0Proceeds
                      of ordinary share issues
                  
                  
                  474
                  
                  
                  2,524
                  
                  
                  41
                  
                  
                  612Share
                      issue costs
                  
                  
                  (149
                  )
                  
                  (99
                  )
                  
                  (194
                  )
                  
                  (67
                  )Proceeds
                      from exercise of stock warrants
                  
                  
                  2,775
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0Change
                      in balance of bank overdraft
                  
                  
                  113
                  
                  
                  (227
                  )
                  
                  0
                  
                  
                  0**Net
                      cash provided by financing activities**
                  
                  
                  **5,978**
                  
                  
                  **2,198**
                  
                  
                  **7,745**
                  
                  
                  **545**Effects
                      of exchange rates on cash
                  
                  
                  107
                  
                  
                  25
                  
                  
                  18
                  
                  
                  (1
                  )**Net
                      (decrease)/increase in cash and cash equivalents**
                  
                  
                  **(865**
                  **)**
                  
                  **419**
                  
                  
                  **71**
                  
                  
                  **(3,567**
                  **)**Cash
                      and cash equivalents at beginning of period
                  
                  
                  1,574
                  
                  
                  1,155
                  
                  
                  1,084
                  
                  
                  4,651**Cash
                      and cash equivalents at end of period**
                  
                  
                  **709**
                  
                  
                  **1,574**
                  
                  
                  **1,155**
                  
                  
                  **1,084**Supplemental
                      disclosure of cashflow information:Interest
                      paid during the period
                  
                  
                  72
                  
                  
                  116
                  
                  
                  0
                  
                  
                  0Supplemental
                      disclosure of non-cash transactions:Fair
                      value of shares issued in acquisitions
                  
                  
                  0
                  
                  
                  3,000
                  
                  
                  1,044
                  
                  
                  538Conversion
                      of convertible debt into stock
                  
                  
                  1,603
                  
                  
                  375
                  
                  
                  654
                  
                  
                  0Reduction
                      of fair value of derivative financial instruments due to conversions
                      of
                      convertible debt
                  
                  
                  601
                  
                  
                  0
                  
                  
                  370
                  
                  
                  0Payment
                      of accrued liabilities with shares
                  
                  
                  75
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0




*
              -
            The
                statements of cash flows for the two month period ended June 30,
                2006 and
                the year ended April 30, 2006 have been restated to adjust for prior
                period accounting errors, as more fully discussed in Note 3.




See
      accompanying notes to the consolidated financial statements.




F-8


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**  **BASIS
      OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS**




**Basis
      of Preparation**




The
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States of America (“US
      GAAP”).





**Principles
      of Consolidation**




The
      consolidated financial statements include the financial statements of
      Futuremedia PLC (“the Company”) and all its subsidiaries. All inter-company
      accounts and transactions have been eliminated. ****





**Financial
      Resources and Going Concern**




The
        financial statements have been prepared in conformity with accounting principles
        generally accepted in the United States of America, which contemplate
        continuation of the Company as a going concern. Net loss for the year ended
        June
        30, 2007 was GBP9,421,000 and net cash used for continuing operations was
        GBP6,744,000. The Company also has an accumulated deficit of GBP34,678,000
        and a
        working capital deficit of GBP11,790,000 as of June 30, 2007. In addition,
        as of
        June 30, 2007, the Company was technically in default of its convertible
        loans
        with Cornell, TAIB, and Certain Wealth dated April 19, 2006 with a face value
        of
        $7,500,000, and August 3, 2006 with a face value of $1,500,000, due to the
        Company’s failure to maintain effectiveness of the registration statements filed
        to register shares underlying the convertible loans, and subsequently due
        to
        failure to file its Form 20-F timely. The Company is also in default of the
        loan
        dated June 1, 2007 in the amount of $4,600,000, which stipulates default
        on any
        prior loans as a condition of default. As a result, Cornell has the right
        to
        call the full face value of each note. However, the Company expects to receive
        a
        waiver of default shortly after filing of this Form 20-F. The Company has
        recorded the carrying value of these notes as current liabilities as of June
        30,
        2007.
 
 The
        items
        discussed above raise substantial doubts about the Company’s ability to continue
        as a going concern. The Company’s financial resources may be insufficient to
        maintain operations, and the Company may require additional financing in
        order
        to execute its operating plan and continue as a going concern. The Company
        cannot predict whether this additional financing will be in the form of equity,
        debt, or another form. The Company may not be able to obtain the necessary
        additional capital on a timely basis, on acceptable terms, or at all. In
        any of
        these events, the Company may be unable to implement its current plans for
        expansion, repay its debt obligations as they become due or respond to
        competitive pressures, any of which circumstances would have a material adverse
        effect on its business, prospects, financial condition and results of
        operations.
 
 Should
        the Company fail to generate profits to meet its operating capital and growth
        requirements, management would seek funding sources such as the sale of common
        and/or preferred stock, the issuance of debt, or the sale of its marketable
        assets. In the event that these financing sources do not materialize, or
        that
        the Company is unsuccessful in increasing its revenues and profits, the Company
        will be forced to further reduce its costs, may be unable to repay its debt
        obligations as they become due, or respond to competitive pressures, any
        of
        which circumstances would have a material adverse effect on its business,
        prospects, financial condition and results of operations. Additionally, if
        these
        funding sources or increased revenues and profits do not materialize, and
        the
        Company is unable to secure additional financing, the Company could be forced
        to
        reduce or curtail its business operations unless it is able to engage in
        a
        merger or other corporate finance transaction with a better capitalized entity.
  At
        June
        30, 2007, the Company’s cash resources and available guaranteed borrowings may
        be insufficient to fund the current level of operations for the next twelve
        months. Management believes that it is appropriate to prepare the financial
        statements on a going concern basis for the following reasons:
 
 ·
              a
                  substantial proportion of Button’s revenue will be earned in the four
                  months ending June 30, 2008
 ·
              in
                  the period since June 30, 2007 the e-learning business has performed
                  strongly and has substantially increased its sales to its principal
                  clients
 ·
              the
                  Company’s relationship with Cornell is strong and they have not indicated
                  that they plan to demand repayment of their convertible debt as
                  a result
                  of the technical defaults. Furthermore, since June 30, 2007 they
                  have
                  advanced further funding to the Company as described in Note 18
                  to the
                  accompanying consolidated financial statements, and the Company
                  expects to
                  receive a waiver of default shortly after filing this Form 20-F.
 
 Management
        is engaged in various activities to secure the additional funding required
        by
        the Company to meet its working capital needs for the following twelve months,
        including further cost reductions on the integration of its recent acquisitions,
        the securing of bank overdraft facilities, the generation of cash from future
        trading operations and the provision of further equity and/or debt funding.
        There can be no assurance however that the Company will be successful in
        implementing these plans. If these plans are not successful, the Company
        may be
        unable to continue in business and the value of its assets may be substantially
        impaired. The Company’s financial statements do not include any adjustments to
        reflect the possible future effects on the valuation recoverability and
        classification of assets or the amounts and classification of liabilities
        that
        may result from the outcome of this uncertainty.
 
 Due
        to
        the above factors, there is substantial doubt as to the ability of the Company
        to continue as a going concern, and to the ability of the Company to discharge
        its assets and liabilities in the normal course of business. The Directors
        have
        considered this material uncertainty, and are of the opinion that the Company
        is
        a going concern, and accordingly the financial statements do not include
        any
        adjustments relating to the recoverability and reclassification of recorded
        asset amounts or amounts and reclassification of liabilities that might be
        necessary, should the Company be unable to continue as a going
        concern.


F-9
 *Table
          of Contents*




**Description
      of Business**




Futuremedia
      PLC was incorporated in England in 1982 as Futuremedia Limited and re-registered
      as a public company in 1993. We acquired Bingham and Bingham Limited, which
      was
      subsequently renamed **** Button
      Communications Holdings Limited (“Button”) during May 2006. The Company offers
      the following products and services:




·
            Button
                - a leading design, exhibition and events agency, combining two and
                three
                dimensional designs to provide creative solutions in the production
                and
                management of branded environments and
                content;




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




·
            Custom
                Designed Content Products - specifically designed content to meet
                our
                customers’ individual e-learning needs. Following the acquisition of
                Button, referred to in Note 8 below, revenues deriving from that
                acquisition will be included in this category;




·
            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





·
            Managed
                Benefit Programs - comprising a combination of hardware, software
                and
                services, which the Company installed at the homes of participating
                employees of its clients that contract for the provision of such
                services.
                Certain of these programs were provided under the UK Government’s Home
                Computing Initiative scheme, also known as HCI. Under HCI, participating
                employees could take advantage of tax incentives provided under HCI
                schemes, reducing the cost of purchase. HCI was terminated by the
                UK
                Government, effective as of April 6, 2006 and the Company has ceased
                selling this service.




In
      addition, the Company is currently developing its on-line branded learning
      business. The branded learning business enables companies to use learning as
      a
      tool to leverage their brands and stay connected with their customers. Branded
      learning is the application of eLearning to marketing communications through
      online learning communities, academies and portals. Branded learning provides
      our customers with the opportunity to reach new customers and develop additional
      revenue streams while enhancing overall brand recognition.




On
      April
      12, 2007, the Group completed the sale of Open Training, to Edvantage Group
      AS.
      The sale price of GBP519,000 comprised an initial payment of GBP109,000 and
      a
      loan note in the amount of GBP410,000 payable in equal annual instalments on
      the
      anniversary of the transaction for a period of four years. Under the terms
      of
      the sale, the Group retained the full rights of ownership and all intellectual
      property rights for LearngateTM, the Learning Management System developed by Open
      Training on behalf of the Group; Edvantage Group AS was also granted a perpetual
      license to use the intellectual property rights for LearngateTM.




F-10


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.**  **SIGNIFICANT
      ACCOUNTING POLICIES**





**Estimates**




The
      preparation of financial statements in conformity with U.S. GAAP 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 its estimates are
      reasonable.




**Cash
      and Cash Equivalents**




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




**Allowance
      for Doubtful Accounts**




Accounts
      receivable consist 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
      collectibility 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.





**Inventories**




Inventories
      are stated at the lower of cost, determined on the basis of the first in, first
      out method, and market. At June 30, 2007, inventories held of GBP36,000
      represent work in process related to the Button projects.




**Property
      and Equipment**




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




Property
                  improvements
              
              
              20
              %Audiovisual
                  and computer equipmentLong-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
      consists of the excess of the purchase price paid for acquisitions over the
      identifiable net assets and liabilities acquired at fair value. Goodwill is
      tested for impairment at least annually or if circumstances indicate
      impairment may have occurred, and is carried at cost less any recognized
      impairment losses. Historically,
      the impairment test was performed as of April 30 each year. This was changed
      to
      June 30 following the change in the Company’s fiscal year end. To
      identify potential impairment of the goodwill, the fair value of the reporting
      unit to which the goodwill is allocated is compared with its carrying amount.
      If
      the carrying amount of the reporting unit, including the goodwill, exceeds
      its
      fair value, the goodwill is tested for impairment based on its implied fair
      value. The implied fair value of goodwill represents the excess of the fair
      value of the reporting unit over the fair value of its identifiable assets,
      liabilities and contingent liabilities at the date of the impairment test.
      An
      impairment loss is recognized if and to the extent that the carrying amount
      of
      the goodwill exceeds its implied fair value.




F-11
 *Table
          of Contents*




**Other
      Intangible Assets**




Other
      intangible assets consists of customer relationships, tradenames, and
      copyrighted materials, which are amortized straight-line over the expected
      life
      of each asset. Intangible assets are presented at cost less accumulated
      amortization and any impairment losses. The estimated lives of intangible assets
      are as follows:





Intangible
                asset
            
            life
                (in years)Customer
                relationships acquired in Button transaction
            
            
            10Customer
                relationships acquired in Executive Business Channel Limited
                transaction
            
            
            5Tradename
                acquired in Button transaction
            
            
            10Copyrighted
                Materials acquired in Executive Business Channel Limited
                transaction
            
            
            1





**Evaluation
      of Long Lived Assets Other than Goodwill**




The
      Company primarily uses the weighted-average probability method which requires
      significant management judgment to forecast the future operating results used
      in
      the analysis. In addition, other significant estimates are required such as
      residual growth rates and discount factors. The estimates the Company has used
      are consistent with the plans and estimates that the Company uses to manage
      its
      business, based on available historical information and industry averages.
      The
      judgments made in determining the estimated useful lives assigned to each class
      of assets acquired can also significantly affect the Company’s net operating
      results.





The
      Company evaluates a long-lived asset for recoverability whenever events or
      changes in circumstances indicate that its carrying amount may not be
      recoverable. We follow the two-step approach for determining if an impairment
      charge should be taken: (1) the expected undiscounted cashflows from a
      particular asset or asset group are compared to the carrying value; if the
      expected undiscounted cashflows are greater than the carrying value, no
      impairment is taken, but if the expected undiscounted cashflows are less than
      the carrying value, then (2) an impairment charge is taken for the difference
      between the carrying value and the expected discounted cashflows.




**Equity
      Method Investments**




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





**Derivative
      Financial Instruments**




The
      Company enters into financing arrangements that consist of freestanding
      derivative instruments or are hybrid instruments that contain embedded
      derivative features. The Company accounts for these arrangement in accordance
      with Statement of Financial Accounting Standards No. 133, "Accounting for
      Derivative Instruments and Hedging Activities", ("FAS 133") and Emerging Issues
      Task Force Issue No. 00-19, "Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company's Own Stock", ("EITF 00-19"),
      as well as related interpretations of these standards. In accordance with US
      GAAP, derivative instruments and hybrid instruments are recognized as either
      assets or liabilities in the statement of financial position and are measured
      at
      fair value with gains or losses recognized in earnings. Embedded derivatives
      that are not clearly and closely related to the host contract are bifurcated
      and
      recognized at fair value with changes in fair value recognized as either a
      gain
      or loss in earnings. The Company determines the fair value of derivative
      instruments and hybrid instruments based on available market data using
      appropriate valuation models, giving consideration to all of the rights and
      obligations of each instrument.




F-12
 *Table
          of Contents*




**Revenue
      Recognition**




In
      accordance with SAB Topic 13: Revenue Recognition, the Company recognizes
      revenue as realized or realizable and earned when the following criteria are
      met: persuasive evidence of an arrangement exists; delivery has occurred or
      services have been rendered; the seller’s price to the buyer is fixed or
      determinable; and collectibility is reasonably assured.




*Button
      Project Revenue*




Our
      Button business segment performs various bespoke projects for customers
      including creation and production of printed collateral such as logos,
      magazines, brochures; trade show exhibit design and event management; and
      corporate event organizing and management. The Company recognizes revenue
      related to these products on a completed performance basis, with 100% of the
      revenue recognized upon completion of the project. Project completion is
      typically comprised of delivery to the customer of approved collateral, or
      completion of an event or trade show.




*e-Learning
      Revenue*




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
      is recognized on a percentage cost to completion basis, except when a project’s
      contract specifies discrete milestones, in which case revenue is recognized
      for
      those parts of the contract on delivery of the relevant milestone. In certain
      instances, the Company may also charge license fees for its proprietary software
      products, which are recognized over the license period.




*Hardware,
      Software, and Service Sales*




The
      Company previously recognized deferred revenue under the UK Government’s Home
      Computing Initiative Scheme, which was terminated by the UK Government on April
      6, 2006. Deferred revenues were recognized over the period of the agreement,
      typically three years, and these revenues will continue to be recognized until
      2009, even though no new revenue is expected to be generated from this product
      line.




**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.




Research
      and development costs were nil for year ended June 30, 2007 and the two month
      period ended June 30, 2006 and GBP275,000 and GBP261,000 for the years ended
      April 30, 2006 and 2005, respectively.




**Advertising
      Costs**




All
      advertising costs incurred in the promotion of the Company’s products and
      services are expensed as incurred. Advertising costs were GBP182,000 for year
      ended June 30, 2007, GBP25,000 for the two month period ended June 30, 2006
      and
      GBP15,000 and GBP20,000 for the years ended April 30, 2006 and 2005,
      respectively.




F-13


**Stock-Based
      Employee Compensation**




Prior
      to
      May 1, 2006, the Company accounted for stock based compensation under the
      recognition and measurement provisions of APB Opinion No. 25, Accounting for
      Stock Issued to Employees, and related Interpretations, as permitted by FASB
      Statement No. 123, Accounting for Stock-Based Compensation (“FAS 123”).
      Effective May 1, 2006, Futuremedia adopted the fair value recognition provisions
      of FAS 123(R), using the modified-prospective-transition method. Under that
      transition method, compensation cost recognized since May 1, 2006 includes:
      (a)
      compensation cost for all share-based payments granted prior to, but not yet
      vested as of May 1, 2006, based on the grant date fair value estimated in
      accordance with the original provisions of FAS 123(R), and (b) compensation
      cost
      for all share-based payments granted subsequent to May 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of FAS 123(R).
      Results for prior periods have not been restated.





