**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 April 30, 2006.





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 one Ordinary Share); Ordinary Shares of
      1
      1/9 p each




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







1




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: 133,373,349
      Ordinary Shares of 1 1/9 p each.





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
oNo
x





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
xNo
o




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
                Filer x




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




Item
      17
o 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
oNo
x





2




**TABLE
      OF CONTENTS**


EXPLANATORY
                  NOTE
              4COMMUNICATIONS
                  WITH HOLDERS OF
                  ADSs
              5NOTE
                  ON FOREIGN ISSUER EXEMPTIONS UNDER
                  IM-4350-6 OF THE NASDAQ RULES
              5WARNINGS
                  REGARDING FORWARD-LOOKING
                  STATEMENTS
              7PART
                  1
              8ITEM
                  1 IDENTITY OF DIRECTORS,SENIORMANAGEMENT AND ADVISORS
              8ITEM
                  2 OFFER STATISTICS AND EXPECTED
                  TIMETABLE
              8ITEM
                  3 KEY INFORMATION
              8ITEM
                  4 INFORMATION ON THE
                  COMPANY
              23ITEM
                  5 OPERATING AND FINANCIAL REVIEW
                  AND PROSPECTS
              38ITEM
                  6 DIRECTORS, SENIOR MANAGEMENT AND
                  EMPLOYEES
              53ITEM
                  7 MAJOR SHAREHOLDERS AND
                  RELATED PARTY TRANSACTIONS.
              61ITEM
                  8 FINANCIAL
                  INFORMATION
              66ITEM
                  9 THE OFFER AND THE LISTING
              67ITEM
                  10 ADDITIONAL
                  INFORMATION
              70ITEM
                  11 QUANTITATIVE AND
                  QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              75ITEM
                  12 DESCRIPTION OF SECURITIES
                  OTHER THAN EQUITY SECURITIES
              75PART
                  II
              76ITEM
                  13 DEFAULTS, DIVIDEND ARREARAGES AND
                  DELINQUENCIES
              76ITEM
                  14 MATERIAL MODIFICATIONS TO THE
                  RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
              76ITEM
                  15 CONTROLS AND
                  PROCEDURES
              76ITEM
                  16A AUDIT COMMITTEE FINANCIAL
                  EXPERT
              76ITEM
                  16B CODE OF ETHICS
              77ITEM
                  16C PRINCIPAL ACCOUNTANT FEES AND
                  SERVICES
              77ITEM
                  16D EXEMPTIONS FROM THE
                  LISTING STANDARDS FOR AUDIT COMMITTEES
              78ITEM
                  16E PURCHASES OF EQUITY SECURITIES
                  BY THE ISSUER AND AFFILIATED PURCHASERS
              78PART
                  III
              79ITEM
                  17 FINANCIAL
                  STATEMENTS
              79ITEM
                  18 FINANCIAL
                  STATEMENTS
              79ITEM
                  19 EXHIBITS
              80SIGNATURES
              87CERTIFICATIONS
              Exhibits
                  12.1 - 13.2




3




**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 offices are located at Nile House, Nile Street,
      Brighton, East Sussex BNI 1HW, England. The Company's telephone number is
      011-44-1273-829700. The Company does not have offices in the United
      States.




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




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




The
      Company publishes its Consolidated Financial Statements expressed in United
      Kingdom ("UK") pounds sterling. Such financial statements are prepared in
      conformity with United States generally accepted accounting principles ("US
      GAAP"). In this document, references to "US dollars", "US$", "cents" or "$"
      are
      to United States ("US") currency and references to "pounds sterling",
      "sterling", "GBP", "pence" or "p" are to UK currency. Solely for convenience,
      this Annual Report contains translations of certain pound sterling amounts
      into
      US dollars at specified rates. These translations should not be construed as
      representations that the pound sterling amounts actually represent such US
      dollar amounts or could have been or could be converted into US dollars at
      the
      rates indicated or any other rates. Unless otherwise indicated, the translation
      of pounds sterling into US dollars have been made at the rate of GBP1.00 =
      $1.8263, the Noon Buying Rate in New York City for cable transfers in pounds
      sterling as certified for customs purposes, by the Federal Reserve Bank of
      New
      York (the "Noon Buying Rate") on April 30, 2006. On November 13, 2006 the Noon
      Buying Rate was GBP 1=$1.9024. For information regarding rates of exchange
      between pounds sterling and US dollars from fiscal 2002 to the present see
      "Item
      3.A. Selected Financial Data - Exchange Rates."




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




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




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




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




4




**COMMUNICATIONS
      WITH HOLDERS OF
      ADSs**




In
      advance of the Company’s General Meeting held on June 8, 2006, 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. 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 in Wales. As a result, in may 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 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.”




Without
      shareholder approval on April 25, 2006 the Company closed its acquisition of
      EBC
      and on May 26, 2006 the Company closed its acquisition of Button Group PLC,
      both
      of which involved the issuance or possible issuance of the Company’s Ordinary
      Shares (the English equivalent of common stock) in excess of the 20% limitation
      contained in Rule 4350(i)(1)(C). Furthermore, without shareholder approval
      on
      August 3, 2006 the Company closed a $9,000,000 total financing with Cornell
      Capital Partners, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. (this financing
      was made in two tranches, the first closed on April 25, 2006 and the second
      on
      August 3, 2006), on September 28, 2006 the Company closed on a separate $550,000
      financing with Cornell Capital Partners, LP, on October 25, 2006 the Company
      closed on a $5,000,000 financing with an investor in accordance with Rule 903
      of
      Regulation S, promulgated under the United States Securities Act of 1933, as
      amended and on November 6, 2006 the Company closed on a $800,000 financing
      with
      Le Shark Limited in accordance with Rule 903 of Regulation S, promulgated under
      the United States Securities Act of 1933, as amended. Each of these
      financing **** 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). See “Item
      4.
      Information on the Company. A. History and Development of the Company. Recent
      Developments.” ****




5




**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. Without shareholder approval
      on
      May 4, 2006 the Company entered into a private placement of Ordinary Shares
      for
      subscriptions totaling $4,315,000. Certain subcribers included the following
      Company Directors: Jan Vandamme, Leonard M. Fertig, Mick Pilsworth and Michiel
      Steel, each of whom invested $50,000 in the Company’s Ordinary Shares. See “Item
      4.
      Information on the Company. A. History and Development of the Company. Recent
      Developments.” ****




**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 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).




6




**WARNINGS
      REGARDING FORWARD-LOOKING
      STATEMENTS**





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




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




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




-
            the
                anticipated growth rate of the markets for outsourced employee benefit
                programs (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.




7




**PART
      I**





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




Not
      Applicable




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




Not
      Applicable




**ITEM
      3. KEY INFORMATION**





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




The
      selected consolidated financial data as of April 30, 2005 and 2006 and for
      the
      years ended April 30, 2004, 2005 and 2006 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, 2002, 2003
      and
      2004 and for the years ended April 30, 2002 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.




Income
                Statement Data
            
            Years
                Ended April 302006(1)
            
            2006
            
            2005
            
            2004
            
            2003
            
            2002(in
                thousands, except per share data)$
            
            GBP
            
            GBP
            
            GBP
            
            GBP
            
            GBPNet
                sales
            
            
            32,070
            
            
            17,560
            
            
            15,651
            
            
            18,661
            
            
            1,342
            
            
            911Operating
                loss
            
            
            (9,409
            )
            
            (5,152
            )
            
            (3,762
            )
            
            (705
            )
            
            (1,041
            )
            
            (2,028
            )Net
                loss
            
            
            (12,327
            )
            
            (6,750
            )
            
            (3,958
            )
            
            (1,662
            )
            
            (1,088
            )
            
            (2,012
            )Net
                loss per share - basic and diluted
            
            
            (13.08)
            c
            
            (7.16)
            p
            
            (4.47)
            p
            
            (1.98)
            p
            
            (2.34)
            p
            
            (6.60)
            p





8




Balance
                Sheet Data
            
            As
                of April 30,2006(1)
            
            2006
            
            2005
            
            2004
            
            2003
            
            2002(in
                thousands, except number of shares)$
            
            GBP
            
            GBP
            
            GBP
            
            GBP
            
            GBPCash
                and cash equivalents
            
            
            2,109
            
            
            1,155
            
            
            1,084
            
            
            4,651
            
            
            437
            
            
            445Total
                assets
            
            
            24,830
            
            
            13,596
            
            
            5,609
            
            
            10,545
            
            
            3,156
            
            
            2,089Total
                current liabilities
            
            
            16,857
            
            
            9,230
            
            
            7,189
            
            
            8,813
            
            
            1,581
            
            
            1,522Long-term
                debt and capital lease
              obligations
            
            
            9,980
            
            
            5,465
            
            
            -
            
            
            -
            
            
            -
            
            
            -Stockholders’
                (deficit)/equity
            
            
            (2,007
            )
            
            (1,099
            )
            
            (1,580
            )
            
            1,732
            
            
            1,575
            
            
            567Number
                of shares outstanding
            
            
            133,373,349
            
            
            133,373,349
            
            
            91,769,479
            
            
            87,239,486
            
            
            78,194,457
            
            
            29,648,374Stock
                to be issued
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,346,979(1)US
                dollar amounts have been translated solely for convenience at the
                Noon
                Buying Rate on April 30, 2006 of GBP1.00 =
                $1.8263.





**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 November 13, 2006 was
                GBP1=$1.9024.




(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**October,
                2006
            $1.8993
            $1.8554September,
                2006
            $1.9063
            $1.8712August,
                2006
            $1.9084
            $1.8652July,
                2006
            $1.8636
            $1.8236June,
                2006
            $1.8790
            $1.8163May,
                2006
            $1.8937
            $1.8262





9





(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,
            Average2002
            1.43392003
            1.56842004
            1.71932005
            1.85372006
            1.7683




**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.*** ****




For
      the
      fiscal year ended April 30, 2006 we have reported net losses of GBP6,750,000
      ($12,327,000) on revenues of GBP17,560,000 ($32,070,000). For the fiscal year
      ended April 30, 2005, we have reported net losses of GBP3,958,000 **** on
      revenues of **** GBP15,651,000.
      For the Fiscal year ended April 30, 2004, we have reported net losses of
      GBP1,662,000 on revenues of GBP18,661,000. We have experienced significant
      cash
      constraints on our operations during these years. Our Managed Benefit Programs,
      launched in October 2003, continued to make the major contribution to the income
      statement, generating GBP15,224,000 ($27,804,000) of revenue and GBP2,419,
      000
      ($4,419,000) of gross margin contribution in fiscal 2006 compared to
      GBP14,036,000 of revenues and GBP1,033,000 of gross margin contribution in
      fiscal 2005, compared to GBP17,366,000 of revenues and GBP2,120,000 of gross
      margin contribution in fiscal 2004. Our Managed Benefits Programs are likely
      to
      be materially impacted by the recent termination of the Home Computing
      Initiative by the UK Government (see below, Risk Factor “The recent termination
      of the Home Computing Initiative by the UK Government is likely to harm our
      business”). Although we expect to reach cash positive operations by the first
      calendar quarter of 2007, it may be the case that we continue to operate at
      a
      loss for the foreseeable future. If we continue to have operating losses, there
      is no certainty that we will have the financial resources to continue in
      business.




10




***Our
      liquidity may be significantly impaired if we have problems raising capital
      we
      need in the future.***




As
      of
      April 30, 2006, we had a working capital deficit of GBP 1,749,000 ($3,195,000).
      Historically, we have financed our operations and met our capital requirements
      primarily through funds generated from operations and the issuance of our ADSs.
      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. In addition, this funding source may not be sufficient in the future,
      and
      although we expect to reach cash positive operations by the first calendar
      quarter of 2007, it may be the case that we need to obtain funding from outside
      sources. However, we may not be able to obtain funding from outside sources.
      In
      addition, even if we find outside funding sources, we may be required to issue
      to such outside sources 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 ADSs or dilute our ADSs, including borrowing
      money on terms that are not favorable to us or issuing additional shares of
      ADSs. If we experience difficulties raising capital in the future, our business
      could be materially adversely affected.




**Risks
      Relating to Our Business Generally**





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




We
      have
      acquired related 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 Group plc) 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.




***The
      loss of one or more of our significant customers could harm our business and
      prospects***




For
      the
      fiscal year ended April 30, 2006, our two largest customers together represented
      approximately 33% and 32%, respectively, of our gross sales. The loss of either
      of these major customers could have a material adverse effect on our business,
      financial condition and results of operations.




***The
      recent termination of the Home Computing Initiative by the UK Government, is
      likely to harm our business*** ***.***




On
      March
      22, 2006, the UK Government announced, as part of its bi-annual treasury budget
      statement, the termination of the HCI tax exemption. 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 services to HCI clients and over
      40,000 employee-subscribing households without interruption. The future of
      HCI
      remains unclear, although, the UK Government is considering plans for a revised
      version. The timetable for the release of such scheme is unknown. We will
      continue to provide Managed Benefit Services to UK companies. On April 26,
      2006
      we announced an expansion of our portfolio with the launch of a new Managed
      Benefits solution at the Employee Benefits North Conference and Exhibition.
      The
      new service, while not incorporating tax benefits, will provide the opportunity
      for employers to offer employees and their families home-based education and
      digital access for work, school and life enhancement. This service will target
      both companies which previously offered HCI, plus those other companies whose
      plans to do so were cut short by the UK Government’s change in the tax
      regulations. The elimination of the HCI tax exemption by the UK Government
      is
      likely to harm our business. Also, the market for our new Managed Benefits
      Services 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.




11




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




The
      net-based learning business evolves rapidly and is subject to rapid
      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.




***The
      sales cycle for our products, marketed toward corporate customers, is lengthy
      and there is no guaranty of resulting sales.***




A
      substantial portion of our revenues are derived from sales of our products
      and
      services to large corporate customers and public sector organizations , whereby
      we provide products and services directly to customers’ employees, in their own
      homes. Customers demand highly reliable products and services to be provided
      to
      their employees, and often implement a lengthy selection process in order to
      determine the successful supplier. This process can take up to several months
      before our customers commit to purchase. Such selection processes are commonly
      based on us providing access to demonstration material based on existing
      solutions produced for other customers and frequently require significant
      pre-sales activity.