The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of FA S
      123 to
      options granted under the Company’s stock option plans during the years ended
      April 30, 2006 and 2005. For purposes of this pro forma disclosure, the value
      of
      the options is estimated using a Black-Scholes option-pricing formula and
      amortized to expense over the options’ vesting periods. These
      pro
      forma results are provided for the years ended April 30, 2006 and 2005 because
      employee stock options were not accounted for using the fair-value method during
      those periods.





**Year
                Ended April 30,****2006**
            
            **2005**Net
                Loss, as reported
            
            
            (6,534
            )
            
            (3,957
            )Add:
                stock-based employee compensationexpense
                included in reported net loss,net
                of related tax effects
            
            
            20
            
            
            306Deduct:
                Total stock-based employeecompensation
                expense determined underfair
                value method for all awards, net ofrelated
                tax effects
            
            
            (328
            )
            
            (283
            )Pro-forma
                net loss
            
            
            (6,842
            )
            
            (3,934
            )Net
                Loss per share:Basic
                and diluted - as reported
            
            
            (0.07
            )
            
            (0.04
            )Basic
                and diluted - pro-forma
            
            
            (0.07
            )
            
            (0.04
            )





**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.




Assets
      and liabilities related to foreign subsidiaries are translated at the exchange
      rate in effect at the year end. Income statement accounts and cash flow
      statements 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 stockholders’
equity.




F-14
 *Table
          of Contents*




**Income
      Taxes**




In
      accordance with SFAS No. 109, “Accounting for Income Taxes,” the Company
      accounts for income taxes using the assets and liabilities approach. Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities, and their respective tax bases. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to apply
      to
      taxable income in the years in which those temporary differences are expected
      to
      be recovered or settled.





Current
      tax is the amount of tax payable or recoverable in respect of the taxable profit
      or loss for the period. Taxable profit differs from accounting profit because
      it
      excludes items of income or expense recognized for accounting purposes that
      are
      either not taxable or deductible for tax purposes or are taxable or deductible
      in other periods. Current tax is calculated using tax rates that have been
      enacted at the balance sheet date. The Company recognizes provisions in respect
      of uncertain tax positions whereby additional current tax may become payable
      in
      future periods following the audit by the tax authorities of previously filed
      tax returns. Provisions for uncertain tax positions are based upon management’s
      assessment of the likely outcome of issues associated with assumed permanent
      differences, interest that may be applied to temporary differences, the possible
      disallowance of tax credits and penalties and are classified as current
      liabilities. Provisions for uncertain tax positions are reviewed regularly
      and
      are adjusted to reflect event such as the expiry of limitation periods for
      assessing tax, administrative guidance given by the tax authorities and court
      decisions. Deferred tax is tax expected to be payable or recoverable on
      differences between the carrying amount of an asset or a liability and its
      tax
      base used in the computation of taxable profit.





Deferred
      tax is provided on temporary differences arising on investments in foreign
      subsidiaries, except where the Company intends, and is able, to reinvest such
      amounts indefinitely.





Tax
      assets and liabilities are offset when there is a legally enforceable right
      to
      set off current tax assets against current tax liabilities and when they relate
      to income taxes levied by the same taxation authority and the Company intends
      to
      settle its current tax assets and liabilities on a net basis.




F-15


**Loss
        per Share**
 Basic
        net
        loss per share is computed by dividing the loss attributable to common
        stockholders for the period by the weighted average number of Ordinary Shares
        outstanding during the period, which includes shares to be issued. The
        calculation of diluted loss per share gives effect to common stock equivalents,
        however, potential Ordinary Shares are excluded if their effect is
        anti-dilutive. The following table reflects shares that could potentially
        be
        outstanding if all holders of options, warrants, and convertible debentures
        were
        to convert as of each balance sheet date:
 
 **Two****Year**
              
              **Months****Ended**
              
              **Ended****June
                  30,**
              
              **June
                  30,**
              
              **Years
                  Ended April 30,****2007**
              
              **2006**
              
              **2006**
              
              **2005**Total
                  outstanding stock options (1)
              
              
              6,028,818
              
              
              9,719,446
              
              
              8,124,410
              
              
              5,006,410Total
                  outstanding stock warrants (2)
              
              
              22,086,800
              
              
              11,586,800
              
              
              11,586,800
              
              
              0Convertible
                  debentures (3)
              
              
              1,267,048,146
              
              
              48,170,900
              
              
              54,925,784
              
              
              01,295,163,764
              
              
              69,477,146
              
              
              74,636,994
              
              
              5,006,410
 ___________________
 
 (1)
              Reflects
                  total number of ordinary shares that would be issued if all stock
                  options
                  outstanding as of each balance sheet date were exercised. Number
                  of
                  options in the money as of June 30, 2007 and 2006 and April 30,
                  2006 and
                  2005 was nil, 1,328,068, 2,823,068, and 3,458,318.
 
 (2)
              Reflects
                  total number of ordinary shares that would be issued if all stock
                  warrants
                  outstanding as of each balance sheet date were exercised. Number
                  of
                  warrants in the money as of June 30, 2007 and 2006 and April 30,
                  2006 and
                  2005 was nil, 72,000, 160,000, and
                  nil.
 
 (3)
              The
                  terms of the embedded conversion features in the convertible debentures
                  provide for variable conversion rates that are indexed to the Company’s
                  trading common stock price. As a result, the number of indexed
                  shares is
                  subject to continuous fluctuation. For presentation purposes, the
                  number
                  of shares of common stock into which the embedded conversion feature
                  in
                  the convertible debentures was convertible in each period was calculated
                  as the face value of each instrument plus any accrued interest,
                  divided by
                  the applicable conversion price in effect at each balance sheet
                  date.


**Pensions**




The
      Company operates various defined contribution pension plans on behalf of the
      directors and other staff. Contributions paid by the Company are charged to
      the
      income statement as incurred. Contributions by the Company are determined in
      accordance with the rules of the pension plans. Contributions aggregated
      GBP259,000, GBP6,000, GBP94,000, and GBP87,000 in the year ended June 30, 2007,
      the two months ended June 30, 2006, and the years ended April 30, 2006 and
      2005,
      respectively. The Company has no obligations in respect of post retirement
      benefits other than the pension obligations described above.




**Recent
      Accounting Pronouncements Not Yet Adopted**




In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
      No. 109* (“FIN
      48”), which clarifies the accounting for uncertainty in tax positions. The
      evaluation of a tax position under FIN 48 is a two-step process. The first
      step
      is recognition: Tax positions taken or expected to be taken in a tax return
      should be recognized only if those positions are more likely than not of being
      sustained upon examination, based on the technical merits of the position.
      In
      evaluating whether a tax position has met the more likely than not recognition
      threshold, it should be presumed that the position will be examined by the
      relevant taxing authority that would have full knowledge of all relevant
      information. The second step is measurement: Tax positions that meet the
      recognition criteria are measured at the largest amount of benefit that is
      greater than 50 percent likely of being recognized upon ultimate settlement.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. FIN 48
      is
      effective for fiscal years beginning after December 15, 2006 and is effective
      for the Company in the fiscal year beginning July 1, 2007. The Company is
      currently assessing FIN 48 and has not yet determined the impact that the
      adoption of this interpretation will have on its financial position or results
      of operations.




F-16
 *Table
          of Contents*




In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      (“SFAS”) No. 157, *Fair
      Value Measurements* (“FAS
      157”). FAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. FAS 157 does not require any new fair value
      measurements, but provides guidance on how to measure fair value by providing
      a
      fair value hierarchy used to classify the source of the information. FAS 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Earlier
      adoption is permitted. The Company will adopt FAS 157 effective July 1, 2008
      but
      has not yet assessed the impact of the adoption of FAS 157 on its overall
      results of operations, financial position or cash flows.





On
      November 29, 2006, the FASB ratified EITF Issue No. 06−6, *Application
      of EITF Issue No. 05−7, ‘Debtor’s Accounting for a Modification (or Exchange) of
      Convertible Debt Instruments* ’
(“EITF
      06−6”). EITF 06−6 addresses the modification of a convertible debt instrument
      that changes the fair value of an embedded conversion option and the subsequent
      recognition of interest expense for the associated debt instrument when the
      modification does not result in a debt extinguishment pursuant to EITF 96−19.
      The consensus should be applied to modifications or exchanges of debt
      instruments occurring in interim or annual reporting periods beginning after
      November 29, 2006.  Earlier application of this Issue is permitted for
      modifications or exchanges of debt instruments in periods for which financial
      statements have not yet been issued.  Retrospective application is not
      permitted. The Company does not expect the adoption of EITF 06−6 to have a
      material impact on its consolidated financial position, results of operations
      or
      cash flows.





In
      December 2006, FASB Staff Position EITF 00-19-2, *Accounting
      for Registration Payment Agreements,* was
      issued. This FSP addresses an issuer’s accounting for registration payment
      arrangements. This FSP specifies that the contingent obligation to make future
      payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, Accounting for
      Contingencies. The guidance in this FSP amends FASB Statements No. 133,
      Accounting for Derivative Instruments and Hedging Activities, and No. 150,
      Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity, and FASB Interpretation No. 45, Guarantor’s Accounting
      and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
      Indebtedness of Others, to include scope exceptions for registration payment
      arrangements. This FSP further clarifies that a financial instrument subject
      to
      a registration payment arrangement should be accounted for in accordance with
      other applicable GAAP without regard to the contingent obligation to transfer
      consideration pursuant to the registration payment arrangement. This FSP is
      effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to December 21, 2006.  For registration payment arrangements and
      financial instruments subject to those arrangements that were entered into
      prior
      to the issuance of this FSP, the guidance is for financial statements issued
      for
      fiscal years beginning after December 15, 2006, and interim periods within
      those
      fiscal years. The Company follows the guidance in FSP 00-19-2 in assessing
      its
      liabilities related to the liquidated damages potentially arising from any
      default position on its convertible financing arrangements. This has not yet
      been adopted for pre-existing instruments but the effect is not expected to
      be
      material.





In
      February 2007 the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115* ”
(“FAS
      159”). FAS 159 permits an entity to choose to measure many financial instruments
      and certain other items at fair value. The unrealized gains and losses on items
      for which the fair value option has been elected will be reported in earnings
      at
      each subsequent reporting date. The fair value option: (a) may be applied
      instrument by instrument, with a few exceptions, such as investments otherwise
      accounted for by the equity method; (b) is irrevocable (unless a new election
      date occurs); and (c) is applied only to entire instruments and not to portions
      of instruments. FAS 159 is effective for fiscal years beginning after November
      15, 2007 and for interim periods within those fiscal years. The Company is
      required to adopt FAS 159 on July 1, 2008 but has not yet assessed the impact
      of
      the adoption of FAS 159 on its financial position or results of operations.




F-17
 *Table
          of Contents*




**3.**  **RESTATEMENT
      AND REPRESENTATION**




Subsequent
      to the issuance of the Company’s audited financial statements for the year ended
      April 30, 2006 as filed on Form 20-F on November 14, 2006 and the unaudited
      financial statements for the two months ended June 30, 2006 as filed on Form
      20-F on November 16, 2006, the Company’s management discovered accounting errors
      relating to the accounting for convertible debt instruments issued during the
      year ended April 30, 2006.




The
      principal errors were as follows:




·
            the
                Company did not separately identify all embedded derivative features,
                in
                particular certain default put and call features, within the convertible
                debt instrument and account for these at fair value on its consolidated
                balance sheet; and




·
            detachable
                warrants issued in conjunction with the convertible debt issued to
                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 “MAG”), on July 21, 2005 were
                accounted for as equity instruments rather than as derivative liabilities.





As
      a
      consequence of the identification of additional embedded derivative features
      within the convertible debt the Company has utilized a Flexible Monte Carlo
      simulation model to estimate the fair value of the compound embedded derivatives
      due to the interdependencies between the various embedded features. Previously,
      the Company had utilized a Black Scholes valuation model since it only
      identified the conversion feature as an embedded derivative.





In
      connection with the use of a different valuation model the Company has also
      refined a number of the input assumptions used to estimate the fair value of
      the
      embedded features. In particular, the conversion price used in the model has
      been determined in accordance with the terms of each convertible debt
      instrument, which is generally based upon a weighted average calculation for
      the
      prior 30 days trading, rather than the actual share price at each valuation
      date.





Additionally,
      the Company reclassified debt issuance costs that were inadvertently recorded
      as
      acquisition costs and recorded related amortization.





In
      order
      to reflect the changes described above the statements of operations, cash flows,
      and changes in shareholders’ equity for the two months ended June 30, 2006 and
      the year ended April 30, 2006 have been restated.





The
      Company has also represented the operations of the Open Training business that
      are reflected as discontinued operations in these financial statements. Please
      refer to Note 4 for additional discussion of discontinued
      operations.




F-18
 *Table
          of Contents*




The
      following table provides a reconciliation of amounts previously reported by
      the
      Company as of and for the year ended April 30, 2006:




**As
                of and for the year ended April 30, 2006****As****Restated****Previously**
            
            **Adjust-**
            
            **Restated**
            
            **Reclass-**
            
            **and****Reported**
            
            **ments**
            
            **Total**
            
            **ifications**
            
            **Reclassified**(GBP'000,
                except per share amounts)**CONSOLIDATED
                BALANCE SHEET****Assets**Goodwill
            
            
            5,089
            
            
            (390
            )
            
            4,699
            
            
            0
            
            
            4,699Other
                current assets
            
            
            216
            
            
            10
            
            
            226
            
            
            0
            
            
            226**Current
                Liabilities**Derivative
                financial instruments
            
            
            0
            
            
            6,550
            
            
            6,550
            
            
            0
            
            
            6,550**Long
                Term Liabilities**Convertible
                debentures
            
            
            5,465
            
            
            (4,380
            )
            
            1,085
            
            
            0
            
            
            1,085**Stockholders'
                Deficit**Additional
                paid in capital
            
            
            26,018
            
            
            (2,774
            )
            
            23,244
            
            
            0
            
            
            23,244Accumulated
                deficit
            
            
            (28,481
            )
            
            217
            
            
            (28,264
            )
            
            0
            
            
            (28,264
            )Other
                comprehensive loss - cumulative translation adjustment
            
            
            (100
            )
            
            (1
            )
            
            (101
            )
            
            0
            
            
            (101
            )**CONSOLIDATED
                STATEMENT OF OPERATIONS**Net
                sales - products
            
            
            15,322
            
            
            0
            
            
            15,322
            
            
            (918
            )
            
            14,404Net
                sales - services
            
            
            2,238
            
            
            0
            
            
            2,238
            
            
            0
            
            
            2,238Total
                net sales
            
            
            17,560
            
            
            0
            
            
            17,560
            
            
            (918
            )
            
            16,642Cost
                of sales - products
            
            
            13,922
            
            
            0
            
            
            13,922
            
            
            (458
            )
            
            13,464Cost
                of sales - service
            
            
            324
            
            
            0
            
            
            324
            
            
            0
            
            
            324Gross
                profit
            
            
            3,314
            
            
            0
            
            
            3,314
            
            
            (460
            )
            
            2,854Sales
                and marketing
            
            
            2,272
            
            
            0
            
            
            2,272
            
            
            (250
            )
            
            2,022General
                and administrative
            
            
            5,685
            
            
            (172
            )
            
            5,513
            
            
            (424
            )
            
            5,089Facilities
                expense
            
            
            509
            
            
            0
            
            
            509
            
            
            (139
            )
            
            370Total
                operating expenses
            
            
            8,466
            
            
            (172
            )
            
            8,294
            
            
            (813
            )
            
            7,481Operating
                loss
            
            
            (5,152
            )
            
            172
            
            
            (4,980
            )
            
            353
            
            
            (4,627
            )Interest
                expense
            
            
            (1,633
            )
            
            277
            
            
            (1,356
            )
            
            2
            
            
            (1,354
            )Foreign
                currency losses
            
            
            (6
            )
            
            269
            
            
            263
            
            
            0
            
            
            263Gain
                (loss) on derivative financial instruments
            
            
            0
            
            
            (502
            )
            
            (502
            )
            
            0
            
            
            (502
            )Loss
                from continuing operations
            
            
            (6,750
            )
            
            216
            
            
            (6,534
            )
            
            355
            
            
            (6,179
            )Loss
                from discontinued operations
            
            
            0
            
            
            0
            
            
            0
            
            
            (355
            )
            
            (355
            )Net
                loss
            
            
            (6,750
            )
            
            216
            
            
            (6,534
            )
            
            0
            
            
            (6,534
            )Foreign
                currency translation adjustment
            
            
            7
            
            
            0
            
            
            7
            
            
            0
            
            
            7Comprehensive
                income (loss)
            
            
            (6,743
            )
            
            216
            
            
            (6,527
            )
            
            0
            
            
            (6,527
            )Loss
                per share from continuing operations -- basic and diluted
            
            
            (0.07
            )
            
            
            
            
            (0.07
            )
            
            
            
            
            (0.07
            )Loss
                per ADS from continuing operations -- basic and diluted
            
            
            (71.64
            )
            
            
            
            
            (69.35
            )
            
            
            
            
            (65.58
            )Net
                loss per share -- basic and diluted
            
            
            (0.07
            )
            
            
            
            
            (0.07
            )
            
            
            
            
            (0.07
            )Net
                loss per ADS -- basic and diluted
            
            
            (71.64
            )
            
            
            
            
            (69.35
            )
            
            
            
            
            (69.35
            )




**CONSOLIDATED
                STATEMENT OF CASH FLOWS****Operating
                Activities**Net
                loss
            
            
            (6,750
            )
            
            216
            
            
            (6,534
            )
            
            0
            
            
            (6,534
            )Interest
                charge arising on convertible loans
            
            
            1,416
            
            
            (277
            )
            
            1,139
            
            
            0
            
            
            1,139Gain
                (loss) on derivative financial instruments
            
            
            0
            
            
            502
            
            
            502
            
            
            0
            
            
            502Change
                in operating assets and liabilities:Fees
                received in advance
            
            
            593
            
            
            0
            
            
            593
            
            
            0
            
            
            593Other
                accrued expenses
            
            
            746
            
            
            (244
            )
            
            502
            
            
            0
            
            
            502Non-cash
                foreign currency (gain) loss
            
            
            0
            
            
            (269
            )
            
            (269
            )
            
            0
            
            
            (269
            )Net
                cash used in operating activities
            
            
            (3,145
            )
            
            (72
            )
            
            (3,217
            )
            
            0
            
            
            (3,217
            )**Investing
                Activities**Acquisition
                costs
            
            
            (625
            )
            
            72
            
            
            (553
            )
            
            0
            
            
            (553
            )Net
                cash used in investing activities
            
            
            (4,547
            )
            
            72
            
            
            (4,475
            )
            
            0
            
            
            (4,475
            )Net
                increase in cash and cash equivalents
            
            
            71
            
            
            0
            
            
            71
            
            
            0
            
            
            71





F-19
 *Table
          of Contents*




The
      following table provides a reconciliation of amounts previously reported by
      the
      Company as of and for the two months ended June 30, 2006. Significant
      adjustments made to the previously reported financial statements include the
      following:





·
            Changes
                to convertible debentures, derivative financial instruments, share
                capital, interest expense and gain on derivative financial instruments
                resulting from the correction of accounting in prior period relating
                to
                convertible debentures;


·
            Reclassification
                of the excess purchase price paid to acquire Button over net book
                value
                acquired from “Non current assets” to identifiable intangible assets and
                goodwill;


·
            Reclassification
                of goodwill associated with the acquisition of EBC to identifiable
                intangible assets; and


·
            Recognition
                of a deferred tax liability in the acquisitions of EBC and
                Button.




**As
                  of and for the two months ended June 30, 2006****As****Restated****Previously**
              
              **Adjust-**
              
              **Restated**
              
              **Reclass-**
              
              **and****Reported**
              
              **ments**
              
              **Total**
              
              **ifications**
              
              **Reclassified**(GBP'000,
                  except per share amounts)**CONSOLIDATED
                  BALANCE SHEET****Current
                  assets**Cash
                  and cash equivalents
              
              
              1,305
              
              
              269
              
              
              1,574
              
              
              0
              
              
              1,574Accounts
                  receivable, net
              
              
              1,864
              
              
              (22
              )
              
              1,842
              
              
              0
              
              
              1,842Unbilled
                  accounts receivable
              
              
              0
              
              
              1,152
              
              
              1,152
              
              
              0
              
              
              1,152Amounts
                  recoverable from vendors
              
              
              280
              
              
              (280
              )
              
              0
              
              
              0
              
              
              0Other
                  current assets
              
              
              541
              
              
              (249
              )
              
              292
              
              
              0
              
              
              292Inventories
              
              
              114
              
              
              (6
              )
              
              108
              
              
              0
              
              
              108Prepaid
                  assets
              
              
              1,158
              
              
              (900
              )
              
              258
              
              
              0
              
              
              258**Non-current
                  assets**Property
                  and equipment, net
              
              
              605
              
              
              0
              
              
              605
              
              
              0
              
              
              605Non-current
                  assets
              
              
              7,187
              
              
              (7,187
              )
              
              0
              
              
              0
              
              
              0Goodwill
              
              
              5,116
              
              
              3,078
              
              
              8,194
              
              
              0
              
              
              8,194Intangible
                  assets
              
              
              598
              
              
              4,246
              
              
              4,844
              
              
              0
              
              
              4,844Total
                  assets
              
              
              18,768
              
              
              101
              
              
              18,869
              
              
              0
              
              
              18,869**Current
                  liabilities**Bank
                  overdraft
              
              
              162
              
              
              (2
              )
              
              160
              
              
              0
              
              
              160Deferred
                  income
              
              
              3,487
              
              
              (28
              )
              
              3,459
              
              
              0
              
              
              3,459Accounts
                  payable
              
              
              3,924
              
              
              55
              
              
              3,979
              
              
              0
              
              
              3,979Other
                  taxes and social security costs
              
              
              948
              
              
              242
              
              
              1,190
              
              
              0
              
              
              1,190Deferred
                  tax liability
              
              
              0
              
              
              1,041
              
              
              1,041
              
              
              0
              
              
              1,041Other
                  accounts payable
              
              
              766
              
              
              (766
              )
              
              0
              
              
              0
              
              
              0Accrual
                  for National Insurance costs on stock options
              
              
              18
              
              
              (18
              )
              
              0
              
              
              0
              
              
              0Accrued
                  expenses and other current liabilities
              
              
              1,798
              
              
              215
              
              
              2,013
              
              
              0
              
              
              2,013Derivative
                  financial instruments
              
              
              0
              
              
              2,949
              
              
              2,949
              
              
              0
              
              
              2,949**Long
                  term liabilities**Convertible
                  debentures
              
              
              5,714
              
              
              (4,717
              )
              
              997
              
              
              0
              
              
              997Other
                  long term liabilities
              
              
              140
              
              
              208
              
              
              348
              
              
              
              
              
              348**Stockholders'
                  Deficit**Ordinary
                  shares
              
              
              1,799
              
              
              2
              
              
              1,801
              
              
              0
              
              
              1,801Additional
                  paid in capital
              
              
              29,063
              
              
              (2,778
              )
              
              26,285
              
              
              0
              
              
              26,285Receivable
                  from stock subscription
              
              
              (18
              )
              
              18
              
              
              0
              
              
              0
              
              
              0Accumulated
                  deficit
              
              
              (28,919
              )
              
              3,662
              
              
              (25,257
              )
              
              0
              
              
              (25,257
              )Other
                  comprehensive loss - cumulative translation adjustment
              
              
              (114
              )
              
              18
              
              
              (96
              )
              
              0
              
              
              (96
              )Total
                  stockholders' equity
              
              
              1,811
              
              
              922
              
              
              2,733
              
              
              0
              
              
              2,733Total
                  liabilities and stockholders' deficit
              
              
              18,768
              
              
              101
              
              
              18,869
              
              
              0
              
              
              18,869




F-20
 *Table
          of Contents*




**As
                  of and for the two months ended June 30, 2006****As****Restated****Previously**
              
              **Adjust-**
              
              **Restated**
              
              **Reclass-**
              
              **and****Reported**
              
              **ments**
              
              **Total**
              
              **ifications**
              
              **Reclassified**(GBP'000,
                  except per share amounts)**CONSOLIDATED
                  STATEMENT OF OPERATIONS**Total
                  net sales
              
              
              3,459
              
              
              (190
              )
              
              3,269
              
              
              (157
              )
              
              3,112Cost
                  of sales
              
              
              2,250
              
              
              (48
              )
              
              2,202
              
              
              (73
              )
              
              2,129Gross
                  profit
              
              
              1,209
              
              
              (142
              )
              
              1,067
              
              
              (84
              )
              
              983Sales
                  and marketing
              
              
              158
              
              
              39
              
              
              197
              
              
              (55
              )
              
              142General
                  and administrative
              
              
              835
              
              
              280
              
              
              1,115
              
              
              (43
              )
              
              1,072Facilities
                  expense
              
              
              116
              
              
              61
              
              
              177
              
              
              (23
              )
              
              154Total
                  operating expenses
              
              
              1,109
              
              
              380
              
              
              1,489
              
              
              (121
              )
              
              1,368Interest
                  income
              
              
              6
              
              
              0
              
              
              6
              
              
              0
              
              
              6Interest
                  expense
              
              
              (551
              )
              
              438
              
              
              (113
              )
              
              0
              
              
              (113
              )Foreign
                  currency gains (losses)
              
              
              7
              
              
              28
              
              
              35
              
              
              0
              
              
              35Gain
                  (loss) on derivative financial instruments
              
              
              0
              
              
              3,556
              
              
              3,556
              
              
              0
              
              
              3,556Loss
                  from continuing operations
              
              
              (438
              )
              
              3,500
              
              
              3,062
              
              
              37
              
              
              3,099Loss
                  from discontinued operations
              
              
              0
              
              
              0
              
              
              0
              
              
              (37
              )
              
              (37
              )Income
                  taxes
              
              
              0
              
              
              (55
              )
              
              (55
              )
              
              0
              
              
              (55
              )Net
                  Loss
              
              
              (438
              )
              
              3,445
              
              
              3,007
              
              
              0
              
              
              3,007Income
                  (loss) per share from continuing operations -- basic
              
              
              (0.00
              )
              
              
              
              
              0.02
              
              
              
              
              
              0.02Income
                  (loss) per share from discontinued operations -- basic
              
              
              0.00
              
              
              
              
              
              0.00
              
              
              
              
              
              (0.00
              )Net
                  income (loss) per share -- basic
              
              
              (0.00
              )
              
              
              
              
              0.02
              
              
              
              
              
              0.02Income
                  (loss) per ADS from continuing operations -- basic
              
              
              (2.93
              )
              
              
              
              
              20.48
              
              
              
              
              
              20.36Income
                  (loss) per ADS from discontinued operations -- basic
              
              
              0.00
              
              
              
              
              
              0.00
              
              
              
              
              
              (0.25
              )Net
                  income (loss) per ADS -- basic
              
              
              (2.93
              )
              
              
              
              
              20.11
              
              
              
              
              
              20.11**CONSOLIDATED
                  STATEMENT OF CASH FLOWS**Net
                  income (loss)
              
              
              (438
              )
              
              3,445
              
              
              3,007
              
              
              0
              
              
              3,007Depreciation
                  and amortization
              
              
              86
              
              
              44
              
              
              130
              
              
              0
              
              
              130Amortization
                  of discount on notes payable
              
              
              435
              
              
              (269
              )
              
              166
              
              
              0
              
              
              166Gain
                  on derivative financial instruments
              
              
              0
              
              
              (3,556
              )
              
              (3,556
              )
              
              0
              
              
              (3,556
              )Stock
                  based compensation expense
              
              
              158
              
              
              (108
              )
              
              50
              
              
              0
              
              
              50Income
                  tax
              
              
              0
              
              
              55
              
              
              55
              
              
              0
              
              
              55Non-cash
                  foreign currency (gain) loss
              
              
              0
              
              
              (35
              )
              
              (35
              )
              
              0
              
              
              (35
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              1,023
              
              
              23
              
              
              1,046
              
              
              0
              
              
              1,046Amounts
                  recoverable on contracts
              
              
              0
              
              
              70
              
              
              70
              
              
              0
              
              
              70Unbilled
                  accounts receivable
              
              
              0
              
              
              (406
              )
              
              (406
              )
              
              0
              
              
              (406
              )Amounts
                  recoverable from vendors
              
              
              0
              
              
              280
              
              
              280
              
              
              0
              
              
              280Other
                  current assets
              
              
              626
              
              
              445
              
              
              1,071
              
              
              0
              
              
              1,071Inventories
              
              
              503
              
              
              (209
              )
              
              294
              
              
              0
              
              
              294Prepaid
                  expenses
              
              
              238
              
              
              112
              
              
              350
              
              
              0
              
              
              350Deferred
                  income
              
              
              (790
              )
              
              (28
              )
              
              (818
              )
              
              0
              
              
              (818
              )Accounts
                  payable
              
              
              584
              
              
              (209
              )
              
              375
              
              
              0
              
              
              375Other
                  taxes and social security costs
              
              
              (88
              )
              
              572
              
              
              484
              
              
              0
              
              
              484Other
                  accounts payable
              
              
              329
              
              
              (455
              )
              
              (126
              )
              
              0
              
              
              (126
              )Accrual
                  for National Insurance costs on stock options
              
              
              0
              
              
              (18
              )
              
              (18
              )
              
              0
              
              
              (18
              )Accrual
                  for sales commissions due
              
              
              0
              
              
              (268
              )
              
              (268
              )
              
              0
              
              
              (268
              )Other
                  accrued expenses
              
              
              (1,495
              )
              
              (12
              )
              
              (1,507
              )
              
              0
              
              
              (1,507
              )**Net
                  cash provided by/(used in) operating activities**
              
              
              **1,171**
              
              
              **(527**
              **)**
              
              **644**
              
              
              **0**
              
              
              **644**Investing
                  activitiesAcquisition
                  of Button Communications Holdings Limited, net of cash
                  acquired
              
              
              (3,280
              )
              
              980
              
              
              (2,300
              )
              
              0
              
              
              (2,300
              )Acquisition
                  costs
              
              
              (104
              )
              
              (15
              )
              
              (119
              )
              
              0
              
              
              (119
              )Capital
                  expenditures
              
              
              (29
              )
              
              0
              
              
              (29
              )
              
              0
              
              
              (29
              )**Net
                  cash provided by/(used in) investing activities**
              
              
              **(3,413**
              **)**
              
              **965**
              
              
              **(2,448**
              **)**
              
              **0**
              
              
              **(2,448**
              **)**Financing
                  activitiesProceeds
                  of ordinary share issues
              
              
              2,429
              
              
              95
              
              
              2,524
              
              
              0
              
              
              2,524Share
                  issue costs
              
              
              (18
              )
              
              (81
              )
              
              (99
              )
              
              0
              
              
              (99
              )Change
                  in balance of bank overdraft
              
              
              0
              
              
              (227
              )
              
              (227
              )
              
              0
              
              
              (227
              )**Net
                  cash provided by financing activities**
              
              
              **2,411**
              
              
              **(213**
              **)**
              
              **2,198**
              
              
              **0**
              
              
              **2,198**Effects
                  of exchange rates on cash
              
              
              (19
              )
              
              44
              
              
              25
              
              
              0
              
              
              25**Net
                  (decrease)/increase in cash and cash equivalents**
              
              
              **150**
              
              
              **269**
              
              
              **419**
              
              
              **0**
              
              
              **419**Cash
                  and cash equivalents at beginning of period
              
              
              1,155
              
              
              0
              
              
              1,155
              
              
              0
              
              
              1,155**Cash
                  and cash equivalents at end of period**
              
              
              **1,305**
              
              
              **269**
              
              
              **1,574**
              
              
              **0**
              
              
              **1,574**


F-21


**4.**  **DISCONTINUED
      OPERATIONS**





On
      April
      12, 2007, the Company completed the sale of Open Training to Edvantage Group
      AS.
      The sale price of GBP519,000 comprised an initial payment of GBP109,000 and
      a
      non-interest bearing loan note in the amount of GBP410,000 payable in equal
      annual instalments on the anniversary of the transaction for a period of four
      years. Under the terms of the sale, the Company retained the full rights of
      ownership and all intellectual property rights for LearngateTM, the Learning
      Management System developed by Open Training on behalf of the Group. However,
      the Company determined that, although rights to the software had contractual
      value specified in the purchase agreement, the expected cash flows from the
      software to the Company were negligible. As a result, the software was not
      assigned any fair value in accounting for proceeds received by the Company
      in
      the transaction, and the carrying value of the software was written off in
      full.
      Edvantage Group AS was also granted a perpetual license to use the intellectual
      property rights for LearngateTM.




The
      Company recorded a loss on the disposal of Open Training in the amount of
      GBP128,000, representing the difference between the fair value of the
      consideration received and the carrying value of the Open Training at the time
      of sale. The
      accompanying consolidated statement of operations presented herein for the
      year
      ended June 30, 2007, contains the results of operations for Open Training for
      the period from July 1, 2006 through the sale date of April 12, 2007.