The
      sales
      volume of some of our hosted and Managed Benefit Programs are significantly
      dependent on acceptance and adoption of the product by our customers’ employees.
      Some of our customers may also source third party e-Learning content products
      that compete with our products. These customers could give higher priority
      to
      the use of competing products. Some of our customers do not have exclusive
      or
      long-term purchase obligations with us. 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. Some of our customers
      contract for delivery of solutions over a period of up to three years. The
      continuation of such contracts depend on the continued acceptance of the product
      by the customer’s employees, and discontinuation of such contracts could have a
      material adverse impact on our business, financial condition and results of
      operations. Additionally, the time lag from initiation of marketing efforts
      to
      final sales can be lengthy and expensive and there is no guaranty that the
      expenditure of significant time and resources will results in sales.




12




***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.




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




We
      cannot
      assure that our products do not, and that our proposed products will not,
      infringe any 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 contains 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.




13




***Compliance
      with changing regulation of corporate governance and public disclosure may
      result in additional expenses.***




Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and
      Nasdaq-CM (formerly the Nasdaq Small Cap Market) 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.




**Risks
      Relating to the e-Learning Market**





***Our
      future success will depend upon the highly volatile and unpredictable e-Learning
      market.***




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 large businesses
      could have a material adverse effect on our business, financial condition and
      results of operations.




***Seasonal
      fluctuations in the market may create periodic rises in expenses or falls in
      demand which would be difficult to offset.***




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




14




***The
      markets for our products are in the early stage of
      development.***




The
      markets for most of our products are at a relatively early stage 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.




***Our
      success depends 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.




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 have 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 e-Learning
                  market;
 ·
              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




***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 days ending November 13, 2006 was 22,960,070 ADSs .
      The
      high and low bid price of our ADSs for the last two years has been **** $1.170
      and $0.080 respectively. 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.




***We
      may issue additional securities which may be dilutive to our
      stockholders*** **.**





We
      presently have outstanding options pursuant to which an aggregate of 11,269,194 ADSs
      may
      be issued upon exercise thereof. We also presently have up to an aggregate
      of
      192,565,168ADSs issuable upon conversion and exercise of (i) the Convertible
      Debentures and Warrants issued to M.A.G. on the closing date of July 21, 2005,
      also known as the M.A.G. Financing; (ii) the Convertible Note and Warrant issued
      to Cornell Capital Partners, LP in connection with a $2,500,000 financing with
      a
      closing date of December 19, 2005, also known as the $2,500,00 Financing, (iii)
      the Amended and Restated Secured Convertible Notes issued to Cornell Capital
      Partners, LP, Certain Wealth, Ltd. and TAIB, Bank, B.S.C. and Warrants issued
      to
      Cornell Capital Partners, LP in connection with a $9,000,000 financing
      consisting of (a) a $7,500,000 tranche of financing with a closing date of
      April
      25, 2006 and (b) the extension to this $7,500,000 financing with an additional
      $1,500,000 tranche of financing with a closing date of August 3, 2006 (the
      total
      financing with Cornell Capital Partners, LP, Certain Wealth, Ltd, and TAIB
      Bank
      was for $9,000,000), also known as the $9,000,000 Financing, (iv) the $1,500,000
      Secured Convertible Note issued to Cornell Capital Partners, LP in connection
      with the $9,000,000 Financing; (v) the Subscription Agreement and Warrants
      issued to an investor on October 25, 2006 pursuant to a $5,000,000 private
      placement conducted in accordance with Rule 903 of Regulation S, promulgated
      under the United States Securities Act of 1933, as amended, also known as the
      $5,000,000 Private Placement; and (vi) the Subscription Agreement issued to
      Le
      Shark Limited on October 27, 2006 pursuant to a $800,000 private placement
      conducted in accordance with Rule 903 of Regulation S, promulgated under the
      United States Securities Act of 1933, as amended, also known as the $800,000
      Private Placement. In addition, we issued an additional warrant to our financial
      advisor to purchase up to 411,692 ADSs in connection with the M.A.G. Financing.
      Furthermore, in connection with the $2,500,000 Financing, the $9,000,000
      Financing, and the $550,000 Secured Convertible Note issued to Cornell Capital
      Partners, LP in connection with the $550,000 financing with a closing date
      of
      September 28, 2006, also known as the $550,000 Financing, we issued an aggregate
      of 1,915,000 fully paid and nonassessable ADSs to Cornell Capital Partners,
      LP.
      The issuance of any additional 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.





16




***We
      may not be able to continue to satisfy the applicable standards for continued
      listing on the Nasdaq-CM Market.***




Our
      ADSs
      are currently traded on the Nasdaq-CM. No assurance can be given that an orderly
      trading market will be sustained in the future. Also, Nasdaq requires that,
      in
      order for a company's securities to continue to be listed on the Nasdaq-CM,
      the
      company must maintain either a minimum stockholders’ equity of $2,500,000,
      market capitalization of $35,000,000 or net income of $500,000 in the most
      recently completed fiscal year or in two of the last three most recently
      completed fiscal years. We had negative stockholders’ deficit of approximately
      $2,007,000 **** at
      April
      30, 2006, net loss for the year ended April 30, 2006 of $12,327,000, and a
      net
      loss for the financial year ended April 30, 2005 of $7,228,000 and a market
      capitalization of $42,045,307 on April 30, 2006.




On
      February 16, 2006, we announced that we had received notice from The Nasdaq
      Stock Market (a Staff Determination Letter) advising us that our securities
      are
      subject to delisting based upon our failure to have a market value of listed
      securities of at least $35,000,000 or, in the alternative, $2,500,000 in
      shareholders' equity or $500,000 in net income in the last fiscal year or in
      two
      of the last three fiscal years. We requested a hearing before a Nasdaq Listing
      Qualifications Panel to review the Staff Determination and to request the
      continued listing of our ADSs on The Nasdaq Stock Market pending our compliance
      with the alternative requirement of $2,500,000 in shareholders' equity. On
      March
      9, 2006, we announced that our hearing before a Nasdaq Listing Qualifications
      Panel had been scheduled for March 23, 2006. The hearing was held on that date.
      On April 28, 2006, we received notification from The Nasdaq Stock Market
      granting our request for continued listing subject to our executing our plan
      to
      achieve more than $2,500,000 in shareholders' equity by May 31, 2006. On May
      31,
      2006 we announced that with the close of the Button Group plc acquisition on
      May
      26, 2006 and the private placement of $4,315,000, which we announced on May
      4,
      2006, we had completed our plan and believed we had met the shareholders’ equity
      requirement for continued listing. On June 9, 2006, we received notification
      that the Nasdaq Listings Qualifications Panel determined that we are in
      compliance with all Nasdaq Marketplace Rules and therefore approved the
      continued listing of our securities on the Nasdaq-CM.





In
      addition, effective May 29, 2006, the continued listing of our ADSs became
      subject to a $1.00 minimum bid price. Our ADSs do not currently meet the $1.00
      minimum bid price. On July 8, 2006, we received a notice from Nasdaq-CM of
      our
      failure to meet the $1.00 minimum bid price for 30 consecutive business days
      pursuant to Nasdaq rule 4320(e). We have a period of 180 calendar days from
      such
      notification to achieve compliance. If we are not deemed in compliance prior
      to
      the expiration of the 180 day compliance period, we shall be afforded an
      additional 180 days compliance period, provided that on the 180 th day of
      the first compliance period, we demonstrate that we meet the criteria for
      initial inclusion set forth in Nasdaq Rule 4320(e) (except for the bid price
      requirement set forth in Rule 4320(e)(2)(E)(i)) based on our most recent public
      filings and market information. Our Board of Directors has decided to monitor
      the price of our ADSs before determining action in response to this notice.
      If
      our minimum bid price does not exceed $1.00 and if we are required to take
      action, we believe that we will be able to adjust appropriately the ratio of
      ordinary shares to ADSs so that the bid price of our ADSs traded will exceed
      $1.00. However, we cannot provide any assurance that our ADSs will satisfy
      such
      $1.00 threshold despite adjustments in the ratio of ordinary shares to ADSs.





If
      it is
      determined that, notwithstanding our meeting the minimum bid standard, that
      we otherwise
      are not in compliance with Nasdaq rules, our ADSs will be delisted from Nasdaq
      unless we successfully appeal the delisting determination. We cannot provide
      any
      assurance that our ADSs will meet the required $1.00 minimum bid price (or
      any
      other Nasdaq listing criteria) at any time in the future or that any appeal
      by
      us of a delisting determination would be successful.




17




***Our
      ADSs may become subject to penny stock regulation.***




In
      the
      event our ADSs are delisted from the Nasdaq-CM, our ADSs may become subject
      to
      the "penny stock" rules of the United States Securities and Exchange Commission,
      also known as the Commission. A "penny stock" is generally an equity security
      with a market price of less than $5.00 per share which is not quoted through
      (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 Commission's rules relating
      to penny stock, the trading market for the ADSs may be materially adversely
      affected.




**Risks
      Relating to the Financing Arrangements with Cornell Capital Partners, LP,
      Certain Wealth, Ltd. and TAIB Bank, B.S.C.**




***Cornell
      Capital Partners, LP could hold up to 42.431% of our ADSs which could allow
      Cornell Capital Partners, LP to control or influence shareholder
      votes.***




Pursuant
      to the $9,000,000 financing consisting of (i) a $7,500,000 tranche of financing
      with a closing date of April 25, 2006 and (ii) the extension to this $7,500,000
      financing with an additional $1,500,000 tranche of financing with a closing
      date
      of August 3, 2006 (the total financing with Cornell Capital Partners, LP,
      Certain Wealth, Ltd, and TAIB Bank was for $9,000,000), also known as the
      $9,000,000 Financing, Cornell Capital Partners could own up to 4.9% of our
      ADSs,
      at present approximately 11,000,931 of our issued and outstanding ADSs. Since
      Cornell Capital Partners, LP can waive such limit, it could own at least up
      to
      75,477,500 ADSs issuable upon (w) conversion of a $5,500,000 Amended and
      Restated Secured Convertible Note issued to Cornell Capital Partners, LP in
      connection with the a $9,000,000 Financing (up to 55,000,000 ADSs are issuable
      to Cornell Capital Partners, LP upon conversion of the $5,500,000 Amended and
      Restated Secured Convertible Notes ); (x) conversion of a $1,500,000 Secured
      Convertible Note issued to Cornell Capital Partners, LP pursuant to the
      $9,000,000 Financing (up to 15,000,000 ADSs are issuable to Cornell Capital
      Partners, LP upon conversion of the $1,500,000 Secured Convertible Note;(y)
      exercise of a 4,000,000 ADS Warrant and a 750,000 ADS Warrant issued to Cornell
      Capital Partners, LP pursuant to the $9,000,000 Financing; and (z) 727,500
      fully
      paid and non assessable ADSs issued to Cornell Capital Partners, LP pursuant
      to
      the $9,000,000 Financing..





Pursuant
      to the $550,000 financing with Cornell Capital Partners, LP which closed on
      September 28, 2006, also known as the $550,000 Financing, Cornell Capital
      Partners, LP own 1,000,000 fully paid and non assessable ADSs issued to Cornell
      Capital Partners, LP pursuant to the $550,000 Financing. The Secured Convertible
      Loan Note for $550,000 Financing was repaid by the Company on October 27,
      2006.




Additionally,
      pursuant to the December 19, 2005 financing with Cornell Capital Partners,
      LP,
      Cornell Capital Partners, LP could own up to 4.99% of our ADSs, at present
      approximately 11,202,989 of our issued and outstanding ADSs. Since Cornell
      Capital Partners, LP can waive such limit, it could own at least up to 18,784,020 ADSs
      issuable upon (i) conversion of a $2,500,000 Convertible Note (up to 18,346,520
      ADSs are issuable upon conversion of the $2,500,000 Convertible Note), (ii)
      exercise of a 250,000 ADS Warrant, and (iii) 187,500 fully paid and non
      assessable ADSs issued to Cornell Capital Partners, LP.




18




Such
      95,261,520 ADSs issued to Cornell Capital Partners, LP in the aggregate (75,477,500
      ADSs + 1,000,000 +18,784,020 ADSs) would represent approximately 42.431%
      of our issued and outstanding ADSs on a post conversion/exercise
      basis **.** If all
      or most of these ADSs are issued to, and held by, Cornell Capital Partners,
      LP,
      it 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 Capital Partners, LP 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 ADSs.




***Cornell
      Capital Partners, LP’s interests may conflict with the interest of our
      shareholders.***




Cornell
      Capital Partners, LP 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 Capital Partners, LP’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 Capital Partners,
      LP
      to address potential or actual conflicts that may arise. To the extent that
      conflicts of interest may arise between us and Cornell Capital Partners, LP,
      those conflicts may be resolved in a manner adverse to us or to you or other
      holders of our securities.




***Holders
      of our secured indebtedness will have a prior claim on our
      assets.***




As
      part
      of our $9,000,000 financing with Cornell Capital, LP, Certain Wealth, Ltd.
      and
      TAIB Bank, B.S.C. consisting of (i) a $7,500,000 tranche of financing with
      a
      closing date of April 25, 2006 and (ii) the extension to this $7,500,000
      financing with an additional $1,500,000 tranche of financing with a closing
      date
      of August 3, 2006 (the total financing with Cornell Capital Partners, LP,
      Certain Wealth, Ltd, and TAIB Bank was for $9,000,000), also known as the
      $9,000,000 Financing which signed on April 19, 2006 and closed on April 25,
      2006, we issued (i) an Amended and Restated Secured Convertible Note to Cornell
      Capital Partners, LP in the aggregate principal amount of $5,500,000; (ii)
      an
      Amended and Restated Secured Convertible Note to Certain Wealth, Ltd, in the
      aggregate principal amount of $1,000,000; (iii) an Amended and Restated Secured
      Convertible Note to TAIB Bank, B.S.C. in the aggregate amount of $1,000,000,
      all
      collectively known as the Amended and Restated Secured Convertible Notes; and
      (iv) a Secured Convertible Note to Cornell Capital Partners, LP in the aggregate
      principal amount of $1,500,000, also known as the $1,500,000 Secured Convertible
      Note. As part of our $550,000 financing with Cornell Capital Partners, LP,
      also
      known as the $550,000 Financing which closed on September 28, 2006, we issued
      a
      $550,000 Secured Convertible Note to Cornell Capital Partners, LP in the
      aggregate principal amount of $550,000. The Secured Convertible Loan Note for
      $550,000 Financing was repaid by the Company on October 27, 2006. If an event
      of
      default occurs under any of the Amended and Restated Secured Convertible Notes,
      the $1,500,000 Secured Convertible Note, the investors thereunder will have
      the
      right to exercise the remedies available to the secured investor under
      applicable law and the agreements governing such secured indebtedness. The
      effect of such security interest is to give the investors under such secured
      indebtedness a prior claim on our assets.