Results
      of operations for the Open Training business in prior periods have been
      reclassified into discontinued operations in the accompanying consolidated
      statement of operations.




F-22
 *Table
          of Contents*




**5.**  **CONVERTIBLE
      LOANS AND DERIVATIVE FINANCIAL INSTRUMENTS**




**$4
      Million Convertible Loan - July 2005**





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 “MAG”), to provide financing in the amount of $4,000,000
      (GBP2,298,000) (the “July 2005 Loan”). The July
      2005
      Loan was made
      via a Convertible Debenture that is convertible, at the option of the holder,
      into Ordinary Shares of the Company at a price of $0.4858 ($485.80 per ADS
      on an
      adjusted basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000
      that
      went into effect on December 3, 2007) per share, which was 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. The July 2005 Loan also contained a mandatory conversion
      feature, pursuant to which the Company could force conversion into its ADSs
      at a
      conversion rate equal to 80% of the volume weighted average price of the
      Company’s ADSs for the 10 trading days prior to conversion, as long as the ADSs
      underlying the conversion were subject to an effective registration statement
      and the average daily dollar volume of trades of the Company's stock was greater
      than $325,000 (GBP187,000) for the 22 trading days before conversion. The July
      2005
      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%. After
      fees paid to MAG of $200,000 (GBP115,000), net proceeds to the Company were
      $3,800,000 (GBP2,182,000). The Company incurred debt issuance costs of $120,000
      (GBP69,000) which have been recorded as deferred financing costs.





In
      connection with the July
      2005
      Loan ,
      the
      Company also issued warrants to MAG covering an aggregate of 6,175,104 ADSs
      with
      an exercise price of $0.61 ($610.00 per ADS on an adjusted basis to reflect
      the
      change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on December
      3, 2007) per share. The Company subsequently reduced the exercise price of
      the
      warrants to $0.11 per ADS ($110.00 per ADS on an adjusted basis to reflect
      the
      change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on December
      3, 2007) per share on an unconditional basis and without further consideration.
      The Company also
      issued warrants to purchase 411,692 Ordinary Shares ( 412
      ADSs
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) to
      our
      financial adviser on the investment, on substantially the same terms as the
      warrants issued to MAG.





At
      the
      inception date of July 21, 2005, the net proceeds of the July 2005 Loan were
      allocated on a relative fair value basis as follows:




**Instrument:**
            
            (GBP'000)Convertible
                loan
            
            
            0Common
                stock warrants
            
            
            2,062Compound
                embedded derivative
            
            
            1,032Loss
                on derivative financial instruments
            
            
            (912
            )Total
                net proceeds
            
            
            2,182





The
      loss
      on derivative financial instruments represents the difference between the
      proceeds received and the fair value of the common stock warrants and the
      compound embedded derivative instruments.





In
      connection with the July 2005 Loan, the Company also entered into a registration
      rights agreement with MAG that required the Company to, among other
      requirements, file a registration statement with the SEC registering the resale
      of the shares of common stock issuable upon conversion of the July 2005 Loan
      and
      the exercise of the warrants issued in connection with the investment, and
      achieve and maintain effectiveness of the registration statement. The penalty
      for failure to meet the registration requirements is liquidated damages in
      the
      amount of 2% of the face value of the note per month. The Company met the
      registration requirements, and as such has not accrued any liquidated damages
      relating to the July 2005 Loan.




F-23
 *Table
          of Contents*




The
      July
      2005 Loan was repaid in full during the period from July 2005 through October
      2006, through cash payments and conversions to ADSs as follows:





TwoYear
            
            months
            
            Year
            
            Yearended
            
            ended
            
            ended
            
            endedJune
                30,
            
            June
                30,
            
            April
                30,
            
            April
                30,2007
            
            2006
            
            2006
            
            2005(GBP’000,
                except share amounts)Cash
                principal payments
            
            
            172
            
            
            0
            
            
            0
            
            
            0Principal
                payments through conversion
            
            
            518
            
            
            359
            
            
            1,126
            
            
            0Total
                Payments
            
            
            690
            
            
            359
            
            
            1,126
            
            
            0Shares
                issued pursuant to conversions
            
            
            7,397,720
            
            
            2,644,826
            
            
            7,656,510
            
            
            0




A
      discussion of the fair value considerations for this financing transaction
      can
      be found at the end of this footnote under the caption “Fair Value
      Considerations.”




F-24
 *Table
          of Contents*


**$2.5
      Million Convertible Loan - December 2005**





On
      December 19, 2005, t he Company
      entered into a financing arrangement with Cornell Capital Partners, LP,
      (“Cornell”) pursuant to which Cornell invested an aggregate $2,500,000
      (GBP1,410,000) (the
      “December 2005 Loan”) via a private placement in the form of a secured
      convertible note that may be
      converted from time to time at Cornell’s option (subject to certain restrictions
      and limitations on the amount of shares converted) and must be entirely
      converted by maturity. The
      conversion rate is the lesser of $0.525 per Ordinary Share ($525.00 per ADS
      on
      an adjusted basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000
      that went into effect on December 3, 2007), or 95% of the lowest
      volume weighted average price of the Company’s ADSs for any period of three
      consecutive trading days during the 30 trading days immediately preceding the
      time of conversion . The
      conversion is limited such that the holder cannot exceed a 4.9% ownership,
      unless the holders waive their right to such limitation with 65 days’ written
      notice .
      The
      Company can
      limit
      Cornell to conversion of 1/12 th of face
      value per month, but must allow conversion of a minimum of 25% of the face
      value
      by December 19, 2006, and an additional 25% of the face value by December 19,
      2007. The
      loan
      has a term of three years and bears interest initially at an annual rate of
      10%
      (reducing to 8% in year two and 7% in year three). The Company can redeem the
      instrument at a 20% premium if the bid price of the Company’s ADSs is less than
      $0.525 ($525.00 on an adjusted basis to reflect the change in ADS:Ordinary
      Share
      ratio of 1:1,000 that went into effect on December 3, 2007) at the time of
      redemption.





In
      connection with the December 2005 Loan, Futuremedia issued to Cornell 187,500
      Ordinary Shares at nominal value and warrants to purchase an additional 250,000
      Ordinary Shares with an exercise price of $0.70 per share (250 shares at $700.00
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007). Cornell received a
      commitment fee of $188,000 (GBP106,000), resulting in net proceeds to the
      Company of $2,312,000 ( GBP1,304,000) .





At
      the
      inception date of December 19, 2005, the net proceeds were allocated as
      follows:




**Instrument:**
            
            (GBP’000)Convertible
                loan
            
            
            663Common
                stock warrants
            
            
            43Compound
                embedded derivative
            
            
            568Ordinary
                shares
            
            
            30Total
                net proceeds
            
            
            1,304





The
      December 2005 Loan, at the option of the holder, affords Cornell anti-dilution
      protection should, at any time while the convertible note is outstanding, the
      Company offer, sell or grant any option (excluding employee stock options)
      to
      purchase or offer, sell or grant any right to re-price its securities, or
      otherwise dispose of or issue any common stock or common stock equivalents,
      that
      entitles any person to acquire shares of common stock at an effective price
      per
      share less than the then effective conversion price, as calculated by the
      formula described above; then, in such instance, the conversion price for the
      convertible note shall be reduced to the lower price.




In
      connection with the December 2005 Loan, the Company also entered into a
      Registration Rights Agreement with Cornell that required the Company to, among
      other requirements, file a registration statement with the SEC registering
      the
      resale of the shares of common stock issuable upon conversion of the December
      2005 Loan and the exercise of the warrants, and achieve and maintain
      effectiveness of the registration statement. The penalty for failure to meet
      the
      registration requirements is liquidated damages in the amount of 2% of the
      face
      value of the note per month. The Company met the registration requirements,
      and
      as such has not accrued any liquidated damages relating to the December 2005
      Loan.




F-25
 *Table
          of Contents*


The
      December 2005 Loan was repaid during the period from December 2005 through
      September 2006, through conversions to ADSs as follows:





TwoYear
            
            months
            
            Year
            
            Yearended
            
            ended
            
            ended
            
            endedJune
                30,
            
            June
                30,
            
            April
                30,
            
            April
                30,2007
            
            2006
            
            2006
            
            2005(GBP’000,
                except share amounts)Cash
                principal payments
            
            
            0
            
            
            0
            
            
            0
            
            
            0Principal
                payments through conversion
            
            
            932
            
            
            0
            
            
            394
            
            
            0Total
                Payments
            
            
            932
            
            
            0
            
            
            394
            
            
            0Shares
                issued pursuant to conversions
            
            
            30,271,919
            
            
            0
            
            
            3,968,255
            
            
            0





A
      discussion of the fair value considerations for this financing transaction
      can
      be found at the end of this footnote under the caption “Fair Value
      Considerations.”




F-26
 *Table
          of Contents*




**$7.5
      Million Convertible Loan - April 2006**





On
      April
      19, 2006, the Company entered into a further loan arrangement with Cornell,
      TAIB
      Bank B.S.C. (“TAIB) and Certain Wealth, Ltd. (“Certain Wealth”) in the form of a
      $7,500,000 (GBP4,230,000) secured
      convertible note (the “April 2006 Loan”) that may be
      converted from time to time at the holder’s option (subject to certain
      restrictions and limitations on the amount of shares converted) and must be
      entirely converted by maturity. The
      conversion rate is the lesser of $0.34 per Ordinary Share ($340.00 per ADS
      on an
      adjusted basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000
      that
      went into effect on December 3, 2007), or 95%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that the holder cannot exceed a 4.9% ownership,
      unless the holders waive their right to such limitation with 65 days’ written
      notice .
      The
      Company can
      limit
      the holder to conversion of 1/12 th of face
      value per month, but must allow conversion of a minimum of 25% of the face
      value
      by April 19, 2007, and an additional 25% of the face value by April 19, 2008. The
      loan
      has a term of three years and bears interest initially at an annual rate of
      10%
      (reducing to 8% in year two and 7% in year three).  The
      Company can redeem the instrument at a 20% premium if the bid price of the
      Company’s ADSs is less than $0.34 ($340.00 on an adjusted basis to reflect the
      change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on December
      3, 2007) at the time of redemption.





In
      connection with the April
      2006 Loan ,
      Futuremedia also issued to Cornell 562,500 Ordinary Shares at nominal value,
      warrants to purchase 4,000,000 Ordinary Shares with an exercise price of $0.20
      per share (4,000
      shares at $200.00 on an adjusted basis to reflect the change in ADS:Ordinary
      Share ratio of 1:1,000 that went into effect on December 3, 2007) and
      warrants to purchase an additional 750,000 Ordinary Shares with an exercise
      price of $0.70 per share (750
      shares at $700.00 on an adjusted basis to reflect the change in ADS:Ordinary
      Share ratio of 1:1,000 that went into effect on December 3, 2007) .
      Cornell
      received a commitment fee of $563,000 (GBP318,000), resulting in net proceeds
      to
      the Company of $6,937,000 (GBP3,912,000).





At
      the
      inception date of April 19, 2006, the net proceeds of the April 2006 Loan were
      allocated as follows:




**Instrument:**
            
            (GBP'000)Common
                stock warrants
            
            
            866Convertible
                loan
            
            
            0Compound
                embedded derivative
            
            
            4,549Ordinary
                shares
            
            
            42Loss
                on derivative financial instruments
            
            
            (1,545
            )Total
                net proceeds
            
            
            3,912


The
      loss
      on derivative financial instruments represents the difference between the
      proceeds and the fair value of the common stock warrants and compound embedded
      derivative instruments.





The April
      2006 Loan ,
      at the
      option of the holder, affords the holder anti-dilution protection should, at
      any
      time while the convertible note is outstanding, the Company offer, sell or
      grant
      any option (excluding employee stock options) to purchase or offer, sell or
      grant any right to re-price its securities, or otherwise dispose of or issue
      any
      common stock or common stock equivalents, that entitles any person to acquire
      shares of common stock at an effective price per share less than the then
      effective conversion price, as calculated by the formula described above; then,
      in such instance, the conversion price for the convertible note shall be reduced
      to the lower price.




In
      connection with the April
      2006 Loan ,
      the
      Company also entered into a Registration Rights Agreement with the holders
      that
      required the Company to, among other requirements, file a registration statement
      with the SEC registering the resale of the shares of common stock issuable
      upon
      conversion of the April
      2006 Loan
      and
      the exercise of the warrants, and achieve and maintain effectiveness of the
      registration statement. The penalty for failure to meet the registration
      requirements is liquidated damages in the amount of 2% of the face value of
      the
      note per month. The Company did not meet the registration requirements (refer
      to
      Events of Default section in this Footnote).




F-27
 *Table
          of Contents*


The April
      2006 Loan
      was
      partially repaid during the period from April 2006 through May 2007, through
      conversions to ADSs as follows:





TwoYear
            
            months
            
            Yearended
            
            ended
            
            endedJune
                30,
            
            June
                30,
            
            April
                30,2007
            
            2006
            
            2006(GBP'000,
                except share amounts)Cash
                principal payments
            
            
            0
            
            
            0
            
            
            0Principal
                payments through conversion
            
            
            172
            
            
            0
            
            
            0Total
                Payments
            
            
            172
            
            
            0
            
            
            0Ordinary
                shares issued pursuant to conversions
            
            
            14,872,500
            
            
            0
            
            
            0





On
      August
      3, 2006, in connection with a subsequent financing arrangement with Cornell,
      the
      Company amended the conversion features of the April 2006 Loan, such that the
      April 2006 Loan is now convertible at the lesser of $0.30 per Ordinary Share ($300.00
      per ADS on an adjusted basis to reflect the change in ADS:Ordinary Share ratio
      of 1:1,000 that went into effect on December 3, 2007) or
      80% of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion. The change in
      conversion terms resulted in incremental fair value of GBP182,000 to the
      investor. All conversions made as outlined in the preceding table were made
      subsequent to the adjustment of the conversion price.





A
      discussion of the fair value considerations for this financing transaction
      can
      be found at the end of this footnote under the caption “Fair Value
      Considerations.”




F-28
 *Table
          of Contents*




**$1.5
      Million Convertible Loan - August 2006**





On
      August
      3, 2006, the Company entered into a secured
      convertible note (the “August 2006 Loan”) with Cornell, TAIB, and Certain Wealth
      with a face value of $1,500,000 (GBP799,000) that may be
      converted from time to time at the holder’s option (subject to certain
      restrictions and limitations on the amount of shares converted) and must be
      entirely converted by maturity. The
      conversion rate is the lesser of $0.30 per Ordinary Share ($300.00 per ADS
      on an
      adjusted basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000
      that
      went into effect on December 3, 2007), or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that the holder cannot exceed a 4.9% ownership,
      unless the holders waive their right to such limitation with 65 days’ written
      notice .
      The
      Company can
      limit
      the holders to conversion of 1/12 th of face
      value per month, but must allow conversion of a minimum of 25% of the face
      value
      by August 3, 2007, and an additional 25% of the face value by August 3, 2008. The
      loan
      has a term of three years and bears interest initially at an annual rate of
      10%
      (reducing to 8% in year two and 7% in year three).  The
      Company can redeem the instrument at a 20% premium if the bid price of the
      Company’s ADSs is less than $0.30 ($300.00 on an adjusted basis to reflect the
      change in ADS:Ordinary Share ratio of 1:1,000 that went into effect on December
      3, 2007) at the time of redemption.





In
      connection with the August
      2006 Loan ,
      Futuremedia also issued to Cornell 165,000 Ordinary Shares at nominal value.
      Cornell received a commitment fee of $150,000 (GBP80,000), resulting in net
      proceeds to the Company of $1,350,000 (GBP719,000).





At
      the
      inception date of August 3, 2006, the net proceeds of the August 2006 Loan
      were
      allocated as follows:




**Instrument:**
            
            (GBP'000)Convertible
                loan
            
            
            38Compound
                embedded derivative
            
            
            674Ordinary
                shares
            
            
            7Total
                net proceeds
            
            
            719





The
      August 2006
      Loan ,
      at the
      option of the holder, affords the holders anti-dilution protection should,
      at
      any time while the convertible note is outstanding, the Company offer, sell
      or
      grant any option (excluding employee stock options) to purchase or offer, sell
      or grant any right to re-price its securities, or otherwise dispose of or issue
      any common stock or common stock equivalents, that entitles any person to
      acquire shares of common stock at an effective price per share less than the
      then effective conversion price (excluding employee stock options), as
      calculated by the formula described above; then, in such instance, the
      conversion price for the convertible note shall be reduced to the lower
      price.




The
      Company also entered into an amended and restated Registration Rights Agreement
      that effectively combined the April 2006 Loan with the August 2006 Loan. The
      Registration Rights Agreement requires the Company to file a registration
      statement with the SEC registering the resale of the shares of common stock
      issuable upon conversion of the April 2006 Loan with the August 2006 Loan and
      warrants issued thereunder, and achieve and maintain effectiveness of the
      registration statement. The penalty for failure to meet the registration
      requirements is liquidated damages in the amount of 2% of the face value of
      the
      note per month.