***The
      $2,500,000 Convertible Note provides for various events of default that would
      entitle the holders to require us to immediately repay the outstanding principal
      amount, plus accrued and unpaid interest, in cash. If an event of default
      occurs, we may be unable to immediately repay the amount owed, and any repayment
      may leave us with little or no working capital in our
      business.***




We
      will
      be considered in default of the $2,500,000 Convertible Note issued to Cornell
      Capital Partners, LP in the December 19, 2005 financing, if certain events
      occur. If an event of default occurs, Cornell Capital Partners, LP, as the
      holder of the $2,500,000 Convertible Note, can elect to require us to pay all
      of
      the outstanding principal amount, plus all other accrued and unpaid amounts
      under the $2,500,000 Convertible Note. 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 $2,500,000 Convertible Note
      in
      cash (including any interest on such amounts and any applicable late fees under
      the $2,500,000 Convertible Note), Cornell Capital Partners, LP may protect
      and
      enforce its 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 $2,500,000 Convertible Note, in the related
      securities purchase agreement or in any document or instrument delivered in
      connection with or pursuant to the $2,500,000 Convertible Note, or to enforce
      the payment of the outstanding $2,500,000 Convertible Note or any other legal
      or
      equitable right or remedy. This would have an adverse effect on our continuing
      operations.




19




***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.***




We
      will
      be considered in default of the $5,500,000 Amended and Restated Secured
      Convertible Note issued to Cornell Capital Partners, LP, the $1,000,00 Amended
      and Restated Secured Convertible Note issued to Certain Wealth, Ltd., the
      $1,000,000 Amended and Restated Secured Convertible Note issued to TAIB Bank,
      B.S.C., the $1,500,000 Secured Convertible Note issued to Cornell Capital
      Partners, LP, all in connection with our $9,000,000 financing with Cornell
      Capital, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. consisting of (i) a
      $7,500,000 tranche of financing with a closing date of April 25, 2006 and (ii)
      the extension to this $7,500,000 financing with an additional $1,500,000 tranche
      of financing with a closing date of August 3, 2006 (the total financing with
      Cornell Capital Partners, LP, Certain Wealth, Ltd, and TAIB Bank was for
      $9,000,000), also known as the $9,000,000 Financing (all such notes are
      collectively known as the Secured Convertible Notes), if certain events occur.
      If an event of default occurs, Cornell Capital Partners, LP, as the holder
      of
      the $5,500,000 Amended and Restated Secured Convertible Note, the $1,500,000
      Secured Convertible Note, Certain Wealth, Ltd, as the holder of the $1,000,000
      Amended and Restated Secured Convertible Note; and TAIB Bank, B.S.C., as the
      holder of the $1,000,000 Amended and Restated Secured Convertible Note can
      each
      elect to require us to pay all of the outstanding principal amount of each
      respective Secured Convertible Note, plus all other accrued and unpaid amounts
      under the respective Secured Convertible Note. 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 respective Secured
      Convertible Note in cash (including any interest on such amounts and any
      applicable late fees under the Secured Convertible Notes), each of Cornell
      Capital Partners, LP, Certain Wealth, Ltd, and TAIB Bank, B.S.C. may each
      protect and enforce its respective 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 respective Secured
      Convertible Notes, in the related securities purchase agreement or in any
      document or instrument delivered in connection with or pursuant to the Secured
      Convertible Notes issued Cornell Capital Partners, LP, Certain Wealth, Ltd,
      or
      TAIB Bank, B.S.C., or to enforce the payment of the respective outstanding
      Secured Convertible Note or any other legal or equitable right or remedy. This
      would have an adverse effect on our continuing operations.




***Existing
      shareholders will experience significant dilution when Cornell Capital Partners,
      LP converts its $2,500,000 Convertible Note and exercises its 250,000 ADS
      Warrant.***





The
      conversion of the $2,500,000 Convertible Note into ADSs and the issuance of
      ADSs
      upon the exercise of the 250,000 ADS Warrant, issued to Cornell Capital
      Partners, LP in connection with the December 19, 2005 financing with Cornell
      Capital Partners, LP, also known as the $2,500,000 Financing, will have a
      dilutive impact on our shareholders since Cornell Capital Partners, LP may
      ultimately convert the full amount of the $2,500,000 Convertible Note and
      exercise the full amount of the 250,000 ADS Warrant and sell all of these ADSs
      into the public market. As a result, our net income or loss per share could
      decrease in future periods, and the market price of ADSs could decline. In
      addition, the lower our stock price is, the more ADSs we will have to issue
      pursuant to the discount conversion price of the $2,500,000 Convertible Note.
      If
      our stock price is lower, then our existing shareholders will experience greater
      dilution.





20




***Existing
      shareholders will experience significant dilution when Cornell Capital Partners,
      LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. convert, in the aggregate, their
      $9,000,000 in Secured Convertible Notes and when Cornell Capital Partners,
      LP
      exercises, in the aggregate, its Warrants worth 4,750,000 ADS***





The
      conversion of (i) the $5,500,000 Amended and Restated Secured Convertible Note
      issued to Cornell Capital Partners, LP into ADSs, (ii) the $1,000,000 Amended
      and Restated Secured Convertible Note issued to Certain Wealth, Ltd, into ADSs
      (iii) the $1,000,000 Amended and Restated Secured Convertible Note issued to
      TAIB Bank, B.S.C. into ADSs;(iv) the $1,500,000 Secured Convertible Note issued
      to Cornell Capital Partners, LP, into ADSs and the issuance of ADSs upon the
      exercise of the 4,000,000 ADS Warrant and 750,000 ADS Warrant issued to Cornell
      Capital Partners, LP, all in connection with the $9,000,000 financing with
      Cornell Capital, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. consisting
      of
      (i) a $7,500,000 tranche of financing with a closing date of April 25, 2006
      and
      (ii) the extension to this $7,500,000 financing with an additional $1,500,000
      tranche of financing with a closing date of August 3, 2006 (the total financing
      with Cornell Capital Partners, LP, Certain Wealth, Ltd, and TAIB Bank was for
      $9,000,000), also known as the $9,000,000 Financing (the notes issued in the
      $9,000,000 Financing are also known as the Secured Convertible Notes),will
      have
      a dilutive impact on our shareholders since Cornell Capital Partners, LP,
      Certain Wealth, Ltd. and TAIB Bank, B.S.C. may ultimately convert the full
      amount of their respective Secured Convertible Notes and Cornell Capital
      Partners, LP may ultimately exercise the full amount of the 4,000,000 ADS
      Warrant and the 750,000 ADS Warrant and sell all of these ADSs into the public
      market. As a result, our net income or loss per share could decrease in future
      periods, and the market price of ADSs could decline. In addition, the lower
      our
      stock price is, the more ADSs we will have to issue pursuant to the discount
      conversion price of the Secured Convertible Notes. If our stock price is lower,
      then our existing shareholders will experience greater dilution.




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




***Our
      international sales could be adversely affected by changes in domestic and
      foreign trade regulations.***




While
      we
      sell non-UK-produced products, we generally purchase them from associates of
      foreign suppliers. Our ability to remain competitive with respect to the pricing
      of the imported components could be adversely affected by increases in tariffs
      or duties, currency fluctuations, changes in trade treaties, strikes in air
      or
      sea transportation, and possible future European legislation with respect to
      pricing and import quotas on products from non-EU countries. Our ability to
      be
      competitive in or with the sales of imported components also could be affected
      by other governmental actions related to, among other things, anti-dumping
      legislation and international currency fluctuations.




***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.




21




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




22




**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 (formerly the Nasdaq Small Cap Market) under the symbol FMDAY.
      Each ADS represents the right to receive one of our Ordinary Shares. Ordinary
      Shares refer to our Ordinary Shares of 1/9 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:




·
            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,
                a
                license for e-lifeTM, 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 we install at the homes of participating employees
                of our
                clients that contract with us 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.




23




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 its Internet portal business, we constantly review the
      buy/lease options available and have in the past used both options when
      appropriate. This equipment is typically located in secure co-location sites.




Following
      a product announcement in October 2003 relating to HCI, and the contracting
      in
      November 2003 of our first customer, Royal Mail, we successfully rolled out
      our
      Managed Benefit Program which delivered HCI benefits. Following inception of
      our
      Managed Benefit Program, we engaged approximately 30 clients, resulting in
      approximately 40,000 participants.




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




**Recent
      Developments**




In
      February 2005, we acquired Open Training AB, one of the leading e-Learning
      companies in Sweden, in order to expand our coverage in the e-Learning market
      and capitalize on synergies between Open Training AB and us. The major benefit
      arising from the acquisition is the access we gained to Open Training AB’s
      Learngate software product, which is forming the basis of a replacement for
      our
      own LMS, Aktivna, which would otherwise have to be enhanced at considerable
      expense to remain competitive in the marketplace. Open Training AB’s customers
      include: Ericsson, Manpower, Pfizer, Saab, SAS, Scania and Volvo, making them
      a
      high profile e-Learning supplier in Sweden. Open Training AB’s business is
      growing in both custom learning design and in products, with orders from both
      existing and new customers.




Subsequent
      to our fiscal year end of April 30, 2005, in May 2005, recognizing that we
      had
      too large an infrastructure relative to the revised revenue expectations
      announced in February 2005, we implemented a series of cost reductions,
      including headcount reductions, which will yield benefits in fiscal 2006.




Since
      January 2005, we have added several new members of management and have appointed
      additional independent directors to our Board of Directors. Leonard M. Fertig,
      who joined our Board of Directors in August 2004, became CEO in January 2005.
      Mark Wilsher joined us as Chief Financial Officer in March 2005 but left this
      position effective January 1, 2006. Also in March 2005, John Schwallie, Michael
      Pilsworth and Michiel Steel were appointed as members of our Board of Directors.
      Also, in June 2006, Robert Bingham was appointed as a member of our Board of
      Directors. In December 2005, Stephen Oliver joined us and served as Interim
      Chief Financial Officer until March 31, 2006. From April 1, 2006 through June
      18, 2006, Peter Machin served as Interim Chief Financial Officer (Mr. Machin
      previously served as our Chief Financial Officer from fiscal years 1996 through
      2005). On June 19, 2006 we appointed Brian McArthur Muscroft as Group Chief
      Financial Officer. On September 13, 2006 Peter Machin resigned as Company
      Secretary and we appointed Andrew Haire (our General Counsel) as Company
      Secretary. Brian McArthur Muscroft resigned as Group Chief Financial Officer
      on
      October 4, 2006 and Peter Machin Agreed to serve as Interim Group Chief
      Financial Officer with effect from the date that Mr. McArthur Muscroft resigned.




24




Subsequent
      to April 30, 2006, our e-learning business further developed its capabilities.
      Focusing on the development and management of online communities enabled us
      to
      achieve additional revenues from Barclays Wealth Academy, Crown Prosecution
      Services and BUPA UK Membership. Currently, our total number of e-learning
      clients (including clients of Executive Business Channel Limited) is 80,
      compared to 32 at the end of calendar year 2005, and 14 at the end of calendar
      year 2004.




In
      July
      2005, we also unveiled our new corporate branding around the theme Work Smart
      Live Smart. The revitalized brand positions us as a learning and lifestyle
      company that enables consumers to improve their lives both at home and at work,
      and is reflected in a new Futuremedia logo, Web site (www.futuremedia.co.uk)
      and
      marketing materials.




On
      July
      21, 2005, we 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, known as M.A.G., to provide us financing in the amount of
      $4,000,000. The
      investment was made via a Convertible Debenture that is convertible (subject
      to
      certain terms and conditions) into ADSs of the Company. The conversion rate
      is
      based on the volume weighted average price of the Company’s ADSs for the five
      trading days prior to July 13, 2005, the date that the Company entered into
      a
      term sheet with M.A.G. for the investment. The Convertible Debenture 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%. We also issued warrants
      to
      the investors covering an aggregate of 6.2 million ADSs with an exercise price
      of $0.61 per share. We subsequently reduced the exercise price of the warrants
      to $0.11 per share on an unconditional basis and without further consideration.
      The agreement with M.A.G also provides for an additional $2,000,000 of funding
      that may be available at our request provided that we achieve certain
      performance benchmarks. Net
      proceeds to us from the M.A.G. investment were approximately $3,800,000. We
      also
      issued warrants to purchase 411,692 ADSs to our financial adviser on the
      investment, on substantially the same terms as the warrants issued to the
      investors.





In
      accordance with the Convertible Debentures issued to M.A.G. on July 21, 2005,
      we
      made our monthly principal payments for October 2005 and November 2005 of
      $333,000 each by issuing ADSs in place of cash payments. We issued 700,680
      ADSs
      in October 2005 and 856,986 ADSs in November, 2005 respectively. Because we
      did
      not meet the average daily dollar trading volume requirements for November
      2005,
      as an inducement for M.A.G. to waive the volume limitation, the ADSs issued
      for
      the November 2005 payment were issued at a 15% discount rather than the 12%
      discount that would otherwise apply. During the period from December 1, 2005
      to
      the date of filing this Annual Report, we issued a further 16,141,390 ADSs
      in
      place of cash payments.





On
      December 19, 2005, we entered into a private placement with Cornell Capital
      Partners, LP, to provide us financing in the amount of $2,500,000. The
      investment was made via a Convertible Note that is convertible (subject to
      certain terms and conditions) into our ADSs. The conversion rate shall be equal
      to the lesser of (a) $0.525 or (b) an amount equal to ninety five percent (95%)
      of the lowest volume weighted average price of the ADSs, as quoted by Bloomberg,
      LP, for any period of three (3) consecutive trading days during the thirty
      (30)
      trading days immediately preceding the conversion date which may be adjusted
      pursuant to other terms of the Convertible Note. The Convertible Note bears
      interest at an annual rate equal to ten percent (10%) for the period of one
      (1)
      year following December 19, 2005. Commencing on December 19, 2006, interest
      shall accrue on the outstanding principal balance at an annual rate equal to
      eight percent (8%). Commencing on December 19, 2007, interest shall accrue
      on
      the outstanding principal balance at an annual rate equal to seven percent
      (7%).
      The Convertible Note matures on December 19, 2008. We also issued a Warrant
      to
      Cornell Capital Partners, LP covering an aggregate of 250,000 ADSs, with an
      exercise price of $0.70 per share. We subsequently reduced the exercise price
      of
      the Warrant to $0.095 per share on an unconditional basis and without further
      consideration. The Warrant expires on December 19, 2010. The agreement with
      Cornell Capital Partners, LP also provided for Cornell
      Capital Partners, LP to receive 187,500 ADSs without further
      consideration **.** We
      also
      paid Yorkville Advisors Management, LLC, the investment manager for Cornell
      Capital Partners, LP a one-time commitment fee of $187,500 **.** Net
      proceeds to us from the Cornell Capital Partners, LP investment were
      approximately $2,312,500. From March 2006 through November 13, 2006 we issued
      18,346,520 ADSs, in the aggregate, in connection with Cornell Capital Partners,
      LP’s partial conversion of its $2,500,000 Convertible Note. Following these
      partial conversions, the outstanding principal balance of the Convertible Note
      is approximately $473,631.




25





On
      January 13, 2006, we extended our agreement with the shareholders of EBC to
      complete the acquisition of that company as previously announced on December
      20,
      2005, subject to approval by our shareholders. EBC is one of the leading
      e-learning companies in the United Kingdom. At the time, we believed that
      extension of the agreement was necessary to allow time for our shareholders
      to
      approve the EBC acquisition and related Cornell Capital Partners, LP financing
      as noted in our release on Form 6-K filed with the Securities and Exchange
      Commission on December 20, 2005 (File No.  000-21978 ).





While
      we
      previously announced that shareholder approval would be needed to complete
      the
      EBC acquisition, we subsequently determined, and confirmed with Nasdaq, that
      due
      to our status as a foreign registrant, shareholder approval is not required
      under the Nasdaq rules as long we comply with the rules and regulations of
      our
      country of incorporation. On April 25, 2006, we announced that we completed
      the
      acquisition of EBC. Under the terms of the agreement, we acquired EBC for GBP
      4.45 million, consisting of a combination of cash (GBP 3.75 million or $6.675
      million) and our ADSs (valued at GBP 700,000 or $1.25 million and consisting
      of
      4.8 million ADSs). The cash portion of the purchase price was financed by
      Cornell Capital Partners, LP, Certain Wealth, Ltd., and TAIB Bank B.S.C. (c)
      in
      the form of a $7.5 million private placement, also known as the $7,500,000
      Financing. The investment was made via three Secured Convertible Notes that
      are
      convertible (subject to certain terms and conditions) into our ADSs. The
      conversion rate was equal to the lesser of (a) $0.34 or (b) an amount equal
      to
      ninety five percent (95%) of the average of the three (3) lowest volume weighted
      average prices of the ADSs, as quoted by Bloomberg, LP, during the thirty (30)
      trading days immediately preceding the conversion date which may be adjusted
      pursuant to other terms of each of the Secured Convertible Notes. The Secured
      Convertible Notes bear interest at an annual rate equal to ten percent (10%)
      for
      the period of one (1) year following April 19, 2006. Commencing on April 19,
      2007, interest shall accrue on the outstanding principal balance at an annual
      rate equal to eight percent (8%). Commencing on April 19, 2008, interest shall
      accrue on the outstanding principal balance at an annual rate equal to seven
      percent (7%). Each of the Secured Convertible Notes matures on April 19, 2009
      and is secured by certain of our assets. We also issued a warrant to Cornell
      Capital Partners, LP covering an aggregate of 4,000,000 ADSs, with an exercise
      price of $0.20 per share, which becomes exercisable any time after April 19,
      2006, but not after April 19, 2011, and a warrant covering an aggregate of
      750,000 ADSs, with an exercise price of $0.70 per share, which becomes
      exercisable any time after April 19, 2006, but not after April 19, 2011. We
      subsequently reduced the respective exercise price of these warrants to $0.095
      per share on an unconditional basis and without further consideration. The
      agreement with Cornell Capital Partners, LP, Certain Wealth, Ltd. and TAIB
      Bank,
      B.S.C. (c), also provided for Cornell
      Capital Partners, LP to receive 562,500 ADSs without further
      consideration **.** We
      also
      paid Yorkville Advisors Management, LLC, the investment manager for Cornell
      Capital Partners, LP a one-time commitment fee of $562,500 **.** Net
      proceeds to us from the $7,500,000 Financing investment by Cornell Capital
      Partners, LP, Certain Wealth, Ltd. and TAIB Bak B.S.C.(c) were approximately
      $6,937,500.





As
      disclosed below in this Recent Developments section and elsewhere in this Form
      20-F, we amended certain terms and conditions of the $7,500,000 Financing in
      August 2006 in connection with additional financing from Cornell Capital
      Partners, LP, Certain Wealth, Ltd., and TAIB Bank, B.S.C.





On
      January 18, 2006 we announced that we had received a letter from The Nasdaq
      Stock Market notifying us that for ten consecutive trading days our market
      value
      of listed securities has been below $35,000,000 as required for continued
      listing by Marketplace Rule 4320(e)(2)(B)(ii), also known as the Rule. We had
      until February 13, 2006, to regain compliance regarding the market value
      criteria. If, at any time before February 13, 2006, the market value of listed
      securities of our ADSs was $35,000,000 or more for a minimum of 10 consecutive
      trading days, the Nasdaq staff would determine if we comply with the Rule.
      In
      the letter, Nasdaq notified us that if compliance could not be demonstrated
      by
      February 13, 2006, the Nasdaq staff would provide written notification that
      our
      securities would be delisted. Furthermore, in the letter, Nasdaq also notified
      us that we did not currently satisfy the alternate standards for continued
      listing under the Marketplace Rules 4320(e)(2)(B)(i) or 4320(e)(2)(B)(iii),
      which require minimum stockholders' equity of $2,500,000 or net income from
      continuing operations of $500,000 in the most recently completed fiscal year
      or
      in two of the last three most recently completed fiscal years.




26




On
      February 16, 2006, we announced that we had received notice from The Nasdaq
      Stock Market (a Staff Determination Letter) advising us that our securities
      were
      subject to delisting based upon our failure to comply with Nasdaq Marketplace
      Rule 4320(e)(2)(B), which requires a market value of listed securities of at
      least $35,000,000 or, in the alternative, $2,500,000 in shareholders' equity
      or
      $500,000 in net income in the last fiscal year or in two of the last three
      fiscal years. We requested a hearing before a Nasdaq Listing Qualifications
      Panel to review the Staff Determination (which stayed the delisting) and to
      request the continued listing of our ADSs on The Nasdaq Stock Market pending
      our
      compliance with the alternative requirement of $2,500,000 in shareholders'
      equity.





On
      March
      9, 2006, we announced that our hearing before a Nasdaq Listing Qualifications
      Panel had been scheduled for March 23, 2006. The hearing was held on that date.
      On April 28, 2006, we received notification from The Nasdaq Stock Market
      granting our request for continued listing subject to our executing our plan
      to
      achieve more than $2.5 million in shareholders' equity by May 31, 2006. On
      May
      31, 2006 we announced that with the close of the Button Group plc acquisition
      on
      May 26, 2006 and the private placement of $4,315,000, which we announced on
      May
      4, 2006, we completed our plan and believed we had met the shareholders’ equity
      requirement for continued listing. On June 9, 2006, we received notification
      that the Nasdaq Listings Qualifications Panel determined that we are in
      compliance with all Nasdaq Marketplace Rules and therefore approved the
      continued listing of our securities on the Nasdaq-CM.





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 services to HCI
      clients and over 40,000 employee-subscribing households without interruption.
      The future of HCI remains unclear, although, the UK Government is considering
      plans for a revised version. The timetable for the release of such scheme is
      unknown. We will continue to provide Managed Benefit Services to UK companies.
      The elimination of the HCI tax benefit by the UK Government is likely to
      materially change the nature of our business. See “Risk
      Factors— Risks Relating to Our Business Generally—The recent termination of the
      Home Computing Initiative by the UK Government is likely to harm our
      business.”





On
      March
      23, 2006 we entered into an agreement to acquire Button Group plc, also known
      as
      Button. The acquisition was completed on May 26, 2006. The purchase price for
      the acquisition was GBP 5.3 million ($9.9 million), consisting of a combination
      of cash GBP 2.3 million ($4.3 million) and our ADSs valued at GBP 3 million
      ($5.6 million) issued at the share closing price on May 25, 2006. 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 was the
      technical services provider for the recent 3GSM World Congress in Barcelona
      where it also designed and built 35 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. With the addition of Button
      we expect to add one of the leading branded communications businesses in the
      UK.
      The addition of Button will provide us with a complimentary skill set while
      broadening our product offering with a wide array of online and physical design
      and communications services.




27




On
      April
      26, 2006, we announced an expansion of our portfolio with the launch of a new
      Managed Benefits solution at the Employee Benefits North Conference and
      Exhibition. This new services, while not incorporating tax benefits, will
      provide the opportunity for employers to offer employees and their families
      home-based education and digital access for work, school and life enhancement.
      This service will target both companies which previously offered HCI, plus
      those
      other companies whose plans to do so were cut short by the UK Government’s
      change in the tax regulations.





On
      April
      27, 2006 we launched FlexsmartTM, a next generation managed benefits product.
      FlexsmartTM builds on the original ideas behind HCI, focusing on providing
      valuable learning resources, improving computer skills throughout the UK's
      workforce and helping bridge the digital divide, along with helping employers
      improve employee retention. Through FlexsmartTM, employees will be able to
      purchase competitively priced computer equipment from PCWorld and other
      suppliers. They will also become members of e-lifeTM, an online community created
      by us to enable employees across the UK to develop and enhance their
      professional, personal and family lives through a comprehensive range of
      learning tools. Also included in the FlexsmartTM package will be online and
      telephone support, plus optional sessions with a personal trainer to ensure
      employees are able to make the most of e-lifeTM.





On
      May 4,
      2006, we announced a private placement of ADSs for subscriptions totaling
      $4,315,000. We used the proceeds of this placement to finance the acquisition
      of
      Button Group plc, which we completed on May 26, 2006, and for additional working
      capital. Of the $4,315,000 private placement, $3,500,000 was invested by Le
      Shark Limited, a UK-based investor, at the price of $0.20 per share for a total
      of 17,500,000 ADSs. Our Directors Jan Vandamme, Leonard M. Fertig, Mick
      Pilsworth and Michiel Steel also each invested $50,000 in our ADSs, at a price
      calculated by reference to the average closing price of our ADSs for the 20
      business days prior to April 21, 2006, representing approximately $0.255 per
      share, for a total of 783,700 ADSs. In addition, $500,000 was invested by
      Spintop Venture Holdings Limited, a British Virgin Islands based investment
      group, in April, 2006, and a further $65,000 was invested by that investor
      on
      May 4, 2006, and $50,000 was invested by Marc Renson, a private European
      investor, on May 4, 2006, all at a price of $0.20 per share, representing
      3,075,000 ADSs. A finders fee was paid on this transaction, in ADSs, at price
      of
      $0.20 per share, representing 773,575 ADSs.





On
      July
      20, 2006 we announced that we received a letter from the Nasdaq Stock Market
      indicating that we are not in compliance with Marketplace Rule 4320(e)(2)(E)(i)
      which requires a minimum bid price of $1.00 per ADS. In accordance with Rule
      4320(e)(2)(E)(i), we will be provided 180 calendar days, or until January 16,
      2007, to regain compliance. As a result of our recent business restructuring
      and
      expected improvement in operating results, our Board of Directors has decided
      to
      monitor the price of our ADSs before determining any action in response to
      this
      notice. If our minimum bid price does not exceed $1.00 and if we are required
      to
      take action, we believe that we will be able to achieve compliance with Nasdaq
      requirements by adjusting appropriately the ratio of our ordinary shares to
      ADSs
      so that the bid price of ADSs traded will exceed $1.00. See “Risk
      Factors— Risks Relating to the Market for Our Securities — We may not be able to
      continue to satisfy applicable standards for continued listing on the Nasdaq
      -
      CM markets.”





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
      August
      7, 2006, we also announced that Cornell Capital Partners, LP, agreed to provide
      us with an additional $1,500,000 of capital, also known as the Additional
      $1,500,000 Financing. The proceeds of the transaction were used for payments
      on
      the remaining debt to M.A.G. Capital, LLC, as well as to provide working capital
      for growth in our new businesses. Cornell Capital Partners, LP’s $1,500,000
      investment was made as an extension of the existing $7,500,000 financing loan
      from April 2006 (which was provided by Cornell Capital Partners, LP, Certain
      Wealth, Ltd. and TAIB Bank, B.S.C. and is convertible (subject to certain
      restrictions and limitations) into our ADSs. The amended loan, totaling an
      aggregate of $9,000,000, may be converted from time to time at the investor’s
      option (subject to certain restrictions and limitations) and is secured by
      our
      assets. In connection with the further investment, we also issued to Cornell
      Capital Partners, LP 165,000 ADSs at nominal value. Cornell Capital Partners,
      LP
      also received a commitment and structuring fee totaling $150,000. We also
      obtained limited waivers from Cornell Capital Partners, LP regarding certain
      of
      our obligations related to filing audited financial statements for the year
      ended April 30, 2006 with the Securities and Exchange Commission , also known
      as
      the SEC, and with MAG Capital LLC related to maintaining effective registration
      statements with the SEC in connection with its financing arrangements. We filed
      our audited financial statements for the year ended April 30, 2006 with the
      SEC
      on August 31, 2006.