No
      conversions or repayments have been made with respect to the August 2006
      Loan.




A
      discussion of the fair value considerations for this financing transaction
      can
      be found at the end of this footnote under the caption “Fair Value
      Considerations.”




F-29
 *Table
          of Contents*


**$550,000
      Convertible Loan - September 2006**





On
      September 28, 2006, the Company entered into a secured
      convertible note (the “September 2006 Loan”) with Cornell with a face value of
      $550,000 (GBP289,000) that may be
      converted from time to time at Cornell’s option (subject to certain restrictions
      and limitations on the amount of shares converted) and must be entirely
      converted by maturity. The
      conversion rate is the lesser of $0.12 per Ordinary Share ($120.00 per ADS
      on an
      adjusted basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000
      that
      went into effect on December 3, 2007), or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that the holder cannot exceed a 4.9% ownership,
      unless the holders waive their right to such limitation with 65 days’ written
      notice .
      The
      loan has a term of three years and bears interest initially at an annual rate
      of
      10%.  The
      Company can redeem the instrument at a 20% premium. Cornell
      received a commitment fee of $55,000 (GBP29,000), resulting in net proceeds
      to
      the Company of $495,000 (GBP260,000). In connection with the Loan, the Company
      also issued to Cornell 1,000,000 Ordinary Shares for no additional
      consideration.





The September
      2006 Loan ,
      at the
      option of the holder, affords Cornell anti-dilution protection should, at any
      time while the convertible note is outstanding, the Company offer, sell or
      grant
      any (excluding employee stock options) option to purchase or offer, sell or
      grant any right to re-price its securities, or otherwise dispose of or issue
      any
      common stock or common stock equivalents, entitle any person to acquire shares
      of common stock at an effective price per share less than the then effective
      conversion price, as calculated by the formula described above; then, in such
      instance, the conversion price for the convertible note shall be reduced to
      the
      lower price.




In
      connection with the September
      2006 Loan ,
      the
      Company also entered into a Registration Rights Agreement with Cornell that
      required the Company to, among other requirements, file a registration statement
      with the SEC registering the resale of the shares of common stock issuable
      upon
      conversion of the September
      2006 Loan
      and
      the exercise of the warrants, and achieve and maintain effectiveness of the
      registration statement. The penalty for failure to meet the registration
      requirements is liquidated damages in the amount of 2% of the face value of
      the
      note per month.





The
      September 2006 Loan was repaid in full during October 2006. No conversions
      were
      made pursuant to the September 2006 Loan.





At
      the
      inception date of September 28, 2006, the net proceeds of the September 2006
      Loan were allocated as follows:




**Instrument:**
            
            (GBP'000)Convertible
                loan
            
            
            50Compound
                embedded derivative
            
            
            177Ordinary
                shares
            
            
            33Total
                net proceeds
            
            
            260





A
      discussion of the fair value considerations for this financing transaction
      can
      be found at the end of this footnote under the caption “Fair Value
      Considerations.”





F-30
 *Table
          of Contents*


**$4.6
      Million Convertible Loan - June 2007**





On
      June
      1, 2007, the Company concluded a $4,600,000 (GBP2,327,000) financing with
      Cornell in the form of a secured convertible debentures (the “June 2007 Loan”).
      The June 2007 Loan is convertible (subject to certain terms and conditions)
      into
      ADSs of Futuremedia and may be converted from time to time at Cornell’s option
      (subject to certain restrictions and limitations on the amount of shares
      converted). The conversion rate is based on the lesser of $1.25 per ADS ($25.00
      per ADS on an adjusted basis to reflect the change in ADS:Ordinary Share ratio
      of 1:1,000 that went into effect on December 3, 2007) or 80% of the lowest
      volume weighted average price during the 30 trading days immediately preceding
      the time of conversion. The June 2007 Loan, secured by the assets of
      Futuremedia, has a term of three years and bears interest at an annual rate
      of
      the greater of 12% or the Wall Street Journal Prime Rate plus 2%. The Company
      can redeem the instrument at a 20% premium if the bid price of the Company’s
      ADSs is less than $1.25 ($25.00 on an adjusted basis to reflect the change
      in
      ADS:Ordinary Share ratio of 1:1,000 that went into effect on December 3, 2007)
      at the time of redemption. Cornell
      received a commitment fee of $490,000 (GBP248,000), resulting in net proceeds
      to
      the Company of $4,110,000 (GBP2,079,000, of which $1,128,000 (GBP571,000) was
      used to repay obligations to Cornell arising under previous financing
      transactions.




No
      conversions have been made pursuant to the June
      2007
      Loan .
      At the
      inception date of June 1, 2007, the net proceeds of the June 2007 Loan were
      allocated as follows:




**Instrument:**
            
            (GBP'000)Convertible
                loan
            
            
            781Compound
                embedded derivative
            
            
            1,298Total
                net proceeds
            
            
            2,079




The June
      2007
      Loan ,
      at the
      option of the holder, affords Cornell anti-dilution protection should, at any
      time while the convertible note is outstanding, the Company offer, sell or
      grant
      any option (excluding employee stock options) to purchase or offer, sell or
      grant any right to re-price its securities, or otherwise dispose of or issue
      any
      common stock or common stock equivalents, that entitles any person to acquire
      shares of common stock at an effective price per share less than the then
      effective conversion price, as calculated by the formula described above; then,
      in such instance, the conversion price for the convertible note shall be reduced
      to the lower price.




In
      connection with the offering of the June 2007 Loan, the Company entered into
      a
      securities purchase agreement (“SPA”) with Cornell, pursuant to which the
      Company is required to comply with certain ongoing covenants. These covenants
      include, but are not limited to: (1) as long as the June 2007 Loan is
      outstanding, Mr. George O'Leary, Ms. Margot Lebenberg and Mr. Brendan McNutt
      must be appointed and remain directors of the Company for a period of 18 months
      from the date of the SPA; (2) within 30 calendar days, the Company must
      terminate a minimum of 25 employees whose total annualized remuneration is
      not
      less than GBP1,133,000, and accordingly reduce overhead by such amount; (3)
      within 60 calendar days, the Company must achieve minimum revenue of
      GBP1,769,458 and EBITDA of (GBP367,419); and (4) within 90 calendar days, the
      Company must achieve minimum revenue of GBP2,957,678 and EBITDA of (GBP536,196).
      The Company achieved the covenants as required.




In
      connection with the June 2007 Loan, the Company also entered into a Registration
      Rights Agreement, pursuant to which the Company has agreed to file with the
      SEC
      a registration statement with respect to the resale of the Debentures within
      30
      days of receipt by the Company of a written demand from an investor. The Company
      agreed to use its reasonable best efforts to cause an initial registration
      statement to become effective within 90 days of receipt by the Company of a
      written demand from an Investor that a registration statement be filed and
      to
      use its reasonable best efforts to cause any subsequent registration statements
      to become effective within 60 days of each such respective subsequent filing
      date. Failure to meet the registration requirements would result in liquidated
      damages of 2% of the principal per month, not to exceed 24% of the principal
      amount. The Company did not file the registration statement in the required
      timeframe. As
      a
      result, Cornell has the right to call the full face value of each note. However,
      the Company expects to receive a waiver of default shortly after filing of
      its
      Form 20-F, and as such has not accrued any liquidated damages related to this
      financing.




F-31
 *Table
          of Contents*





A
      discussion of the fair value considerations for this financing transaction
      can
      be found at the end of this footnote under the caption “Fair Value
      Considerations.”





**Other
      Warrants**





On
      October 25, 2006 we announced that we concluded an offshore equity private
      placement of up to $5,000,000 (GBP2,671,000) with National Air Cargo Middle
      East
      FMZ (“NACME”), comprised of an initial payment of $3,000,000 (GBP1,602,000) in
      exchange for 20,000,000 Ordinary Shares at a price of $0.15 per share and
      warrants giving the investor the right to purchase a further 80,000,000 Ordinary
      Shares at $0.025 per share which upon exercise would result in additional cash
      proceeds to the Company of $2,000,000 (GBP1,068,000). The warrants are
      exercisable for one year.





On
      May 2,
      2007, the Company entered into a subscription agreement with NACME pursuant
      to
      which NAMCE acquired 446,428 ADSs for $500,000, and warrants with a contractual
      term of one year to acquire up to 3,000,000 ADSs at $1.12 per ADS ($22.40 per
      ADS
      on an adjusted basis to reflect the change in ADS:Ordinary Share ratio of
      1:1,000 that went into effect on December 3, 2007) .
      On
      October 8, 2007, the Company reduced the strike price on the warrants to $0.24 ($4.80
      on
      an adjusted basis to reflect the change in ADS:Ordinary Share ratio of 1:1,000
      that went into effect on December 3, 2007) per
      ADS
      without additional consideration.





As
      long
      as the convertible instruments with a floating conversion price are outstanding,
      the Company cannot guarantee that it can have enough authorized shares available
      to net share settle these warrants. As a result, the fair value of these
      warrants is recorded as a derivative liability at inception, and the fair value
      restated at each balance sheet date, with changes reflected on the statement
      of
      operations under the caption "Gain (loss) on derivative financial instruments."
      The Company recognized a gain of GBP188,000 relating to the change in fair
      value
      of these warrants from inception through June 30, 2007.




F-32
 *Table
          of Contents*


**Default
      Considerations**





Each
      of
      the convertible securities outstanding with Cornell, TAIB, and Certain Wealth
      as
      of June 30, 2007 contains consequences in case of default. Events of default
      which could subject the Company to penalties, damages, and liabilities as
      specified in the financing agreements include:




·
            Any
                case or action of bankruptcy or insolvency commenced by the Company
                or any
                subsidiary, against the Company or adjudicated by a court against
                the
                Company for the benefit of
                creditors;




·
            Any
                default in its obligations under a mortgage or debt in excess of
                $100,000;




·
            Any
                cessation in the eligibility of the Company’s stock to be quoted on a
                recognized trading market;




·
            Failure
                to timely file the registration statement covering the shares related
                to
                the conversion option, or failure to make the registration statement
                effective timely;




·
            Any
                lapse in the effectiveness of the registration statement covering
                the
                shares related to the conversion option and the
                warrants;




·
            Any
                failure to deliver certificates within the specified time after
                conversion;




·
            Any
                failure by the Company to pay in full the amount of cash due pursuant
                to a
                buy-in or failure to pay any amounts owed on account of an event
                of
                default within 10 days of the date due;
                and




·
            Any
                change of control of the Company




Other
      material provisions of the convertible securities include the
      following:




·
            The
                convertible securities are convertible into common stock, at the
                option of
                the holder, at any time after the effective
                date;




·
            Conversions
                can be made in increments and from time to
                time;




·
            The
                Company will reserve and keep available authorized and unissued registered
                shares available to be issued upon
                conversion;




·
            Without
                Cornell’s consent the Company
                cannot:




·
            issue
                or sell any Ordinary Shares without consideration or for consideration
                per
                share less than the then-applicable conversion price of the loans
                immediately prior to issuance of the new securities;




·
            issue
                or sell any preferred stock, warrant, option, right, contract, call,
                or
                other security or instrument granting the holder thereof the right
                to
                acquire common stock for consideration per share less than the conversion
                price of the loans immediately prior to issuance of the new securities;
                or




·
            enter
                into any security instrument granting the holder a security interest
                in
                any of its assets.




·
            Pursuant
                to security agreements between the Company and Cornell, TAIB, and
                Certain
                Wealth signed in connection with the convertible securities, Cornell,
                TAIB, and Certain Wealth have a security interest in all of the Company’s
                assets.





As
      a
      result of the Company’s failure to register shares underlying the April 2006
      Loan and August 2006 Loan by the prescribed dates and due to the Company’s
      failure to timely file its Form 20-F for the year ended June 30, 2007, the
      Company was technically in default of these agreements, as well as the June
      2007
      agreement, which stipulates default on any prior loans as a condition of
      default. As a result, Cornell has the right to call the full face value of
      each
      note. However, the Company expects to receive a waiver of default shortly after
      filing of this Form 20-F. The Company has recorded the carrying value of these
      notes as current liabilities as of June 30, 2007.




F-33
 *Table
          of Contents*





**Fair
      Value Considerations**





In
      accordance with FAS 133, ‘Accounting for Derivative Instruments and Hedging
      Activities’ (“FAS 133”), the Company determined that the conversion
      features of the convertible loans met the criteria of embedded derivatives
      and
      that the conversion features of these instruments needed to be bifurcated and
      accounted for as derivative instrument liabilities. In addition, certain of
      the
      put and call features embedded within the convertible loans met the criteria
      of
      embedded derivatives and were bifurcated as derivative instruments.





Freestanding
      derivative instruments, consisting of warrants that arose from the financings,
      are valued using the Black-Scholes-Merton valuation methodology because that
      model embodies all of the relevant assumptions that address the features
      underlying these instruments. Significant assumptions used in this model as
      of
      June 30, 2007 are as follows:





**July**
            
            **December**
            
            **April**
            
            **August**
            
            **June****2005**
            
            **2005**
            
            **2006**
            
            **2006**
            
            **2007****Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**Holder
            
            
            MAG
            
            
            Cornell
            
            
            Cornell
            
            
            (A
            )
            
            (A
            )Instrument
            
            
            Warrants
            
            
            Warrants
            
            
            Warrants
            
            
            (A
            )
            
            (A
            )Exercise
                price per ADS (B)
            
            $
            110.00
            
            $
            95.00
            
            $
            95.00
            
            
            (A
            )
            
            (A
            )Term
                (years)
            
            
            3.08
            
            
            3.47
            
            
            3.80
            
            
            (A
            )
            
            (A
            )Volatility
            
            
            78.81
            %
            
            93.96
            %
            
            107.77
            %
            
            (A
            )
            
            (A
            )Risk-free
                rate
            
            
            4.92
            %
            
            4.92
            %
            
            4.92
            %
            
            (A
            )
            
            (A
            )





(A)
            -
                No freestanding derivative instruments were issued in connection
                with
                these financing transactions.





(B)
            -
                Exercise price is restated toreflect
                the change in ADS:Ordinary Share ratio of 1:1,000 that went into
                effect on
                December 3, 2007




Embedded
      derivative financial instruments arising from the convertible instruments
      consist of multiple individual features that were embedded in each instrument.
      For each convertible instrument, the Company evaluated all significant features
      and, as required under current accounting standards, aggregated the components
      into one compound derivative financial instrument for financial reporting
      purposes. The compound embedded derivative instruments are valued using the
      Flexible Monte Carlo methodology because that model embodies certain relevant
      assumptions (including, but not limited to, interest rate risk, credit risk,
      and
      conversion/redemption privileges) that are necessary to value these complex
      derivatives.




F-34
 *Table
          of Contents*




Assumptions
      used as of June 30, 2007 included exercise estimates/behaviors and the following
      other significant estimates:





**(A)**
            
            **(A)**
            
            
            
            
            
            **(A)****July**
            
            **December**
            
            **April**
            
            **August**
            
            **September**
            
            **June****2005**
            
            **2005**
            
            **2006**
            
            **2006**
            
            **2006**
            
            **2007****Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**Conversion
                prices (B)
            
            $
            9.72
            
            $
            10.40
            
            $
            10.40
            
            $
            8.60
            
            $
            77.40
            
            $
            11.40Remaining
                terms (years)
            
            
            0.08
            
            
            1.25
            
            
            1.50
            
            
            1.44
            
            
            2.45
            
            
            2.40Equivalent
                volatility
            
            
            115.09
            %
            
            142.08
            %
            
            129.63
            %
            
            129.60
            %
            
            90.44
            %
            
            117.22
            %Equivalent
                interest-risk adjusted rate
            
            
            10.00
            %
            
            7.20
            %
            
            7.59
            %
            
            7.54
            %
            
            10.69
            %
            
            12.42
            %Equivalent
                credit-risk adjusted yield rate
            
            
            6.21
            %
            
            8.42
            %
            
            8.41
            %
            
            8.49
            %
            
            11.33
            %
            
            8.40
            %





(A)
            -
                Loans were repaid prior to June 30, 2007. Assumptions presented are
                those
                that were in effect as of the date of the final conversion for each
                convertible loan.




(B)
            -Conversion
                prices are restated toreflect
                the change in ADS:Ordinary Share ratio of 1:1,000 that went into
                effect on
                December 3, 2007.





Equivalent
      amounts reflect the net results of multiple modeling simulations that the Monte
      Carlo Simulation methodology applies to underlying assumptions. The assumptions
      included in the Monte Carlo Simulation calculation are highly subjective and
      subject to interpretation.