28




As
      part
      of the Additional $1,5000,000 Financing, we amended certain of the terms and
      conditions relating to the $7,500,000 financing from Cornell Capital Partners,
      LP, Certain Wealth Ltd. and TAIB Bank, B.S.C. which signed on April 19, 2006
      and
      closed on April 25, 2006, also known as the $7,500,000 Financing. The $7,500,000
      Financing and the Additional $1,500,000 Financing are together also known as
      the
      $9,000,000 Financing. As a result of such amendments, the conversion rate for
      the $9,000,000 Financing is equal to the lesser of (a) $0.30 or (b) an amount
      equal to eighty percent (80%) of the average of the three (3) lowest volume
      weighted average prices of the ADSs, as quoted by Bloomberg, LP, during the
      thirty (30) trading days immediately preceding the conversion date. The secured
      convertible notes underlying the $9,000,000 Financing continue to bear interest
      in accordance with the terms of the $7,500,000 Financing. Pursuant to the
      $9,000,000 Financing up to an additional 95,477,500 of our ADSs will be issuable
      (or have been issued) (i) upon conversion of an aggregate of $9,000,000 of
      secured convertible notes issued to Cornell Capital Partners, LP, Certain
      Wealth, Ltd. and TAIB Bank, B.S.C. (all such secured convertible notes amounting
      to 90,000,000 ADSs in the aggregate); (ii) upon exercise of the 4,000,000 ADS
      Warrant and the 750,000 ADS Warrant held by Cornell Capital Partners, LP in
      connection with the $7,500,000 Financing; and (iii) in connection with an
      aggregate of 727,500 ADSs which were issued to Cornell Capital Partners, LP
      without further consideration (representing 562,500 ADSs from the $7,500,000
      Financing plus 1650,000 ADSs from the $1,500,000 Financing).





On
      September 19, 2006 we announced that we unconditionally reduced the $0.61 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 known as
      M.A.G. , in connection with our July 21, 2005 $4 million financing with M.A.G.
      The exercise price of the warrants were unconditionally reduced to $0.11
      beginning on September 19, 2006. We will receive net proceeds of approximately
      $679,261 assuming all of the warrants are exercised.





On
      September 22, 2006 we
      announced that we unconditionally reduced (i) the $0.70 per share exercise
      price
      of the 250,000 ADS warrant, also known as the 250,000 ADS Warrant, issued to
      Cornell Capital Partners, LP in connection with our December 19, 2005 $2,500,000
      financing with Cornell; (ii) the $0.20 per share exercise price of the 4,000,000
      ADSs warrant (the “4,000,000 ADS Warrant) issued to Cornell in connection with
      our August 3, 2006 $9,000,000 financing with Cornell Capital Partners, LP,
      Certain Wealth, Ltd. and TAIB Bank, B.S.C., also known as the $9,000,000
      Financing; and (iii) the $.70 per share exercise price of its 750,000 ADSs
      warrant , also known as the 750,000 ADS Warrant, issued to Cornell Capital
      Partners, LP in connection with the $9,000,000 Financing. The 250,000 ADS
      Warrant, the 4,000,000 ADS Warrant and the 750,000 ADS Warrant are also known
      as
      the Warrants. The exercise price of the Warrants were unconditionally reduced
      to
      $0.095 beginning on September 22, 2006. We will receive net proceeds of
      approximately $475,000 assuming all of the Warrants are exercised.




On
      September 28, 2006 Cornell Capital Partners, LP agreed to provide us with an
      additional $550,000 of capital, also known as the $550,000 Financing. The
      proceeds of the transaction will be used for general working capital purposes.
      Cornell Capital Partners, LP’s $550,000 investment was made by way of a loan
      that is convertible (subject to certain restrictions and limitations) into
      our
      Ordinary Shares from time to time at Cornell Capital Partners, LP’s option
      (subject to certain restrictions and limitations) and is secured by our assets.
      The conversion rate for the $550,000 loan was based on the lesser of $0.12
      or
      80% of the lowest weighted average price of our Ordinary Shares during the
      30
      trading days immediately preceding the time of conversion. The loan has a term
      of 3 years and bears interest at an annual rate of 10%. In connection with
      the
      $550,000 investment, we issued to Cornell Capital Partners, LP’s 1,000,000
      Ordinary Shares at nominal value. Yorkville Advisors, LLC, the General Partner
      of Cornell Capital Partners, LP also received commitment fees of $55,000. The
      Secured Convertible Loan Note for $550,000 Financing was repaid by the Company
      on October 27, 2006. Pursuant to the $550,000 Financing up to an additional
      14,749,999 of our ADSs would have been issuable (or have been issued) (i) upon
      conversion of the $550,000 Secured Convertible Note; and (ii) in connection
      with
      1,000,000 ADSs which were issued to Cornell Capital Partners, LP without further
      consideration.




29




On
      October 2, 2006 we announced the live launch of e-lifeTM, our online educational
      video channel and learning community. The new proprietary software will enable
      personal advancement through the provision of e-learning content and online
      education to employees and their families as an employee benefit. e-lifeTM
members will be able to build individual catalogues of learning courses in
      career skills, personal development and lifestyle, and manage their courses
      through our proprietary Learning Management System. There are more than 300
      online educational topics currently available, including basic computing, family
      finance, garden design, information security for businesses, and DVD production.
      Content is continually being added, which will include free member courses
      as
      well as sponsored and pay-per-view education.





On
      October 24, 2006, we entered into a letter agreement with Cornell Capital
      Partners, LP indicating that we desired to obtain future alternative financing,
      subject to, and consistent with, all of Cornell Capital Partners, LP’s rights
      under its existing notes and related agreements, and use proceeds of any such
      financings to repay part of the Cornell Capital Partners, LP notes. In
      connection therewith, we and Cornell Capital Partners, LP agreed that Cornell
      Capital Partners, LP shall have the right to compel us to apply the first
      $2,000,000 of net proceeds received by us through any new financing transaction
      (including any loans (other than retail bank overdrafts), stock offerings,
      options, or warrant issuances) closed within six months of October 24, 2006
      (regardless of the date that funds may actually be received by the Company
      if
      they are received later than six months through installment payments, exercise
      of options or warrants, or otherwise) toward the repayment of amounts
      outstanding under the notes issued to Cornell Capital Partners, LP (including
      principal and accrued interest). Furthermore, Cornell Capital Partners, LP
      agreed to waive any redemption premiums which may apply to such repayments,
      if
      they are made in accordance with the letter agreement, but such waiver shall
      not
      effect Cornell Capital Partners, LP’s rights to collect any applicable
      redemption premiums on other payments.





On
      October 25, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of up to $5,000,000 with a corporate investor
      to provide funding for our continued operations until we reach cash positive
      operations by the first calendar quarter of 2007. The $5,000,000 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 in exchange for 20,000,000
      ADSs
      at a price of $0.15 per share and warrants giving the investor the right to
      purchase a further 80,000,000 ADSs at $0.025 per share for an additional
      $2,000,000. 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 Capital Partners, LP. Pursuant to our agreements with
      Cornell Capital Partners, LP, Cornell Capital Partners, LP consented to our
      issuance of all the ADSs and the warrants issued pursuant to the $5,000,000
      private placement. In connection with Cornell Capital Partners, LP’s consent, we
      repaid $553,514 of outstanding principal and accrued interest to Cornell on
      October 24, 2006, thereby fully paying off the $550,000 Financing.




30




On
      November 8, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of $800,000 with Le Shark Limited to provide
      funding for our continued operations. The $800,000 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 in exchange for 16,000,000 ADSs at a price of $0.05
      per share. The use of the proceeds will be to fund remaining HCI obligations
      due
      to 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 Capital Partners,
      LP.




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




**The
      Interactive Learning and Communications Industry.**




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




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




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




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




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




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




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




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.




31




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




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




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




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




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




In
      October 2003, Futuremedia established the Learning For AllTM business unit, which
      was focused on helping organizations derive the maximum strategic value from
      the
      UK’s Home Computing Initiative (HCI) and other similar schemes in continental
      Europe. HCI was a government scheme that gave tax breaks to allow employers
      to
      provide PCs 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 services to HCI clients and over
      40,000 employee-subscribing households without interruption. The future of
      HCI
      remains unclear, although, the UK Government is considering plans for a revised
      version. The timetable for the release of such scheme is unknown. We will
      continue to provide Managed Benefit Services to UK companies. The elimination
      of
      the HCI tax benefit by the UK Government is likely to materially change the
      nature of our business. See “Risk
      Factors— Risks Relating to Our Business Generally—The recent termination of the
      Home Computing Initiative by the UK Government is likely to harm our
      business.”





On
      April
      26, 2006, we announced an expansion of our portfolio with the launch of a new
      Managed Benefits solution at the Employee Benefits North Conference and
      Exhibition. This new services, while not incorporating tax benefits, will
      provide the opportunity for employers to offer employees and their families
      home-based education and digital access for work, school and life enhancement.
      This service will target both companies which previously offered HCI, plus
      those
      other companies whose plans to do so were cut short by the UK Government’s
      change in the tax regulations.





On
      April
      27, 2006 we launched FlexsmartTM, a next generation managed benefits product.
      FlexsmartTM builds on the original ideas behind HCI, focusing on providing
      valuable learning resources, improving computer skills throughout the UK's
      workforce and helping bridge the digital divide, along with helping employers
      improve employee retention. Through FlexsmartTM, employees will be able to
      purchase competitively priced computer equipment from PCWorld and other
      suppliers. They will also become members of e-lifeTM, an online community created
      by us to enable employees across the UK to develop and enhance their
      professional, personal and family lives through a comprehensive range of
      learning tools. Also included in the FlexsmartTM package will be online and
      telephone support, plus optional sessions with a personal trainer to ensure
      employees are able to make the most of e-lifeTM.




32




On
      October 2, 2006 we announced the live launch of e-lifeTM, our online educational
      video channel and learning community. The new proprietary software will enable
      personal advancement through the provision of e-learning content and online
      education to employees and their families as an employee benefit. e-lifeTM
members will be able to build individual catalogues of learning courses in
      career skills, personal development and lifestyle, and manage their courses
      through our proprietary Learning Management System. There are more than 300
      online educational topics currently available, including basic computing, family
      finance, garden design, information security for businesses, and DVD production.
      Content is continually being added, which will include free member courses
      as
      well as sponsored and pay-per-view education.




To
      date no firm sales of FlexsmartTM or e-lifeTM
have been recorded; however, the interest shown in the products leads the
      Company to believe that revenue flows should commence during Q2 Fiscal
      2007.





**The
      Design and Live Communications Industry**





The
      Design and Live Communications Industry provides services to corporate clients
      where the service provider takes 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 organisers,
      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
      Group plc (“Button”), which has over 32 years of experience of working in the
      Design and Live Communications Industry. Button’s 3-D design team has extensive
      experience of designing and managing stands at some of the world’s largest
      exhibitions, including 3GSM, MIPIM, Brand Licensing New York, MIPTV, MIPCOM,
      ITU, CEBIT and MAPIC. 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 client company and its brand identity, providing a range of
      services from initial naming development through to the creation of a new brand,
      service or product. Button provides services for creative design for print,
      and
      its creative team is also provides multimedia design with the technical facility
      to provide its clients with video and new media presentations across all
      platforms.




Button
      has one of the most dynamic creative teams in
      the industry, combining very strong design skills with extensive strategic
      planning and implementation, and 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, multimedia
      presentations, websites), B2B marketing, B2C marketing, public events and
      experiential marketing.




33




*Project
      management: production & logistics:* Button’s
      project managers seamlessly manage venue liaison, contractor liaison and
      monitoring catering, health & safety requirements, local legislation and
      event coordination.  They are available on-site throughout the exhibitions,
      conferences, events and seminars that they coordinate.




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




**Revenue
      Streams.**




During
      fiscal 2006, the Company derived approximately 87% of its gross revenues from
      product sales, approximately 7% from the sale of consultancy and services and
      approximately 6% of its gross revenues from its interactive production
      capability. For fiscal 2007, these ratios may change post-consolidation of
      the
      acquisitions by the Company of Executive Business Channel Limited and Button
      Group plc.




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




Year
                Ended April
                30,2006
            
            2005
            
            2004($000)
            
            (GBP000)
            
            %
            
            (GBP000)
            
            %
            
            (GBP000)
            
            %United
                Kingdom
            
            
            30,393
            
            
            16,642
            
            
            94.8
            
            
            15,398
            
            
            98.4
            
            
            18,661
            
            
            100.0Rest
                of Europe
            
            
            1,677
            
            
            918
            
            
            5.2
            
            
            253
            
            
            1.6
            
            
            -
            
            
            -TOTALS
            
            
            32,070
            
            
            17,560
            
            
            100.0
            
            
            15,651
            
            
            100.0
            
            
            18,661
            
            
            100.0





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




34




**Seasonality.**




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




**Marketing
      and Sales.**




Futuremedia
      markets its products primarily to local authorities and commercial end users
      in
      a diverse and growing range of industries mainly through its direct sales force.
      Futuremedia provides technical assistance and support to purchasers of its
      products. The technical assistance involves providing answers to questions
      ranging from specifications and installation to availability of supporting
      software, as well as a help line and call center for users of Learning For
      All TM .
      The
      Company’s sales process for its products and services usually involves a team
      drawn from sales, marketing, development and senior management to provide
      planning and product customization and to ensure open communications and support
      throughout the selling process and after a sale is made. Futuremedia’s marketing
      activities include participation in trade shows, publication of articles in
      trade journals, participation in industry forums and distribution of sales
      literature.




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




**Competition.**




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




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




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




35




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




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




In
      the
      Design and Live Communications industry, there are many companies that offer
      similar services to Button, and price is often used 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.





In
      the
      Design and Live Communications industry, client companies are often reluctant
      to
      move from their incumbent suppliers, which means that Button must seek ways
      to
      proactively propose alternative ways that prospective new clients could achieve
      their corporate and marketing objectives, and in turn do business with Button.
      Button must also defend its existing clients from similar initiatives from
      competitors.





A
      key
      delivery factor for all players within the Design and Live Communications
      industry is delivery. There are a limited number of key suppliers to the
      industry, and so Button must constantly develop and foster best in class
      relationships with its clients to continue to ensure excellence of delivery
      and
      maintenance of a competitive position in the industry.





**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.




36




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. In addition,
      Futuremedia has applied for a community trademark to be registered for the
      e-lifeTM trademark, and expects to complete such registration in the short
      term.




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 plc, Button Group EURL, Button Group Inc, Executive Business
      Channel Limited and Open Training AB are the principal operating entities in
      the
      Futuremedia Group. Futuremedia also had the following wholly owned
      subsidiaries:




NAME
            COUNTRY
                OF INCORPORATIONLasermedia
                UK Ltd
            EnglandLasermedia
                International Ltd.
            EnglandFuturemedia
                Interactive Ltd.
            EnglandFuturemedia
                America Inc.
            United
                StatesEasycando.com
                Ltd.
            EnglandFuturemedia
                (BVI) Ltd
            British
                Virgin IslandsC2W
                Ltd.
            EnglandActivna
                Objects Ltd.
            EnglandTemp
                Ltd
            EnglandFuturemedia
                Sverige AB
            SwedenLexon
                Inc
            British
                Virgin IslandsBetternote
                Limited
            EnglandButton
                Communications Holdings Limited
            EnglandMeteor
                Video Services Limited
            EnglandButton
                One to One (London) Limited
            EnglandButton
                Publishing Limited
            EnglandThe
                Button Design Company Limited
            EnglandButton
                I.T. Limited
            EnglandThe
                Button Communications Group Limited
            England





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





The
      Company’s offices in Brighton, London and Milton Keynes in England, France,
      California and Sweden are subject to lease agreements. The Company believes
      that
      these premises are adequate for its foreseeable needs.




37




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




Since
      entering into various loan arrangements (as set
      out above at Item 4A, "Recent Developments") the Company has adopted the
      recognised and recommended accounting treatments regarding embedded derivatives
      arising.




**Revenue
      Recognition.**




Net
      sales
      represent the value of goods and services delivered, excluding value added
      tax,
      and for the year ended April 30, 2006 can be categorized by activity into one
      of
      five sources.




*Consultancy
      Service.*




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




*Custom
      Designed Content Products* .




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




*Learning
      Management Systems* . **




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




*Blended
      Learning Solution* . **




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




38




*Managed
      Benefit Programs.*




Managed
      Benefit Programs are those that comprise a combination of hardware, software
      and
      services, installed at the homes of participating employees of clients that
      contract with Futuremedia for the provision of such services. Revenues are
      categorized as being either ‘delivered’ or ‘deferred’ depending on the nature of
      each element of the installed package. Typically, all hardware, operating
      software together with any software programs delivered on local media, either
      CD-rom or loaded on the hard disc, are treated as ‘delivered’ revenues, whilst
      the remaining services, which typically comprise telephone and e-mail support,
      the provision and hosting of a Learning Management System and various online
      software programs, are treated as ‘deferred’ revenues. For revenue recognition
      purposes, the package price is allocated by element in accordance with fair
      values of each element. ‘Delivered’ revenues are recognized on customer
      acceptance, ‘deferred’ revenues are recognized over the period of the agreement,
      typically three years. Certain of these programs were provided under the UK
      Government’s Home Computing Initiative scheme, also known as HCI, and previously
      known as Learning for All. 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.




**Overview
      of Operating Results.**




For
      the
      fiscal years ended April 30, 2006, 2005 and 2004, the Company reported net
      losses of GBP6,750,000 ($12,327,000), GBP3,958,000 and GBP1,662,000,
      respectively, on revenues of GBP17,560,000 ($32,070,000), GBP15,651,000 and
      GBP18,661,000, respectively. As a consequence of its operating results, the
      Company has encountered significant cash constraints on its operations. The
      Company’s Learning For All TM product,
      launched in October 2003, continued to make the major contribution to the income
      statement, generating GBP 15.2 million ($27.8 million) of revenues and GBP2.4
      million ($4.4 million) of gross margin contribution in fiscal 2006, compared
      to
      GBP14.0 million of revenues and GBP1.0 million of gross margin contribution
      in
      fiscal 2005. Operationally, management regards the business as falling into
      one
      of two business streams: Futuremedia Learning for All TM and
      Futuremedia e-Learning. The summary income statement analyzed into the two
      segments is as follows for the year ended April 30:




39





2006
            
            2006
            
            2005$
                millions
            
            GBP
                millions
            
            GBP
                millionsRevenues
            
            Cost
                of Sales
            
            Margin
            
            Revenues
            
            Cost
                of Sales
            
            Margin
            
            Revenues
            
            Cost
                of Sales
            
            MarginLearning
                For AllTM
            
            
            27.8
            
            
            23.4
            
            
            4.4
            
            
            15.2
            
            
            12.8
            
            
            2.4
            
            
            14.0
            
            
            13.0
            
            
            1.0e-Learning
            
            
            4.3
            
            
            2.6
            
            
            1.7
            
            
            2.3
            
            
            1.4
            
            
            0.9
            
            
            1.6
            
            
            1.4
            
            
            0.2Total
            
            
            32.1
            
            
            26.0
            
            
            6.1
            
            
            17.5
            
            
            14.2
            
            
            3.3
            
            
            15.6
            
            
            14.4
            
            
            1.2Operating
                expenses
            
            
            
            
            
            
            
            
            15.5
            
            
            
            
            
            
            
            
            8.5
            
            
            
            
            
            
            
            
            5.0Operating
                loss
            
            
            
            
            
            
            
            
            (9.4
            )
            
            
            
            
            
            
            
            (5.2
            )
            
            
            
            
            
            
            
            (3.8
            )




Following
      the Company’s success in raising additional funding during October and November
      2006, the Board of Directors believes that the Company’s cash resources and
      available borrowings are sufficient for it to meet its working capital needs
      for
      the following twelve months and therefore has prepared this Form 20-F on a
      going
      concern basis.




**2006
      Compared with 2005.**




*Revenues.*




The
      Company achieved sales of GBP17,560,000 ($32,070,000) in the year ended April
      30, 2006, an increase of 12.2% when compared to GBP15,651,000 in the previous
      year. 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 previous fiscal year led to an upturn in revenues in the early
      part of the current fiscal year 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 GBP2.3 million ($4.3million), an increase of
      GBP720,000 ($1,315,000) over the prior fiscal year, virtually all of which
      arises as a result of the full year effect of including the revenues achieved
      by
      the company’s Open Training subsidiary in Sweden which amounted to GBP918,000
      ($1,677,000), compared to GBP253,000 in the year to April 30, 2005.




*Cost
      of Sales.*




The
      Company's cost of sales for the current fiscal year includes a stock write
      off
      of GBP375,000 ($685,000) arising from the disposal of excess Learning for All
      stocks of hardware 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 81.1%
      compared to 90.7% for the previous fiscal year, which also included GBP568,000
      of stock write offs. Excluding the stock write offs for the current and previous
      year, the cost of sales as a percentage of sales was 79% and 88%. The
      improvement in the current year is due mainly from cost benefits arising in
      the
      HCI segment following a change of distribution partner, but also includes the
      full year effect of the Open Training operation.




40




*Gross
      Profit.*




The
      gross
      profit for the current fiscal year, after including the stock write off
      discussed above, showed a significant increase over the previous year at
      GBP3,314,000 ($6,053,000) compared with GBP 1,241,000 for 2005. 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 2006 and 2005 were net of GBP 375,000 and GBP568,000
      respectively resulting from stock write offs in the HCI segment. Excluding
      these
      items, the margin arising from trading in 2006 was GBP3,689,000, compared to
      GBP
      1,809,000, and the resultant margin as a percentage of sales was 21% and 11.6%
      respectively. Under the revenue recognition rules applicable to the Learning
      For
      All TM product
      line, revenues are categorised as either delivered or deferred. The cost
      structure of these elements is such that the margin earned on the deferred
      element is higher than the delivered element. The overall gross margin will
      therefore be affected by the ratio of delivered to deferred revenues in any
      year. Of the total revenues recorded in the Learning for All segment in fiscal
      2006, 87% were categorized as delivered revenues, and 13% were categorized
      as
      deferred revenues, compared with 92% and 8% respectively for fiscal year 2005.




*Operating
      Expenses.*




Operating
      expenses increased significantly in 2006 to approximately GBP8.5 million ($15.5
      million) or 48% of revenue from approximately GBP5.0 million or 32% of total
      revenues in 2005. These cost increases arose primarily as a result of external
      consultancy fees associated with the arrangement of loan financing,
      approximately GBP1.3million ($2.4million); additional investment in marketing
      of
      Learning for All campaigns, including staff costs and external marketing costs
      of approximately GBP600,000 ($1,100,000); additional facilities expense of
      approximately GBP200,000 ($365,000) as the company expanded in the early part
      of
      fiscal 2006, together with restructuring costs necessarily incurred and provided
      as a result of actions taken following the demise of the UK HCI market in April
      2006, totaling approximately GBP400,000 ($731,000). 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, 2004 and April 2005, which was
      not repeated in the current year.




*Interest
      Income and Expense.*




Interest
      income for 2006 was GBP41,000 ($75,000) compared to a net interest income for
      2005 of GBP119,000, as a result of the reduced ability for the tactical
      investment of cash surpluses in 2006.




Interest
      expense for the year ended April 30, 2006 was GBP1,633,000 ($2,982,000) compared
      to GBPNil for 2005, all of which is associated with the convertible loan
      arrangements entered into during the year, including a non-cash charge of
      GBP1,416,000 ($2,586,000) arising from the accounting treatment of the embedded
      derivatives pursuant to those arrangements.




*Foreign
      Currency Gains/Losses.*




There
      was
      a foreign currency loss in fiscal 2006 of GBP6,000 ($11,000) resulting from
      movements in exchange rates between GBP and USD, compared to a currency losses
      from similar causes of GBP10,000 in fiscal 2005.




41




*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).




*Stock
      compensation arising from Variable options accounting.*




As
      a
      result of the difference between the trading price of the Company’s stock at the
      end of the current fiscal year compared with the exercise price of the 86,667
      remaining variable options, a compensation loss of GBP20,000 ($37,000) was
      recorded in the current fiscal year compared with a gain of GBP306,000
      ($584,000) recorded in the prior fiscal year.




*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 no substantial change
      in
      the nature of trade. At April 30, 2006, potential deferred tax assets amounted
      to GBP6,519,000 ($11,906,000), of which none was recognized, compared to
      GBP5,434,000 at April 30, 2005, of which none was recognized in expectation
      of
      the results for the year to April 30, 2006.




**2005
      Compared with 2004.**




*Revenues.*




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




*Cost
      of Sales.*




The
      Company's cost of sales for the year to A|pril 30, 2005 included a stock write
      off of GBP568,000 ($1,083,000) arising from the disposal of excess Learning
      for
      All stocks of hardware inventory, which had been purchased in advance a) to
      ensure security of supply and b)in expectation of higher takeup in primarily
      the
      Royal Mail follow-up campaigns. After adjusting for this item, the cost of
      sales
      as a percentage of revenues remained unchanged at 88.4%, the same as for 2004,
      despite the increase in proportion of higher-margin deferred Learning for All
      revenues earned in 2005. Certain of the cost elements charged to cost of sales
      include fixed salaries of support, administration and management staff which
      do
      not vary with revenue volumes. The downturn in Learning for All delivered
      revenues for 2005 therefore was not accompanied by a proportional reduction
      in
      direct costs, but this was balanced by the reduced costs associated with the
      delivery of Learning for All deferred revenues. In the traditional e-Learning
      activity, which included the results for Open Training AB since its acquisition,
      the cost of sales as a percentage of revenues improved to 87% compared to 100%
      in fiscal 2004. Again, there is a significant element of fixed costs in cost
      of
      sales representing permanent production, management and administration staff
      in
      this segment.




42




*Gross
      Profit.*




The
      gross
      profit for the year to April 30, 2005 year was again adversely impacted by
      the
      GBP568,000 ($1,083,000) stock write off discussed above. After adjusting for
      this item, the gross profit as a percentage of revenues remained unchanged
      in
      2005 at 12% gross profit, as in fiscal 2004, of which the Learning For
      All TM activity
      was a gross profit of 13% and e-Learning a gross profit of zero%. Under the
      revenue recognition rules applicable to the Learning For All TM product
      line, revenues are recognized as either delivered or deferred. The cost
      structure of these elements is such that the margin earned on the deferred
      element is higher than the delivered element. The overall gross margin will
      therefore be affected by the ratio of delivered to deferred revenues in any
      year. Of the total revenues recorded in the Learning for All segment in fiscal
      2005, 92% were categorized as delivered revenues, and 8% were categorized as
      deferred revenues, compared with 99% and 1% respectively for fiscal year 2004.
      This resulted in an overall gross margin percentage, excluding the stock write
      off, of 12% for 2005, compared with 12% for fiscal 2004. The gross profit
      percentage for the e-Learning segment was 13% for the current fiscal year,
      compared to zero% for fiscal 2004.




*Operating
      Expenses.*




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




*Interest
      Income and Expense.*




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




*Foreign
      Currency Gains/Losses.*




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




43




*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 ($654,000) in fiscal 2005 as a result of impairment
      testing of the remaining goodwill arising from the investment. During the year
      the Company sold all its remaining shares in Luvit AB, generating a gain on
      sale
      of GBP54,000 ($103,000)




*Stock
      compensation arising from Variable options accounting.*




In
      February, 2002, 1,075,000 existing options to purchase ordinary shares under
      the
      Unapproved Executive Share Option Scheme at prices varying from $0.59 to $3.00
      per Ordinary share were cancelled and replaced with options to purchase 556,417
      Ordinary shares at $0.10 per Ordinary share and 518,083 Ordinary shares at
      $0.15
      per Ordinary share, vesting between July 2002 and March 2003. These are now
      accounted for as variable options. During the fiscal year ended April 30, 2004,
      a total of 143,333 options were exercised and traded. As a result of the
      difference between the exercise price of the variable options and the trading
      price of the Company’s stock at the time of trading and at the year end for the
      931,667 variable options that remained, a compensation expense was recorded
      in
      the year ended April 30, 2004 amounting to GBP686,000. In September 2004, a
      total of 845,000 variable options were excercized and sold. As a result of
      the
      difference between the exercise price of the variable options and the trading
      price of the Company’s stock at the time of trading and at the year end for the
      86,667 remaining variable options, a compensation gain was recorded in fiscal
      2005 of GBP306,000 ($584,000).