**Current
      Period Accounting Considerations**





The
      carrying value (excluding the value attributable to compound embedded
      derivatives) and face value of each instrument as of June 30, 2007
      was:





**July**
            
            **December**
            
            **April**
            
            **August**
            
            **September**
            
            **June****2005**
            
            **2005**
            
            **2006**
            
            **2006**
            
            **2006**
            
            **2007****Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Total****Carrying
                Value**
            
            (GBP'000)At
                June 30, 2007
            
            
            0
            
            
            0
            
            
            214
            
            
            99
            
            
            0
            
            
            794
            
            
            1,107At
                June 30, 2006
            
            
            416
            
            
            528
            
            
            53
            
            
            0
            
            
            0
            
            
            0
            
            
            997**Face
                Value**At
                June 30, 2007
            
            
            0
            
            
            0
            
            
            3,576
            
            
            749
            
            
            0
            
            
            2,296
            
            
            6,621At
                June 30, 2006
            
            
            734
            
            
            991
            
            
            4,129
            
            
            0
            
            
            0
            
            
            0
            
            
            5,854




Amortization
      of debt discount charged to interest expense for each period presented
      was:





**July**
            
            **December**
            
            **April**
            
            **August**
            
            **September**
            
            **June****2005**
            
            **2005**
            
            **2006**
            
            **2006**
            
            **2006**
            
            **2007****Period**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Total**(GBP'000)Year
                ended April 30, 2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Year
                ended April 30, 2006
            
            
            (1,043
            )
            
            (54
            )
            
            (42
            )
            
            0
            
            
            0
            
            
            0
            
            
            (1,139
            )Two
                months ended June 30, 2006
            
            
            (133
            )
            
            (21
            )
            
            (12
            )
            
            0
            
            
            0
            
            
            0
            
            
            (166
            )Year
                ended June 30, 2007
            
            
            (88
            )
            
            (67
            )
            
            (180
            )
            
            (65
            )
            
            0
            
            
            (25
            )
            
            (425
            )





Derivative
      financial instruments arising from the issuance of convertible financial
      instruments are initially recorded, and continuously carried, at fair value.
      Upon conversion of any derivative financial instrument, the change in fair
      value
      from the previous reporting date to the date of conversion is recorded to income
      (loss), and then the carrying value is recorded to paid-in capital, provided
      all
      other criteria for equity classification are met.




F-35
 *Table
          of Contents*





The
      following tabular presentation reflects the components of derivative financial
      instruments related to convertible financial instruments on the Company’s
      balance sheet at June 30, 2007 at fair value:





**July**
            
            **December**
            
            **April**
            
            **August**
            
            **June**
            
            **(A)****2005**
            
            **2005**
            
            **2006**
            
            **2006**
            
            **2007**
            
            **Other****Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Warrants**
            
            **Total****(Assets)
                Liabilities**
            
            (GBP'000)**as
                of June 30, 2007:**Compound
                embedded derivative
            
            
            0
            
            
            0
            
            
            2,827
            
            
            756
            
            
            1,716
            
            
            0
            
            
            5,299Warrants
            
            
            6
            
            
            0
            
            
            14
            
            
            0
            
            
            0
            
            
            410
            
            
            4306
            
            
            0
            
            
            2,841
            
            
            756
            
            
            1,716
            
            
            410
            
            
            5,729**(Assets)
                Liabilities****as
                of June 30, 2006:**Compound
                embedded derivative
            
            
            1
            
            
            353
            
            
            1,621
            
            
            0
            
            
            0
            
            
            0
            
            
            1,975Warrants
            
            
            469
            
            
            17
            
            
            488
            
            
            0
            
            
            0
            
            
            0
            
            
            974470
            
            
            370
            
            
            2,109
            
            
            0
            
            
            0
            
            
            0
            
            
            2,949





(A)
            Other
                Warrants consist of warrants issued during the year ended June 30,
                2007 in
                connection with other private placement offerings. As long as the
                convertible instruments with a floating conversion price are outstanding,
                the Company cannot guarantee that it can have enough authorized shares
                available to net share settle these warrants. As a result, the fair
                value
                of these warrants is recorded as a derivative liability at inception,
                and
                the fair value is restated at each balance sheet date, with changes
                reflected on the statement of operations under the caption "Gain
                (loss) on
                derivative financial instruments."





The
      following table reflects the number of Ordinary Shares into which the
      convertible instruments and warrants are convertible or exercisable at June
      30,
      2007.





**July**
              
              **December**
              
              **April**
              
              **August**
              
              **June****2005**
              
              **2005**
              
              **2006**
              
              **2006**
              
              **2007**
              
              **Other****Loan**
              
              **Loan**
              
              **Loan**
              
              **Loan**
              
              **Loan**
              
              **Warrants**
              
              **Total**Embedded
                  conversion feature (1)
              
              
              0
              
              
              0
              
              
              689,120,769
              
              
              174,418,605
              
              
              403,508,772
              
              
              0
              
              
              1,267,048,146Warrants
              
              
              6,175,100
              
              
              250,000
              
              
              4,750,000
              
              
              
              
              
              
              
              
              10,911,700
              
              
              22,086,800Total
              
              
              6,175,100
              
              
              250,000
              
              
              693,870,769
              
              
              174,418,605
              
              
              403,508,772
              
              
              10,911,700
              
              
              1,289,134,946







(1)
            The
                terms of the embedded conversion features in the convertible instruments
                presented above provide for variable conversion rates that are indexed
                to
                the trading price of the Company’s ADSs. As a result, the number of
                indexed shares is subject to continuous fluctuation. For presentation
                purposes, the number of shares of common stock into which the embedded
                conversion feature in the various instruments was convertible as
                of June
                30, 2007 was calculated as the face value plus interest, divided
                by the
                applicable conversion rate of each instrument at that
                date.




F-36
 *Table
          of Contents*




Changes
      in the fair values of derivative instrument liabilities (including warrants
      and
      the bifurcated embedded derivative features of convertible instruments not
      carried at fair value) are reported as “Gain (loss) on derivative financial
      instruments” in the accompanying consolidated statement of operations, as
      follows:





**July**
            
            **December**
            
            **April**
            
            **August**
            
            **September**
            
            **June****2005**
            
            **2005**
            
            **2006**
            
            **2006**
            
            **2006**
            
            **2007**
            
            **Other****Period**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Loan**
            
            **Warrants**
            
            **Total**(GBP'000)Year
                ended April 30, 2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Year
                ended April 30, 2006
            
            
            1,025
            
            
            (673
            )
            
            (854
            )
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            (502
            )Two
                months ended June 30, 2006
            
            
            565
            
            
            543
            
            
            2,448
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            3,556Year
                ended June 30, 2007
            
            
            436
            
            
            (148
            )
            
            (1,067
            )
            
            (130
            )
            
            18
            
            
            (451
            )
            
            188
            
            
            (1,154
            )




F-37
 *Table
          of Contents*




**6.**  **ACQUISITIONS**




**Acquisition
      of Button**





On
      May
      26, 2006 the Company completed its acquisition of 100% of Button. The purchase
      price for the acquisition was GBP5,571,000, consisting of a combination of
      GBP800,000 cash, payment immediately following the acquisition of a note payable
      to the principal shareholders of Button in the amount of GBP1,500,000,
      24,460,435 of our ADSs valued at GBP3,000,000 based on the price around the
      time
      of the announcement of the acquisition, and acquisition related costs of
      GBP271,000. We
      completed the acquisition of Button in order to expand out product offering.





(GBP'000)Value
                of 24,460,435 shares issued
            
            
            3,000Note
                forgiven
            
            
            1,500Cash
                paid
            
            
            800Direct
                costs of acquisition
            
            
            271Total
                Fair Value of Purchase Price
            
            
            5,571The
                purchase price was allocated as follows:Assets
                Purchased:Cash
                and cash equivalents
            
            
            0Accounts
                receivable
            
            
            1,250Deferred
                tax asset
            
            
            254Other
                current assets
            
            
            1,137Property,
                plant & equipment
            
            
            234Customer
                contracts and relationships
            
            
            1,600Tradename
            
            
            2,200Goodwill
            
            
            3,896Total
                Assets Purchased
            
            
            10,571Less
                Liabilities Assumed:Accounts
                payable
            
            
            1,512Accrued
                liabilities
            
            
            1,818Deferred
                tax liability
            
            
            1,140Bank
                Overdraft
            
            
            387Long-term
                liabilities
            
            
            143Total
                Liabilities Assumed
            
            
            5,000





The
      combination was accounted for as a purchase business combination under FAS
      141,
      Business Combinations. The intangible assets were assigned the following lives
      for amortization purposes:





Intangible
                asset
            
            life
                (in years)Customer
                contracts and relationships
            
            
            10Tradename
            
            
            10





Goodwill
      consists of the excess of the purchase price paid over the identifiable net
      assets and liabilities acquired at fair value and is not tax deductible, and
      primarily represents potential synergies, anticipated future growth and the
      value of the workforce acquired.




F-38
 *Table
          of Contents*




The
      accompanying consolidated statement of operations presented herein for the
      two
      months ended June 30, 2006, contains the results of operations of Button for
      the
      period from May 26, 2006, through June 30, 2006. The accompanying consolidated
      statement of operations presented herein for the year ended June 30, 2007,
      contains the results of operations of Button for the entire period. Pro-forma
      results of operations for the two months ended June 30, 2006 and for the year
      ended April 30, 2006 are presented at the end
      of
      this Note 6.




**Acquisition
      of EBC**





On
      April
      25, 2006, the Company completed the acquisition of 100% of the holding company
      for EBC. We
      completed the acquisition of EBC in order to enhance our e-learning product
      offering.





The
      actual purchase price was based on cash paid, the fair value of our ADSs issued
      as consideration based on the price around the time of the announcement of
      the
      acquisition, and direct costs associated with the combination.





(GBP'000)Cash
                paid
            
            
            3,750Value
                of 4,776,442 shares issued
            
            
            700Direct
                costs of acquisition
            
            
            710Total
                Fair Value of Purchase Price
            
            
            5,160The
                purchase price was allocated as follows:Assets
                Purchased:Cash
                and cash equivalents
            
            
            105Accounts
                receivable
            
            
            808Other
                current assets
            
            
            9Property,
                plant & equipment
            
            
            29Customer
                contracts and relationships
            
            
            464Order
                backlog
            
            
            57Copyrighted
                materials
            
            
            50Goodwill
            
            
            4,298Total
                Assets Purchased
            
            
            5,820Less
                Liabilities Assumed:Accounts
                payable
            
            
            521Deferred
                tax liability
            
            
            139Total
                Liabilities Assumed
            
            
            660





The
      Company finalized the purchase price allocation during the year ended June
      30,
      2007. Material adjustments to the purchase price allocation previously reported
      include (i) reduction in direct costs of acquisition of GBP364,000, (ii)
      reduction of fair value of net assets acquired of GBP58,000, (iii) allocation
      of
      excess purchase price over book value from goodwill to identifiable intangible
      assets of GBP877,000, and (iv) recognition of a deferred tax liability relating
      to the identified intangible assets in the amount of GBP139,000.




F-39


The
      combination was accounted for as a purchase business combination under FAS
      141,
      Business Combinations. The intangible assets were assigned the following lives
      for amortization purposes:





Intangible
                asset
            
            life
                (in years)Customer
                contracts and relationships
            
            
            5Order
                backlog
            
            
            0.5Copyrighted
                materials
            
            
            1





Goodwill
      consists of the excess of the purchase price paid over the identifiable net
      assets and liabilities acquired at fair value, and primarily represents
      potential synergies and anticipation of future growth.




The
      accompanying consolidated statements of operations presented herein for the
      two
      months ended June 30, 2006 and for the year ended June 30, 2007, reflect the
      results of operations of EBC for the entire respective periods.




During
      the year ended June 30, 2007, the Company recorded an impairment charge of
      GBP2,519,000 to adjust the carrying value of goodwill associated with the EBC
      acquisition to its estimated fair value.




**Acquisition
      of Open Training**




In
      February 2005, Futuremedia acquired the entire share capital of Open Training.
      The primary reason for this acquisition was to enable the Company access to
      Open
      Training’s own in-house developed Learning Management System called
      Learngate TM .
      representing the fair value of the Learngate software product, which formed
      the
      basis of a replacement for the Company’s own LMS, Aktivna, which would otherwise
      have to have been enhanced at considerable expense to remain competitive in
      the
      marketplace.





The
      actual purchase price was based on cash paid, the fair value of our ADSs issued
      as consideration, and was initially as follows:





(GBP’000)Value
                of 1,735,840 shares issued
            
            
            539Cash
                paid
            
            
            419Total
                Fair Value of Purchase Price
            
            
            958Assets
                and liabilities purchased:Current
                assets
            
            
            348Fixed
                assets
            
            
            102Current
                liabilities
            
            
            (119
            )Acquired
                software
            
            
            627958





The
      combination was accounted for as a purchase business combination under FAS
      141,
      Business Combinations. The acquired software represents the fair value of the
      Learngate software product, which formed the basis of a replacement for the
      Company’s own LMS Aktivna, which would otherwise have to have been enhanced at
      considerable expense to remain competitive in the marketplace. No goodwill
      was
      recorded in this transaction.





The
      sale
      and purchase agreement pertaining to the acquisition of Open Training provided
      for a contingency payment conditional on Open Training achieving agreed levels
      of performance during the period November 1, 2004 to October 31, 2005. Taking
      into consideration the actual results of Open Training for the period November
      1, 2004 to October 31, 2005, the conditions for the contingency payment due
      were
      not met.




F-40
 *Table
          of Contents*




On
      April
      12, 2007, the Company completed the sale of Open Training to Edvantage Group
      AS. (See
      Note
      4 for further details.)




**Pro
      Forma Financial Information (Unaudited)**





Pro-forma
      results of operations for the year ended April 30, 2006, and the two months
      ended June 30, 2006, as if Futuremedia was combined with Button and EBC as
      of
      May 1, 2005 and 2006, respectively, are reflected in the following
      table.





Net(A)
            
            Income
            
            Weighted(A)
            
            Income
            
            (Loss)
                Per
            
            AverageTotal
            
            (loss)
                from
            
            Share
                --
            
            CommonNet
            
            Continuing
            
            Basic
                and
            
            SharesSales
            
            Operations
            
            Diluted
            
            Outstanding(GBP'000)**Two
                months ended June 30, 2006**Futuremedia
            
            
            3,112
            
            
            3,099
            
            
            0.02
            
            
            149,536,053Pro
                forma combined
            
            
            3,715
            
            
            3,055
            
            
            0.02
            
            
            160,034,350**Year
                ended April 30, 2006**Futuremedia
            
            
            16,642
            
            
            (6,179
            )
            
            (0.07
            )
            
            94,220,879Pro
                forma combined
            
            
            29,835
            
            
            (6,560
            )
            
            (0.05
            )
            
            123,782,307




The
      pro
      forma information presented above for the two months ended June 30, 2006 gives
      effect to the acquisition of Button as if it had occurred on May 1, 2006 (the
      first day of the period). The pro forma information presented above for the
      year
      ended April 30, 2006 gives effect to the acquisitions of Button and EBC as
      if
      they had each occurred on May 1, 2005 (the first day of the period). The results
      of operations reflect Futuremedia’s results for the period, combined with the
      results of Button and/or EBC for the same period, as applicable.




F-41


**7.**  **INVENTORIES**




Inventories
      consisting of material, material overhead, labor and processing costs, are
      stated at the lower of cost (first-in, first-out) or market value. There was
      no
      reserve for obsolete or slow-moving inventories as of June 30, 2007 or 2006.
      Inventories consisted of the following at June 30, 2007 and 2006:





**June
                30,**
            
            **June
                30,****2007**
            
            **2006**(GBP'000)Raw
                materials
            
            
            0
            
            
            0Work
                in process
            
            
            36
            
            
            14Finished
                goods
            
            
            0
            
            
            94Total
                inventory
            
            
            36
            
            
            108




**8.**  **PREPAID
      EXPENSES**




Prepaid
      expenses as of June 30, 2007 and 2006 are comprised of the
      following:




**June
                30,**
            
            **June
                30,****2007**
            
            **2006**(GBP'000)Prepaid
                rent and rates
            
            
            77
            
            
            147Prepaid
                insurance
            
            
            77
            
            
            68Other
            
            
            80
            
            
            43Total
                prepaid expenses
            
            
            234
            
            
            258




**9.**  **PROPERTY
      AND EQUIPMENT**




As
      of
      June 30, 2007 and 2006, property and equipment consisted of the
      following:





**As
                of June 30, 2007**
            
            **As
                of June 30, 2006****Net**
            
            
            
            
            
            **Net****Accum.**
            
            **Book**
            
            
            
            **Accum.**
            
            **Book****Cost**
            
            **Depr.**
            
            **Value**
            
            **Cost**
            
            **Depr.**
            
            **Value**Audio
                visual and computer equipment
            
            
            402
            
            
            (311
            )
            
            91
            
            
            374
            
            
            (211
            )
            
            163Office
                equipment, fixtures and fittings
            
            
            370
            
            
            (323
            )
            
            47
            
            
            379
            
            
            (259
            )
            
            120Property
                improvements, plant and machinery
            
            
            283
            
            
            (178
            )
            
            105
            
            
            571
            
            
            (249
            )
            
            3221,055
            
            
            (812
            )
            
            243
            
            
            1,324
            
            
            (719
            )
            
            605





Depreciation
      expense during the year ended June 30, 2007, the two months ended June 30,
      2006,
      and the years ended April 30, 2006 and 2005 was GBP538,000, GBP34,000,
      GBP143,000, and GBP115,000, respectively.