*Income
      Tax Expense.*




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




**RECENT
      ACCOUNTING PRONOUNCEMENTS**




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




In
      December 2004, the FASB issued Statement No. 123 (revised 2004),
“Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) is a
      revision of FASB Statement No. 123, “Accounting for Stock-Based
      Compensation” (“FASB No. 123”), supersedes APB No. 25, “Accounting for
      Stock Issued to Employees”


and
      amends FASB Statement No. 95, “Statement of Cash Flows.” SFAS
      No. 123(R) requires that companies recognize all share-based payments to
      employees, including grants of employee stock options, in the financial
      statements. The recognized cost will be based on the fair value of the equity
      or
      liability instruments issued. Pro forma disclosure of this cost will no longer
      be an alternative under SFAS No. 123(R). The Statement is effective for
      public companies at the beginning of the first annual reporting period that
      begins after June 15, 2005.




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




44




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




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




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections—a replacement of APB Opinion No. 20 and FASB Statement
      No. 3” (“SFAS No. 154”). This standard establishes, unless
      impracticable, retrospective application as the required method for reporting
      a
      change in accounting principle in the absence of explicit transition
      requirements specific to the newly adopted accounting principle. SFAS
      No. 154 will become effective for the Company for accounting changes and
      corrections of errors beginning in fiscal 2007. SFAS No. 154 may have a
      significant effect on the Company’s consolidated financial statements to the
      extent that the Company changes its accounting principles in the future.





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Instruments” (“SFAS No. 155”). SFAS No. 155 amends SFAS No. 133
      and SFAS No. 140, “Accounting for Transfers and Servicing of Financial
      Assets and Extinguishments of Liabilities.” SFAS No. 155, among other
      things: permits the fair value remeasurement of any hybrid financial instrument
      that contains an embedded derivative that otherwise would require bifurcation;
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of SFAS No. 133; and establishes a requirement to
      evaluate interests in securitized financial assets to identify interests that
      are freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation. SFAS No. 155 is
      effective for all financial instruments acquired or issued in fiscal years
      beginning after September 15, 2006. The Company is currently evaluating
      what effect the adoption of SFAS No. 155 will have on the Company’s future
      results of operations and financial condition.





In
      June
      2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes, an
      Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in accordance with SFAS
      No. 109 and prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 will become effective for the Company
      beginning in fiscal 2008. The Company is currently evaluating what effect the
      adoption of FIN 48 will have on the Company’s future results of operations and
      financial condition.




In
      September 2006, the Financial Accounting Standards
      Board ("FASB") issued Statement No. 157, "Fair Value Measurements" ("FAS 157"),
      which addresses how companies should measure fair value when they are required
      to use a fair value measure for recognition or disclosure purposes under GAAP.
      As a result of FAS 157, there is now a common definition of fair value to be
      used throughout GAAP, which is expected to make the measurement of fair value
      more consistent and comparable. The Company must adopt FAS 157 in fiscal
      2009, but has not yet begun to evaluate the effects, if any, of adoption on
      its consolidated financial statements.




On
      September 13, 2006, the Securities and Exchange
      Commission ("SEC") issued Staff Accounting Bulletin No. 108 (SAB 108") which
      provides interpretive guidance on how the effects of the carryover or reversal
      of prior year misstatements should be considered in quantifying a current year
      misstatement. SAB 108 is effective for fiscal years ending after November 15,
      2006. The Company does not expect this pronouncement to have a material impact
      on the Company's consolidated financial statements.




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




**Internal
      and External Sources of Liquidity.**




During
      the year ended April 30, 2006, the Company issued a further 20,867,473 Ordinary
      Shares in reliance of Regulation S, representing aggregate gross proceeds of
      GBP2,340,000 ($4,274,000), of which GBP2,331,000 ($4,257,000) was received
      after
      the year end.




45




Also
      during the year ended April 30, 2006, two staff exercised options for the
      purchase of an aggregate of 300,000 Ordinary Shares under the Unapproved
      Executive Share Option Scheme, representing aggregate gross proceeds of
      GBP25,000 ($46,000), of which all was received by the end of the
      year.




On
      July
      21, 2005, the Company entered into a private placement with M.A.G. Capital,
      LLC
      (formerly Mercator Advisory Group, LLC), through its designated funds, Monarch
      Pointe Fund, Ltd, Mercator Momentum Fund, LP and Mercator Momentum Fund III,
      LP
      (collectively, “M.A.G.”), to provide financing to the Company in the amount of
      $4 million. The
      investment was made via a one year Convertible Debenture that was convertible
      (subject to certain terms and conditions) into Ordinary Shares of the Company.
      The conversion rate 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 M.A.G. for the investment. The loan
      bore interest at an annual rate equal to the greater of 8.5% or Wall Street
      Journal Prime Rate plus 3%, but in no event greater than 10%. The Company also
      issued warrants to the investors covering an aggregate of 6.2 million Ordinary
      Shares with an exercise price of $0.61 per share; subsequently on September
      19,
      2006, the Company reduced the exercise of such warrants to $0.11. In
      accordance with the Convertible Debentures issued to M.A.G. on July 21, 2005,
      the Company made its monthly principal payments for October 2005 and November
      2005 of $333,000 each by issuing ADSs in place of cash payments. The Company
      issued 700,680 ADSs in October 2005 and 856,986 ADSs in November, 2005
      respectively. Because the Company did not meet the average daily dollar trading
      volume requirements for November 2005, as an inducement for M.A.G. to waive
      the
      volume limitation, the ADSs issued for the November 2005 payment were issued
      at
      a 15% discount rather than the 12% discount that would otherwise apply. During
      the period from December 1, 2005 to the date of filing this Annual Report,
      the
      Company issued a further 16,141,390 ADSs in place of cash payments.





On
      December 19, 2005, the Company entered into a private placement with Cornell
      Capital Partners, LP, to provide the Company financing in the amount of
      $2,500,000. The investment was made via a Convertible Note that is convertible
      (subject to certain terms and conditions) into the Company’s ADSs. The
      conversion rate shall be equal to the lesser of (a) $0.525 or (b) an amount
      equal to ninety five percent (95%) of the lowest volume weighted average price
      of the ADSs, as quoted by Bloomberg, LP, for any period of three (3) consecutive
      trading days during the thirty (30) trading days immediately preceding the
      conversion date which may be adjusted pursuant to other terms of the Convertible
      Note. The Convertible Note bears interest at an annual rate equal to ten percent
      (10%) for the period of one (1) year following December 19, 2005. Commencing
      on
      December 19, 2006, interest shall accrue on the outstanding principal balance
      at
      an annual rate equal to eight percent (8%). Commencing on December 19, 2007,
      interest shall accrue on the outstanding principal balance at an annual rate
      equal to seven percent (7%). The Convertible Note matures on December 19, 2008.
      The Company also issued a Warrant to Cornell Capital Partners, LP covering
      an
      aggregate of 250,000 ADSs, with an exercise price of $0.70 per share. The
      Company subsequently reduced the exercise price of the Warrant to $0.095 per
      share on an unconditional basis and without further consideration. The Warrant
      expires on December 19, 2010. The agreement with Cornell Capital Partners,
      LP
      also provided for Cornell
      Capital Partners, LP to receive 187,500 ADSs without further
      consideration . **** The
      Company also paid Yorkville Advisors Management, LLC, the investment manager
      for
      Cornell Capital Partners, LP a one-time commitment fee of $187,500. **** Net
      proceeds to the Company from the Cornell Capital Partners, LP investment were
      approximately $2,312,500. From March 2006 through October 17, 2006 the Company
      issued 18,346,520 ADSs, in the aggregate, in connection with Cornell Capital
      Partners, LP’s partial conversion of its $2,500,000 Convertible Note. Following
      these partial conversions, the outstanding principal balance of the Convertible
      Note is approximately $473,631.




46




On
      April
      25, 2006, the Company announced that it completed the acquisition of EBC. Under
      the terms of the agreement, the Company acquired EBC for GBP 4.45 million,
      consisting of a combination of cash (GBP 3.75 million or $6.675 million) and
      the
      Company’s ADSs (valued at GBP 700,000 or $1.25 million and consisting of 4.8
      million ADSs). The cash portion of the purchase price was financed by Cornell
      Capital Partners, LP, Certain Wealth, Ltd., and TAIB Bank B.S.C. in the form
      of
      a $7.5 million private placement, also known as the $7,500,000 Financing. The
      investment was made via three Secured Convertible Notes that are convertible
      (subject to certain terms and conditions) into the Company’s ADSs. The
      conversion rate was equal to the lesser of (a) $0.34 or (b) an amount equal
      to
      ninety five percent (95%) of the average of the three (3) lowest volume weighted
      average prices of the ADSs, as quoted by Bloomberg, LP, during the thirty (30)
      trading days immediately preceding the conversion date which may be adjusted
      pursuant to other terms of each of the Secured Convertible Notes. The Secured
      Convertible Notes bear interest at an annual rate equal to ten percent (10%)
      for
      the period of one (1) year following April 19, 2006. Commencing on April 19,
      2007, interest shall accrue on the outstanding principal balance at an annual
      rate equal to eight percent (8%). Commencing on April 19, 2008, interest shall
      accrue on the outstanding principal balance at an annual rate equal to seven
      percent (7%). Each of the Secured Convertible Notes matures on April 19, 2009
      and is secured by certain of the Company’s assets. The Company also issued a
      warrant to Cornell Capital Partners, LP covering an aggregate of 4,000,000
      ADSs,
      with an exercise price of $0.20 per share, which becomes exercisable any time
      after April 19, 2006, but not after April 19, 2011, and a warrant covering
      an
      aggregate of 750,000 ADSs, with an exercise price of $0.70 per share, which
      becomes exercisable any time after April 19, 2006, but not after April 19,
      2011.
      The Company subsequently reduced the respective exercise price of these warrants
      to $0.095 per share on an unconditional basis and without further consideration.
      The agreement with Cornell Capital Partners, LP, Certain Wealth, Ltd. and TAIB
      Bank, B.S.C., also provided for Cornell
      Capital Partners, LP to receive 562,500 ADSs without further
      consideration .
      The
      Company **** also
      paid
      Yorkville Advisors Management, LLC, the investment manager for Cornell Capital
      Partners, LP a one-time commitment fee of $562,500 **.** Net
      proceeds to the Company from the $7,500,000 Financing investment by Cornell
      Capital Partners, LP, Certain Wealth, Ltd. and TAIB Bak B.S.C.(c) were
      approximately $6,937,500.





As
      disclosed below in this section and elsewhere in this Form 20-F, the Company
      amended certain terms and conditions of the $7,500,000 Financing in August
      2006
      in connection with additional financing from Cornell Capital Partners, LP,
      Certain Wealth, Ltd., and TAIB Bank, B.S.C.





On
      March
      23, 2006 the Company entered into an agreement to acquire Button Group plc,
      also
      known as Button. The acquisition was completed on May 26, 2006. The purchase
      price for the acquisition was GBP 5.3 million ($9.9 million), consisting of
      a
      combination of cash GBP 2.3 million ($4.3 million) and the Company’s ADSs valued
      at GBP 3 million ($5.6 million) issued at the share closing price on May 25,
      2006. 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.





On
      May 4,
      2006, the Company announced a private placement of ADSs for subscriptions
      totaling $4,315,000. The Company used the proceeds of this placement to finance
      the acquisition of Button Group plc, which the Company completed on May 26,
      2006, and for additional working capital. Of the $4,315,000 private placement,
      $3,500,000 was invested by Le Shark Limited, a UK-based investor, at the price
      of $0.20 per share for a total of 17,750,000 ADSs. The Company’s Directors Jan
      Vandamme, Leonard M. Fertig, Mick Pilsworth and Michiel Steel also each invested
      $50,000 in the Company’s ADSs, 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 ADSs.
      In addition, $565,000 was invested by Spintop Venture Holdings Limited, a
      British Virgin Islands based investment group, and $50,000 was invested by
      Marc
      Renson, a private European investor, both at a price of $0.20 per share,
      representing 3,075,000 ADSs. A finders fee has been paid on this transaction,
      in
      ADSs, at price of $0.20 per share, representing 773,575 ADSs.





On
      August
      7, 2006, Cornell Capital Partners, LP, agreed to provide the Company with an
      additional $1,500,000 of capital, also known as the Additional $1,500,000
      Financing. The proceeds of the transaction were used for payments on the
      remaining debt to M.A.G. Capital, LLC, as well as to provide working capital
      for
      growth in the Company’s new businesses. Cornell Capital Partners, LP’s
      $1,500,000 investment was made as an extension of the existing $7,500,000
      financing loan from April 2006 (which was provided by Cornell Capital Partners,
      LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. and is convertible (subject
      to
      certain restrictions and limitations) into the Company’s ADSs. The amended loan,
      totaling an aggregate of $9,000,000, may be converted from time to time at
      the
      investor’s option (subject to certain restrictions and limitations) and is
      secured by the Company’s assets. In connection with the further investment, the
      Company also issued to Cornell Capital Partners, LP 165,000 ADSs at nominal
      value. Cornell Capital Partners, LP also received a commitment and structuring
      fee totaling $150,000. The Company also obtained limited waivers from Cornell
      Capital Partners, LP regarding certain of the Company’s obligations related to
      filing audited financial statements for the year ended April 30, 2006 with
      the
      Securities and Exchange Commission, also known as the SEC, and with MAG Capital
      LLC related to maintaining effective registration statements with the SEC in
      connection with its financing arrangements. The Company filed its audited
      financial statements for the year ended April 30, 2006 with the SEC on August
      31, 2006.