F-42
 *Table
          of Contents*




**10.**  **GOODWILL
      AND OTHER INTANGIBLE ASSETS**




**Goodwill**





Goodwill
      activity for the year ended June 30, 2007 and the two months ended June 30,
      2006
      was:





(GBP'000)Balance
                at May 1, 2006
            
            
            4,699Addition
                from Button acquisition
            
            
            3,896Adjustments
                to provisional purchase price allocation of EBC
            
            
            (375
            )Impairment
                charges
            
            
            (26
            )Balance
                at June 30, 2006
            
            
            8,194Impairment
                charges
            
            
            (2,519
            )Balance
                at June 30, 2007
            
            
            5,675





During
      the year ended June 30, 2007, the Company recorded an impairment charge of
      GBP2,519,000 to adjust the carrying value of goodwill associated with the EBC
      acquisition to its estimated fair value. The Company tested the carrying value
      of the goodwill related to EBC as of June 30, 2007, by comparing the implied
      fair value of asset group to its carrying value. Implied fair value was
      calculated using a discounted cash flow analysis, based on management’s current
      assumptions and expectations for the asset group. The carrying value exceeded
      the implied fair value, and as such an impairment charge was recorded. The
      reduction in implied fair value of the goodwill results from lower than expected
      sales of its e-Learning products since its acquisition in April 2006.
      Accordingly, management revised its sales and profit projections, resulting
      in
      the impairment charge.




F-43


**Other
      Intangible Assets**





As
      of
      June 30, 2007 and 2006, intangible assets consisted of the
      following:





**As
                of**
            
            **As
                of****June
                30,**
            
            **June
                30,****2007**
            
            **2006**(GBP'000)**Original
                Cost**Customer
                Relationships
            
            
            2,064
            
            
            2,064Tradenames
                and copyrighted materials
            
            
            2,250
            
            
            2,250Order
                backlog
            
            
            57
            
            
            57Acquired
                software
            
            
            790
            
            
            1,4805,161
            
            
            5,851**Accumulated
                Amortization**Customer
                Relationships
            
            
            (284
            )
            
            (31
            )Tradenames
                and copyrighted materials
            
            
            (291
            )
            
            (30
            )Order
                backlog
            
            
            (53
            )
            
            (25
            )Acquired
                software
            
            
            (790
            )
            
            (921
            )(1,418
            )
            
            (1,007
            )**Net
                Book Value**Customer
                Relationships
            
            
            1,780
            
            
            2,033Tradenames
                and copyrighted materials
            
            
            1,959
            
            
            2,220Order
                backlog
            
            
            4
            
            
            32Acquired
                software
            
            
            0
            
            
            5593,743
            
            
            4,844





Intangible
      assets activity for the year ended June 30, 2007 and the two months ended June
      30, 2006 was:





(GBP'000)Balance
                at May 1, 2006
            
            
            645Additions
            
            
            3,800Amortization
            
            
            (115
            )Adjustments
                to original purchase price allocation
            
            
            514Balance
                at June 30, 2006
            
            
            4,844Additions
            
            
            0Amortization
            
            
            (596
            )Disposal
                of Open Training
            
            
            (505
            )Balance
                at June 30, 2007
            
            
            3,743




F-44


Estimated
      future amortization expense on Futuremedia's intangible assets is expected
      to
      be:





**Trade
                Names and****Customer**
            
            **Copyrighted****Relationships**
            
            **Materials**
            
            **Total**(GBP'000)2008
            
            
            257
            
            
            220
            
            
            4772009
            
            
            253
            
            
            220
            
            
            4732010
            
            
            253
            
            
            220
            
            
            4732011
            
            
            237
            
            
            220
            
            
            457Thereafter
            
            
            780
            
            
            1,079
            
            
            1,863Total
            
            
            1,780
            
            
            1,959
            
            
            3,743





It
      is
      important to note that actual amortization expense could differ materially
      from
      the table due to subjective factors such as changes in assumptions of useful
      lives or impairment charges.





The
      weighted average remaining life for the intangible assets was approximately
      8.4
      years as of June 30, 2007.




F-45


**11.**  **ALLOWANCE
      FOR DOUBTFUL ACCOUNTS**





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist primarily of trade accounts receivable with customers. The Company
      extends credit to its customers as determined on an individual basis.


(GBP'000)Balance
                at May 1, 2004
            
            
            74Provisions
                during period
            
            
            0Released
                (utilized) during period
            
            
            (74
            )Balance
                at April 30, 2005
            
            
            0Provisions
                during period
            
            
            120Released
                (utilized) during period
            
            
            (47
            )Balance
                at April 30, 2006
            
            
            73Provisions
                during period
            
            
            48Released
                (utilized) during period
            
            
            (73
            )Balance
                at June 30, 2006
            
            
            48Provisions
                during period
            
            
            21Released
                (utilized) during period
            
            
            0Balance
                at June 30, 2007
            
            
            69




F-46


**12.**  **STOCK
      BASED COMPENSATION**




**Equity-based
      Compensation Plans**





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




***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 $160,000 (GBP100,000) or four times earnings. Vesting
      terms are set at the discretion of the
      Board
      of Directors (or a committee thereof).




***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. Vesting
      terms are set at the discretion of the
      Board
      of Directors (or a committee thereof).




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. Vesting terms are set at the
      discretion of the
      Board
      of Directors (or a committee thereof). 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 as
      an
      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. Conditions to exercise generally consist
      of continued employment with the Company. Vesting
      terms are set at the discretion of the
      Board
      of Directors (or a committee thereof). Options are typically exercisable over
      a
      contractual 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.




F-47


***Enterprise
      Management Incentive Plan 2005 (“EMI Plan”)*** .
      The EMI
      Plan is a 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. Conditions to exercise generally consist
      of continued employment with the Company. Vesting
      terms are set at the discretion of the
      Board
      of Directors (or a committee thereof). Options are typically exercisable over
      a
      contractual 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.




***Futuremedia
      Unapproved Executive Share Option Scheme for Len
      Fertig*** .
      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. Options granted under this plan become vested one year after
      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 GBP1,500 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
      “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 GBP3,000 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.





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
      these plans may not exceed 10 million Ordinary Shares.




F-48


**Adoption
      of FASB Statement No. 123(R)**





Prior
      to
      May 1, 2006, the Company accounted for its stock option plans under the
      recognition and measurement provisions of APB Opinion No. 25, “Accounting for
      Stock Issued to Employees” (“APB 25”), and related interpretations, as permitted
      by FAS 123(R). For the fiscal years or interim periods ended prior to April
      30,
      2006, stock-based employee compensation cost was only recognized in the
      statement of operations relative to options granted with an exercise price
      less
      than the market value of the underlying common stock on the date of grant.





Effective
      May 1, 2006, the Company adopted the fair value recognition provisions of FAS
      123(R), using the modified-prospective-transition method. Under that transition
      method, compensation cost recognized after May 1, 2006 includes: (a)
      compensation cost for all stock-based payments granted prior to, but not yet
      vested as of May 1, 2006, based on the grant date fair value estimated in
      accordance with the original provisions of FAS 123, and (b) compensation cost
      for all stock-based payments granted subsequent to May 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of FAS 123(R).
      Results for prior periods have not been restated. The accompanying consolidated
      statement of operations reflects stock based compensation expense for the
      year





As
      a
      result of adopting FAS 123(R) on May 1, 2006, the Company recognized share
      based
      compensation expense in the year ended June 30, 2007 and the two month period
      ended June 30, 2006 of GBP222,000 and GBP50,000, respectively. Estimated income
      tax benefits recognized during the year ended June 30, 2007 and the two month
      period ended June 30, 2006 were offset by a valuation allowance since
      realization was not reasonably assured.





Prior
      to
      the adoption of FAS 123(R), it was the Company’s policy to present all tax
      benefits of deductions resulting from the exercise of stock options as operating
      cash flows in its statement of cash flows, however, due to the Company’s tax
      loss carryforward, any such benefits were always fully offset by a valuation
      allowance. FAS 123(R) requires the cash flows resulting from the tax benefits
      resulting from tax deductions in excess of the compensation cost recognized
      for
      those options (excess tax benefits) to be classified as financing cash flows.
      The Company will use this presentation if and when it has exhausted its tax
      loss
      carryforward.





The
      fair
      value of each option award is estimated on the date of grant using the Black-Scholes valuation
      model that uses the assumptions noted in the following table. Expected
      volatilities are based on the expected impact on future stock price of expected
      future revenue and earnings, historical volatility of the Company’s stock, and
      other factors. The Company uses historical data to estimate option exercise
      and
      employee termination within the valuation model. The expected life of options
      granted represents the period of time that options granted are expected to
      be
      outstanding.





**Year**
            
            **Two
                Months**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****June
                30,**
            
            **June
                30,**
            
            **April
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**
            
            **2005**Risk-free
                interest rate
            
            
            4.49
            %
            
            4.97%
                - 5.15
            %
            
            4.25
            %
            
            3.63
            %Volatility
            
            
            118
            %
            
            118
            %
            
            112
            %
            
            61
            %Dividend
                yield
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %Expected
                life (years)
            
            
            3.1
            
            
            3.1
            
            
            3.3
            
            
            3.3




F-49





The
      following table summarizes the status of the Company's stock option plans as
      of
      and for the year ended June 30, 2007. All numbers of options and exercise prices
      in this Note 12 reflect an ADS:Ordinary Share ratio of 1:1.





**Weighted****Weighted**
            
            **Average****Average**
            
            **Remaining**
            
            **Aggregate****Exercise**
            
            **Contractual**
            
            **Intrinsic****Shares**
            
            **Price**
            
            **Term**
            
            **Value**Outstanding
                at beginning of period
            
            
            9,719,446
            
            $
            0.47Granted
            
            
            300,000
            
            $
            0.06Forfeited
            
            
            (3,990,628
            )
            $
            0.46Outstanding
                at end of period
            
            
            6,028,818
            
            $
            0.45
            
            
            5.2
            
            $
            0Options
                exercisable at end of period
            
            
            4,256,810
            
            $
            0.45
            
            
            4.9
            
            $
            0





The
      weighted average grant date fair value of options granted during the year ended
      June 30, 2007, the two months ended June 30, 2006, and the years ended April
      30,
      2006 and 2005 was $0.05, $0.21, $0.48 and $0.84, respectively. No options were
      exercised during the year ended June 30, 2007, or the two months ended June
      30,
      2006. During the years ended April 30, 2006 and 2005, 300,000 and 1,408,758
      options were exercised, respectively, with an aggregate intrinsic value of
      GBP76,000 and GBP509,000, respectively, and resulting in cash proceeds to the
      Company of GBP19,000 and GBP135,000, respectively.





A
      summary
      of the status of the Company’s nonvested shares as of June 30, 2007 and 2006,
      and changes during the year ended June 30, 2007 is presented below:





**Weighted****Average****Grant
                Date****Nonvested
                Shares**
            
            **Shares**
            
            **Fair
                Value**Nonvested
                at July 1, 2006
            
            
            6,536,127
            
            $
            0.42Granted
            
            
            300,000
            
            $
            0.05Vested
            
            
            (1,505,992
            )
            $
            0.36Forfeited
            
            
            (3,558,127
            )
            $
            0.43Nonvested
                at June 30, 2007
            
            
            1,772,008
            
            $
            0.39





As
      of
      June 30, 2007, there was GBP463,000 of total unrecognized compensation cost
      related to nonvested share-based compensation arrangements granted under the
      Company’s stock option plans. That cost is expected to be recognized over a
      weighted-average period of 1.1 years. The total fair value of shares vested
      during the year ended June 30, 2007, the two months ended June 30, 2006, and
      the
      years ended April 30, 2006 and 2005 was GBP307,000, GBP17,000, GBP398,000,
      and
      GBP105,000, respectively. As of June 30, 2007, the Company had 8,342,000 options
      authorized for award that had not yet been granted.





The
      Company did not modify the terms of any options during the periods presented
      herein.




**2005
      Share Incentive Plan**





Under
      the
      shareholder-approved 2005 Share Incentive Plan, the Company has set aside up
      to
      10,000,000 shares of common stock to be issued for compensation and other
      expenses related to employees, former employees, consultants, and non-employee
      directors. During the year ended June 30, 2007, the two month period ended
      June
      30, 2006 and the years ended April 30, 2006 and 2005, the Company did not issue
      any shares from the 2005 Share Incentive Plan.


F-50


**13.**  **INCOME
      TAXES**




(a)  The
      components of pre tax (loss)/income from continuing operations are as
      follows:




TwoYear
            
            Months
            
            Year
            
            YearEnded
            
            Ended
            
            Ended
            
            EndedJune
                30,
            
            June
                30,
            
            April
                30,
            
            April
                30,2007
            
            2006
            
            2006
            
            2005(GBP'000)United
                Kingdom
            
            
            (10,217
            )
            
            2,923
            
            
            (5,824
            )
            
            (3,988
            )Overseas
            
            
            536
            
            
            176
            
            
            (355
            )
            
            15(9,681
            )
            
            3,099
            
            
            (6,179
            )
            
            (3,973
            )




The
      provision/(benefit) for income taxes by location of the taxing jurisdiction
      consisted of the following:




TwoYear
            
            Months
            
            Year
            
            YearEnded
            
            Ended
            
            Ended
            
            EndedJune
                30,
            
            June
                30,
            
            April
                30,
            
            April
                30,2007
            
            2006
            
            2006
            
            2005(GBP'000)*Current
                tax*United
                Kingdom
            
            
            (30
            )
            
            0
            
            
            0
            
            
            0Foreign
                tax
            
            
            84
            
            
            43
            
            
            0
            
            
            0Total
                current tax
            
            
            54
            
            
            43
            
            
            0
            
            
            0*Deferred
                tax*United
                Kingdom
            
            
            (698
            )
            
            12
            
            
            0
            
            
            0(644
            )
            
            55
            
            
            0
            
            
            0




F-51


(b)
      Factors affecting tax charge for the year





The
      reconciliation of (loss)/income from continuing operations before income taxes
      and discontinued operations to the provision for income taxes is shown in the
      following table :




TwoYear
            
            Months
            
            Year
            
            YearEnded
            
            Ended
            
            Ended
            
            EndedJune
                30,
            
            June
                30,
            
            April
                30,
            
            April
                30,2007
            
            2006
            
            2006
            
            2005(GBP'000)Income/(loss)
                from continuing operations before tax
            
            
            (9,681
            )
            
            3,099
            
            
            (6,179
            )
            
            (3,973
            )Income/(loss)
                from continuing operations before tax at standard UK corporate tax
                rate of
                30%
            
            
            (2,904
            )
            
            930
            
            
            (1,854
            )
            
            (1,192
            )*Effects
                of:*Non-taxable
                losses/(gains) on derivative financial instruments
            
            
            346
            
            
            (1,067
            )
            
            151
            
            
            0Disallowable
                expenses
            
            
            215
            
            
            82
            
            
            443
            
            
            189Valuation
                allowances
            
            
            1,040
            
            
            209
            
            
            1,260
            
            
            907Non-deductible
                goodwill impairment
            
            
            756
            
            
            0
            
            
            0
            
            
            92Permanent
                differences
            
            
            (79
            )
            
            (101
            )
            
            0
            
            
            4Foreign
                taxation rate difference
            
            
            (18
            )
            
            2
            
            
            0
            
            
            0(644
            )
            
            55
            
            
            0
            
            
            0


F-52


Temporary
      differences and carryforwards which gave rise to significant deferred income
      tax
      assets (liabilities) as of June 30, 2007 and 2006, were as follows:





June
                30,2007
            
            2006(GBP'000)Deferred
                tax assets:Operating
                losses carried forward
            
            
            8,815
            
            
            7,337Stock
                Options
            
            
            82
            
            
            15Other
            
            
            246
            
            
            1959,143
            
            
            7,547Valuation
                allowance
            
            
            (8,362
            )
            
            (7,322
            )Deferred
                tax asset
            
            
            781
            
            
            225Deferred
                tax liabilities:Arising
                on recognized intangible assets
            
            
            (1,124
            )
            
            (1,266
            )Net
                deferred tax liabilities
            
            
            (343
            )
            
            (1,041
            )





The
      Company has recorded valuation allowances of GBP8.7 million at June 30, 2007
      and
      GBP7.5 million at June 30, 2006 against deferred tax assets that primarily
      relate to tax loss carryforwards in the United Kingdom. Realization of the
      tax
      loss carryforwards and other deferred tax assets is contingent on future taxable
      earnings in the appropriate jurisdictions and it has been determined by
      management based on the weight of all available evidence that it is more likely
      than not that the benefits associated with these assets will not be
      realized.





Net
      operating loss carry forwards are GBP17.6 million and these expire beginning
      in
      2027 in so far as they relate to the US and are not time limited in so far
      as
      they relate to the UK.




In
      July
      2007, the decrease in the UK standard rate of corporation tax from 30% to 28%,
      effective from 6 April 2008, was enacted through Royal Assent. This change
      in
      tax rate is not reflected in the calculation of the deferred tax assets and
      liabilities above. The change will result in a decrease to the net deferred
      tax
      liability of £34k as at 30 June, 2007.




F-53


**14.**  **RELATED
      PARTY TRANSACTIONS**




In
      September 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 74,431 Ordinary Shares in
      respect of commissions due to him, for a total equivalent value of approximately
      GBP23,000.




In
      March
      2006, the Company contracted with Mr. L. Fertig and received cash for the issue
      of 83,773 Ordinary Shares at a market price of $0.1935 per Ordinary Share,
      for a
      total aggregate purchase price of GBP9,270.




In
      April
      2006, the Company contracted and received cash for the issue of 783,700 Ordinary
      Shares at a market price of $0.2552 per Ordinary Share, for a total aggregate
      purchase price of GBP142,115. The following individuals purchased Ordinary
      Shares in connection with this private placement: Mr. Fertig, Mr. Vandamme,
      Mr.
      Pilsworth and Mr. Steel each receiving 195,925 shares.





As
      part
      of the arrangements made for the acquisition of Button by the Company, Mr.
      Thomas Bingham (former Managing Director, Button) received 24,460,435 Ordinary
      Shares in the Company, as part of the purchase price paid by the Company to
      the
      Sellers of Button. In addition, as part of the purchase price the Company agreed
      to repay a loan payable from Button to Mr. Bingham in the amount of
      GBP1,500,000.




In
      May
      2006, the Company completed a private placement whereby former Company Directors
      Messrs. Vandamme, Fertig, Pilsworth and current Director Mr. Steel each invested
      GBP27,000 in Ordinary Shares of the Company, at a price calculated by reference
      to the average closing price of the Company’s ADSs for the 20 business days
      prior to April 21, 2006, representing approximately $0.255 per share, for a
      total of 783,700 Ordinary Shares. In addition, $565,000, representing 3,075,000
      ADSs was invested by Spintop Venture Holdings, Limited ("Spintop"), a British
      Virgin Islands based investment group. Matt Johansson, the Company's former
      CEO,
      is a principal of Spintop. A finder's fee of 773,775 ADSs was also paid to
      Spintop in the transaction.




In
      November 2006, former Company Director Mr. Schwallie agreed to provide interim
      financial consultancy services to the Company. During the year ended June 30,
      2007, Mr. Schwallie had received approximately GBP39,000 in respect of such
      services.




On
      May
      31, 2007, Len Fertig resigned his position as Chief Executive Officer. In
      connection with his resignation, and in exchange for a waiver of claims against
      the Company, the Company entered into a termination arrangement with Mr. Fertig,
      pursuant to which Mr. Fertig is to receive GBP225,000 in severance payments
      over
      a period of 22 months from the agreement.




During
      the year ended June 30, 2007, the following directors received payment for
      board
      services provided through independent service companies: Mr. Vandamme GBP59,000
      and Mr. Steel GBP36,500. During the two months ended June 30, 2006, Mr. J.
      Vandamme received GBP10,000 and Mr. M Steel GBP6,000. During the year ended
      April 30, 2006, Mr. J. Vandamme received GBP59,000 and Mr. M Steel
      GBP34,000.




During
      the year ended June 30, 2007, the two months ended June 30, 2006, and the year
      ended April 30, 2006, the Company entered into multiple convertible loan
      instruments with Cornell, pursuant to which Cornell may own a significant
      percentage of our shares. Please refer to Note 5 for a complete discussion
      of
      these financing arrangements.




F-54


**15.**  **COMMITMENTS
      AND CONTINGENCIES**




The
      Company leases its office facilities and certain office and computer equipment
      under various operating leases. These leases provide for minimum rents and
      generally include options to renew for additional periods. The Company incurred
      rent expense from continuing operations of GBP593,000, GBP193,000, GBP164,000,
      and GBP171,000 in the year ended June 30, 2007, the two months ended June 30,
      2006, and the years ended April 30, 2006 and 2005, respectively.





The
      following table sets forth the Company’s future minimum payments due under
      operating leases, and vendor and consulting agreements:




**Less**
            
            
            
            
            
            **More****than
                1**
            
            **1-3**
            
            **3-5**
            
            **than
                5****Total**
            
            **Year**
            
            **Years**
            
            **Years**
            
            **Years**Operating
                lease obligations (1)
            
            
            1,053
            
            
            260
            
            
            487
            
            
            230
            
            
            77Consulting
                contract obligations (2)
            
            
            802
            
            
            546
            
            
            256
            
            
            0
            
            
            0Total
            
            
            1,855
            
            
            806
            
            
            743
            
            
            230
            
            
            77




(1)
                  -
                As
                    disclosed in Item 4D, Property, Plant and Equipment, the Company
                    has
                    entered into a number of operating lease arrangement for its
                    head quarters
                    office facilities and other worldwide
                    locations.





(2)
              -
            Consulting
                contract obligations consists of amounts owed to contractors and
                consultants under non-cancellable consulting
                arrangements.




F-55


**16.**  **SEGMENT
      AND GEOGRAPHICAL INFORMATION**




As
      of
      June 30, 2007, the Company was structured and evaluated by its Board of
      Directors and Management as three distinct business units:





·
            E-learning
                - consisting of the Company’s e-learning software and consultancy
                services


·
            Learning
                for All - consisting of remaining deferred revenues and costs associated
                with the HCI scheme, which was discontinued by the UK government
                in April
                2006


·
            Button
                - consisting ofintegrated
                design and brand communications solutions, including consumer marketing,
                business-to-business marketing, internal communications, exhibition
                design, corporate events and marketing
                services





Consolidated
      net sales, net operating income (losses) for the year ended June 30, 2007,
      the
      two months ended June 30, 2006, and the years ended April 30, 2006 and 2005,
      by
      business unit were as follows:





**Two**
            
            **(A)**
            
            **(A)****Year**
            
            **Months**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****June
                30,**
            
            **June
                30,**
            
            **April
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**
            
            **2005**(GBP'000)**Net
                sales: (A)**E-learning
            
            
            1,942
            
            
            485
            
            
            1,418
            
            
            1,362Learning
                for All
            
            
            2,316
            
            
            1,361
            
            
            15,224
            
            
            14,036Button
            
            
            9,232
            
            
            1,266
            
            
            0
            
            
            013,490
            
            
            3,112
            
            
            16,642
            
            
            15,398**Net
                operating losses:**E-learning
                (B)
            
            
            (2,750
            )
            
            90
            
            
            (267
            )
            
            (325
            )Learning
                for All
            
            
            836
            
            
            (5
            )
            
            490
            
            
            (513
            )Button
            
            
            (401
            )
            
            128
            
            
            0
            
            
            0Charges
                not associated with a particular segment
            
            
            (5,237
            )
            
            (598
            )
            
            (4,850
            )
            
            (2,895
            )(7,552
            )
            
            (385
            )
            
            (4,627
            )
            
            (3,733
            )**Identifiable
                assets:**E-learning
            
            
            2,990
            
            
            6,757
            
            
            6,168
            
            
            1,958Learning
                for All
            
            
            0
            
            
            946
            
            
            2,305
            
            
            2,134Button
            
            
            7,975
            
            
            9,238
            
            
            0
            
            
            0Assets
                not associated with a particular reporting segment
            
            
            1,226
            
            
            1,928
            
            
            4,743
            
            
            1,517Total
                assets
            
            
            12,191
            
            
            18,869
            
            
            13,216
            
            
            5,609







(A)
                -
            the
                Company also recorded inter-segment sales of GBP51,000, GBPnil, GBP19,000
                and GBPnil during the year ended June 30, 2007, the two months ended
                June
                30, 2006, and the years ended April 30, 2006 and 2005, respectively.
                Inter-segment revenues are eliminated on
                consolidation.




(B)
              -
            Operating
                loss for the year ended June 30, 2007 includes an impairment charge
                of
                GBP2,519,000 of goodwill relating to acquisition of EBC.


F-56


Net
      sales
      by geographic region were as follows:




**Two****Year**
            
            **Months**
            
            **Year**
            
            **Year****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****June
                30,**
            
            **June
                30,**
            
            **April
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**
            
            **2005**(GBP'000)**Net
                sales:**United
                Kingdom
            
            
            9,133
            
            
            2,062
            
            
            16,642
            
            
            15,398Rest
                of Europe
            
            
            1,788
            
            
            934
            
            
            0
            
            
            0Rest
                of World
            
            
            2,569
            
            
            116
            
            
            0
            
            
            013,490
            
            
            3,112
            
            
            16,642
            
            
            15,398





The
      Company did not have any customers that accounted for more than 10% of its
      revenue.




The
      Company’s long-lived assets consist of goodwill and intangible assets resulting
      from its acquisitions of Button, EBC, and Open Training. Long-lived assets
      by
      geographic area consisted of the following:




**June
                30,**
            
            **June
                30,**
            
            **April
                30,****2007**
            
            **2006**
            
            **2006**(GBP'000)United
                Kingdom
            
            
            9,418
            
            
            12,533
            
            
            4,835All
                foreign countries
            
            
            0
            
            
            505
            
            
            5099,418
            
            
            13,038
            
            
            5,344




**17.**  **COMMON
      STOCK**




We
      are
      authorized to issue 350,000,000 Ordinary Shares, 0.01 pence per share. As of
      June 30, 2007, there were 338,548,904 **** Ordinary
      Shares issued and outstanding. The holders of the Ordinary Shares are not
      entitled to pre-emptive or preferential rights to subscribe to any unissued
      stock or other securities. The shareholders are not entitled to cumulative
      voting rights. The Ordinary Shares are not assessable and not subject to the
      payment of any corporate debts. The holders of Ordinary Shares are entitled
      to
      one vote for each share on all matters submitted to the shareholders for vote.
      Holders are entitled to share ratably in any dividends which may be declared,
      from time to time, by the board of directors in its discretion, from legally
      available funds. If we are liquidated, dissolved, or wound up, the holders
      of
      Ordinary Shares are entitled to share pro rata all assets remaining after full
      payment of all liabilities. There are no conversion rights or redemption or
      sinking fund provisions for the Ordinary Shares.





Our
      Ordinary Shares are admitted for trading as American Depository Shares, also
      known as ADSs. Each ADS represents the right to receive one thousand of our
      Ordinary Shares. ADSs are evidenced by American Depository Receipts, also known
      as ADRs. ADSs evidenced by ADRs are issued by the Bank of New York as Depositary
      of our ADR facility in accordance with the terms of a deposit agreement between
      us and the Depositary.




F-57


**18.**  **SUBSEQUENT
      EVENTS**




Due
      to
      the decline in the market price of our ADRs, the Company was being required
      to
      issue shares for a consideration of less than their current nominal value of
      one
      and one-ninth pence each; which is prohibited by English company
      law.  As a result, on July 28, 2007 Futuremedia sub-divided each
      existing Ordinary Share of one and one-ninth pence into one new
      Ordinary Share of 0.010 pence and one deferred share of approximately 1.101
      pence. The new Ordinary Shares of 0.010 pence have all the rights and are
      subject to all the restrictions of the existing Ordinary Shares of one and
      one
      ninth pence, and the sub-division should not affect the value of such shares.
      ADR holders retain the same number of Ordinary Shares and ADRs as held
      currently, representing the same percentage of the Company's issued share
      capital as were held prior to the sub-division. The deferred shares have no
      rights as to voting, dividend entitlement and only very limited rights on return
      of capital. The deferred shares will not be admitted to trading on any stock
      exchange. In addition, the deferred shares have no right to receive notice
      of,
      or attend or vote at, any general or class meeting (other than a class meeting
      of the deferred shareholders). No share certificates will be issued in respect
      of the deferred shares (which the Company is taking authority to buy back for a
      nominal amount or cancel for no consideration).





On
      August
      23, 2007, we entered into a private placement with Cornell to provide financing
      of up to $6,050,000 in convertible secured debentures, together with warrants
      to
      purchase up to 1,500,000 shares of common stock at an exercise price of $0.77
      per share. The first tranche of $3,200,000 was funded at closing. The balance
      is
      to be funded in six additional increments through June 15, 2008 in the form
      of
      additional secured convertible debentures, subject to the Company meeting
      certain performance conditions. The secured convertible debentures have a
      variable interest rate not less than 12% and are secured by all of the assets
      of
      Futuremedia pursuant to a debenture dated June 1, 2007. The conversion price
      of
      the secured convertible debentures is equal to the lesser of (1) $1.25 per
      ADS
      or (b) an amount equal to 80% of the lowest volume weighted average price of
      the
      ADSs, as quoted by Bloomberg, LP, during the thirty (30) trading days
      immediately preceding the conversion date. During November 2007, Cornell
      accelerated the final three installments and funded a total of $1,435,000 that
      had been scheduled to be funded through January 2008.





Effective
      December 3, 2007, the ratio of our ADSs to Ordinary Shares was changed to
      1:1,000 from 1:50. The Bank of New York, our depositary, contacted registered
      ADS holders with regards to this change. Shareholders received 1 ADS for each
      1,000 ADSs held. The Bank of New York sold a portion of the new ADSs to
      establish a “cash in lieu” rate for fractional ADSs, and ADS holders whose
      holdings were not exactly divisible by 1,000 received cash in lieu of fractional
      amounts, at the rate established by The Bank of New York. Total number of ADSs
      outstanding after the ratio change was approximately 587,400. As a result of
      this ratio amendment, the ADS price automatically increased proportionally.
      However, there is no assurance that the post-amendment ADS price will be at
      least equal to or greater than the pre-amendment ADS price multiplied by the
      ratio change. The ratio reset is expected to bring the Company in compliance
      with Marketplace Rule 4320(e)(2)(E)(i) which requires a minimum bid price of
      $1.00 per ADS.





On
      January 9, 2008, we completed a financing arrangement whereby we (1) entered
      into the January 2008 Loan with Cornell with a face value of $2,000,000
      (GBP1,013,000), and (2) completed a private placement of 100,000 Ordinary Shares
      for an aggregate purchase price of $100,000 (GBP51,000) with NACME. The January
      2008 Loan is convertible into Ordinary Shares at a rate
      equal to the lesser of $1.00, or 80%
      of
      the average of the three lowest volume weighted average prices during the 30
      trading days immediately preceding the time of conversion . The
      conversion is limited such that Cornell cannot exceed 4.99% ownership, unless
      they waive their right to such limitation with 65 days’ written
      notice .
      The
      loan has a term of three years and bears interest at an annual rate equal to
      the greater
      of twelve percent (12%) or The Wall Street Journal Prime Rate, as quoted by
      the
      print edition of the United States version of The Wall Street Journal, plus
      two
      percent (2.00%) . The
      January 2008 Loan is secured by all of the Company’s assets. The
      Company can redeem the instrument at a 15% premium if the closing bid price
      of
      the Company’s ADSs is less than $1.00 at the time of redemption. In connection
      with the private placement with NACME, the Company issued NACME a warrant to
      purchase 5,000,000 ADSs at an exercise price of $2.00 per share. The Company
      paid fees of $129,000 (GBP66,000) to Cornell and NACME, resulting in net funding
      of $1,971,000 (GBP999,000).




On
      January 16, 2008, the Company received a notice of non-compliance from the
      staff
      of the Listing Qualifications Department of The Nasdaq Stock Market. The notice
      indicated that based upon the Company's failure to timely file the Annual Report
      on Form 20-F for the fiscal year ended June 30, 2007 with the SEC, as required
      by Nasdaq Marketplace Rule 4320(e)(12), the Company's common stock is subject
      to
      delisting from The Nasdaq Capital Market unless the Company requests a hearing
      before a Nasdaq Listing Qualifications Panel. The Company has a hearing
      scheduled for February 21, 2008.




F-58
 *Table
          of Contents*