47




As
      part
      of the Additional $1,5000,000 Financing, the Company amended certain of the
      terms and conditions relating to the $7,500,000 financing from Cornell Capital
      Partners, LP, Certain Wealth Ltd. and TAIB Bank, B.S.C. which signed on April
      19, 2006 and closed on April 25, 2006, also known as the $7,500,000 Financing.
      The $7,500,000 Financing and the Additional $1,500,000 Financing are together
      also known as the $9,000,000 Financing. As a result of such amendments, the
      conversion rate for the $9,000,000 Financing is equal to the lesser of (a)
      $0.30
      or (b) an amount equal to eighty percent (80%) of the average of the three
      (3)
      lowest volume weighted average prices of the ADSs, as quoted by Bloomberg,
      LP,
      during the thirty (30) trading days immediately preceding the conversion date.
      The secured convertible notes underlying the $9,000,000 Financing continue
      to
      bear interest in accordance with the terms of the $7,500,000 Financing. Pursuant
      to the $9,000,000 Financing up to an additional 95,477,500 of the Company’s ADSs
      will be issuable (or have been issued) (i) upon conversion of an aggregate
      of
      $9,000,000 of secured convertible notes issued to Cornell Capital Partners,
      LP,
      Certain Wealth, Ltd. and TAIB Bank, B.S.C. (all such secured convertible notes
      amounting to 90,000,000 ADSs in the aggregate); (ii) upon exercise of the
      4,000,000 ADS Warrant and the 750,000 ADS Warrant held by Cornell Capital
      Partners, LP in connection with the $7,500,000 Financing; and (iii) in
      connection with an aggregate of 727,500 ADSs which were issued to Cornell
      Capital Partners, LP without further consideration (representing 562,500 ADSs
      from the $7,500,000 Financing plus 1650,000 ADSs from the $1,500,000 Financing).





On
      September 19, 2006 the Company announced that the Company unconditionally
      reduced the $0.61 per share exercise price of the Company’s 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 known as M.A.G. , in connection with the Company’s July 21,
      2005 $4 million financing with M.A.G. The exercise price of the warrants were
      unconditionally reduced to $0.11 beginning on September 19, 2006. The Company
      will receive net proceeds of approximately $679,261 assuming all of the warrants
      are exercised.





On
      September 22, 2006 the
      Company announced that it unconditionally reduced (i) the $0.70 per share
      exercise price of the 250,000 ADS warrant, also known as the 250,000 ADS
      Warrant, issued to Cornell Capital Partners, LP in connection with the Company’s
      December 19, 2005 $2,500,000 financing with Cornell; (ii) the $0.20 per share
      exercise price of the 4,000,000 ADSs warrant (the “4,000,000 ADS Warrant) issued
      to Cornell in connection with the Company’s August 3, 2006 $9,000,000 financing
      with Cornell Capital Partners, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C.,
      also known as the $9,000,000 Financing; and (iii) the $.70 per share exercise
      price of its 750,000 ADSs warrant , also known as the 750,000 ADS Warrant,
      issued to Cornell Capital Partners, LP in connection with the $9,000,000
      Financing. The 250,000 ADS Warrant, the 4,000,000 ADS Warrant and the 750,000
      ADS Warrant are also known as the Warrants. The exercise price of the Warrants
      were unconditionally reduced to $0.095 beginning on September 22, 2006. The
      Company will receive net proceeds of approximately $475,000 assuming all of
      the
      Warrants are exercised.




48




On
      September 28, 2006 Cornell Capital Partners, LP agreed to provide the Company
      with an additional $550,000 of capital, also known as the $550,000 Financing.
      The proceeds of the transaction will be used for general working capital
      purposes. Cornell Capital Partners, LP’s $550,000 investment was made by way of
      a loan that is convertible (subject to certain restrictions and limitations)
      into the Company’s Ordinary Shares from time to time at Cornell Capital
      Partners, LP’s option (subject to certain restrictions and limitations) and is
      secured by the Company’s assets. The conversion rate for the $550,000 loan was
      based on the lesser of $0.12 or 80% of the lowest weighted average price of
      the
      Company’s Ordinary Shares during the 30 trading days immediately preceding the
      time of conversion. The loan has a term of 3 years and bears interest at an
      annual rate of 10%. In connection with the $550,000 investment, the Company
      issued to Cornell Capital Partners, LP’s 1,000,000 Ordinary Shares at nominal
      value. Yorkville Advisors, LLC, the General Partner of Cornell Capital Partners,
      LP also received commitment fees of $55,000. Pursuant to the $550,000 Financing
      up to an additional 14,749,999 of the Company’s ADSs would have been issuable
      (or have been issued) (i) upon conversion of the $550,000 Secured Convertible
      Note; and (ii) in connection with 1,000,000 ADSs which were issued to Cornell
      Capital Partners, LP without further consideration. The Secured Convertible
      Loan
      Note for $550,000 Financing was repaid by the Company on October 27, 2006.





On
      October 24, 2006, the Company entered into a letter agreement with Cornell
      Capital Partners, LP indicating that the Company desired to obtain future
      alternative financing, subject to, and consistent with, all of Cornell Capital
      Partners, LP’s rights under its existing notes and related agreements, and use
      proceeds of any such financings to repay part of the Cornell Capital Partners,
      LP notes. In connection therewith, the Company and Cornell Capital Partners,
      LP
      agreed that Cornell Capital Partners, LP shall have the right to compel the
      Company to apply the first $2,000,000 of net proceeds received by the Company
      through any new financing transaction (including any loans (other than retail
      bank overdrafts), stock offerings, options, or warrant issuances) closed within
      six months of October 24, 2006 (regardless of the date that funds may actually
      be received by the Company if they are received later than six months through
      installment payments, exercise of options or warrants, or otherwise) toward
      the
      repayment of amounts outstanding under the notes issued to Cornell Capital
      Partners, LP (including principal and accrued interest). Furthermore, Cornell
      Capital Partners, LP agreed to waive any redemption premiums which may apply
      to
      such repayments, if they are made in accordance with the letter agreement,
      but
      such waiver shall not effect Cornell Capital Partners, LP’s rights to collect
      any applicable redemption premiums on other payments.





On
      October 25, 2006 the Company announced that it concluded a separate and
      unrelated offshore equity private placement of up to $5,000,000 with a corporate
      investor to provide funding for the Company’s continued operations until the
      Company reaches cash positive operations by the first calendar quarter of 2007.
      The $5,000,000 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 the Company of
      $3,000,000 in exchange for 20,000,000 ADSs at a price of $0.15 per share and
      warrants giving the investor the right to purchase a further 80,000,000 ADSs
      at
      $0.025 per share for an additional $2,000,000. The warrants are exercisable
      for
      one year. The use of the proceeds will be to fund remaining HCI obligations
      due
      to 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 Capital Partners, LP.
      Pursuant to the Company’s agreements with Cornell Capital Partners, LP, Cornell
      Capital Partners, LP consented to the Company’s issuance of all the ADSs and the
      warrants issued pursuant to the $5,000,000 private placement. In connection
      with
      Cornell Capital Partners, LP’s consent, the Company repaid $553,514 of
      outstanding principal and accrued interest to Cornell Capital Partners, LP
      on
      October 24, 2006, thereby fully paying off the $550,000 Financing.





On
      November 8, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of $800,000 with Le Shark Limited provide
      funding for our continued operations. The $800,000 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 in exchange for 16,000,000 ADSs at a price of $0.05
      per share. The use of the proceeds will be to fund remaining HCI obligations
      due
      to 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 Capital Partners,
      LP.




49




At
      November 13, 2006, the Company's cash resources and available borrowings
      amounted to approximately GBP1,010,000 ($1,921,000). In the course of its
      operations the Company has sustained continuing operating losses which have
      resulted in the Company requiring short-term bank and other loans and equity
      and
      loan stock finance to sustain its operations. Since its initial public offering
      (“IPO”), the Company has incurred net losses and experienced negative cash flows
      from operating activities. Net losses since its IPO resulted in an accumulated
      deficit of GBP28,481,000 ($52,015,000) as of April 30, 2006. Following the
      Company’s success in raising additional funding during October and November
      2006, the Board of Directors believes that the Company’s cash resources and
      available borrowings are sufficient for it to meet its working capital needs
      for
      the following twelve months and therefore has prepared this Form 20-F on a
      going
      concern basis.




**Sources
      and Amounts of Cash Flows.**




On
      November 13, 2006, the latest date available at time of filing, the total amount
      of cash and cash equivalents on hand was approximately GBP1,010,000 ($1,921,000)
      compared with a total of cash and cash equivalents at April 30, 2006 of
      GBP1,155,000. This decrease primarily represents losses incurred since the
      year
      end, cost and expenses incurred in the acquisition of Button Group plc together
      with partial repayments of loans to Cornell Capital LLP amounting to
      GBP3,512,000, offset by the receipt of £3,140,000 gross outstanding from
      investments in the Company made since the year end.




On
      April
      30, 2006, the total amount of cash and cash equivalents on hand was GBP1,155,000
      ($2,109,000) as compared to cash and cash equivalents of GBP1,084,000 as at
      April 30, 2005. The increase is net of losses incurred in the year, costs and
      expenses associated with the acquisition of EBC Limited, offset by the proceeds
      of the various convertible loan arrangements entered into during the year.




The
      Company's ratio of current assets to current liabilities stood at 0.8 at April
      30, 2006, compared with 0.6 at April 30, 2005. As at August 31, 2006 (the latest
      date at which the Company had information before filing), this ratio was
      0.39.




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




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




As
      of
      April 30, 2006, the Company had no long-term obligations other than the
      convertible loan commitments referred to elsewhere in this document. At April
      30, 2006, the Company had no material commitment for capital expenditure. As
      of
      November 13, 2006, the Company had no material commitments for capital
      expenditures.




**Commitments.**




Following
      the Company’s move to Brighton, it entered into a lease arrangement for office
      facilities until 1 March 2014, with a break clause effective in June 2007 (if
      a
      notice is served taking the break option before December 25, 2006). Initially,
      this arrangement was for a serviced area of 4,700 square feet, but, in June
      2004, due to the rapid expansion of the business, the occupied space was
      increased to 7,700 square feet, on similar terms and conditions. The annual
      cost, including service charges, is approximately GBP164,000 ($312,000). The
      Company entered into a further lease arrangement for 2,300 square feet in
      Brighton during December 2005, to permit anticipated further expansion. The
      lease for the additional space is co-terminous with the earlier Brighton lease
      and the annual cost, including service charges, is approximately £60,000
      ($114,000).




50




Executive
      Business Channel Limited occupies premises in Milton Keynes, England, pursuant
      to a lease arrangement which expires on 31 March 2008. The annual cost is
      approximately GBP56,000 ($107,000).




Button
      Group plc occupies premises in London, England, pursuant to a lease arrangement
      which expires on 28 March 2001. The annual cost, including service charges,
      is
      approximately GBP170,000 ($324,000).




Open
      Training AB occupies three sites in Sweden, all of which are leasehold premises,
      with an annual cost of GBP89,000 ($170,000) per annum.




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




**Company
      Sponsored Research and Development.**




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




During
      the fiscal year ended April 30, 2006, a total of GBP275,000 ($502,000) of
      research and development costs was expensed. During the fiscal years ended
      April
      30, 2005 and 2004, GBP261,000 and GBP196,000, respectively, of research costs
      were expensed. An average of four staff were employed on research and
      development activities in the year ended April 30, 2006.




**Strategic
      Relationships.**




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




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




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




51




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




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




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




The
      following is a summary of the Company’s contractual obligations, as specified
      below, as of April 30, 2006:




Payments
                due by PeriodContractual
                Obligations GBP000’s
            Total
            Less
                than 1 year
            1-3
                years
            3-5
                years
            More
                than 5 yearsLong-Term
                Debt Obligations
            **-**
            **-**
            **-**
            **-**
            **-**Capital
                (Finance) Lease Obligations
            **-**
            **-**
            **-**
            **-**
            **-**Purchase
                Obligations
            -
            -
            **-**
            **-**
            **-**Operating
                lease obligation
            654
            394
            126
            89
            45Other
                Long-Term Liabilities Reflected on the Company’s Balance Sheet under the
                GAAP of the primary financial statement
            -
            -
            -
            -
            **-**Total
            654
            394
            126
            89
            45




As
      of
      April 30, 2006, the Company had no material contractual obligations outstanding
      with respect to capital expenditure.




52




**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**:Robert
                Bingham
            61
            2006
            DirectorLeonard
                M Fertig
            59
            2004
            Director
                and Chief Executive OfficerMichael
                Pilsworth (1) (2)
            55
            2005
            DirectorJohn
                Schwallie (2)
            43
            2005
            DirectorMichiel
                Steel (1)(2)
            63
            2005
            DirectorJan
                Vandamme(1)
            47
            1998
            Director
                and Chairman of the Board of Directors**Senior
                Management**:Peter
                Machin
            57
            2006
            Interim
                Chief Finance OfficerAndrew
                Haire
            39
            2006
            Company
                SecretaryThomas
                Bingham
            28
            2006
            Managing
                Director, Button GroupGraham
                Mackie
            44
            2006
            CEO,
                Executive Business Channel Limited





(1)
            Member
                of the Audit Committee.


(2)
            Member
                of the Compensation Committee





Mr.
      Robert Bingham joined the Board in June 2006 and is a seasoned graphic design
      and brand communications executive. He co-founded the Button Group with Susan
      Bingham in 1975 and managed the company for more than 30 years. In 1987 Button
      was purchased by British broadcaster, TVS, and later merged into the Midem
      Organization. Following the acquisition of Midem by Reed to form the Reed-Midem
      organization, Robert Bingham served as Chief Executive of Midem. In 1994, the
      Binghams re-purchased Button from Reed-Midem, and Robert Bingham served as
      the
      Chairman and CEO until Thomas Bingham acquired the company in 2005 and became
      Managing Director. Prior to founding the Button Group, Robert Bingham was
      employed by two London advertising agencies, Major Michell and Hicks Oubridge.
      Mr. Bingham received a National Design Diploma in graphic design from St.
      Martins College of Art.





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





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




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




53




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




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




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




Mr
      Andrew
      Haire joined the Company in 2005 as Legal Affairs Director, assuming the role
      of
      General Counsel and then Company Secretary in 2006. Prior to joining the
      Company, Mr Haire worked in private practice as a corporate lawyer and as
      in-house counsel for several organizations, including COLT Telecom
      Group.




Mr
      Thomas
      Bingham joined Button in 1997 after finishing his studies at Dulwich College.
      He
      started with the group as Technical Director and over the years has developed
      his knowledge of the business as Group Operations Manager and today as Managing
      Director, Button.




Mr
      Graham
      Mackie joined Executive Business Channel in 2000 and assumed the position as
      CEO
      of Executive Business Channel in 2005.




**B.** **COMPENSATION.**




The
      amount of compensation paid (including benefits in kind) to the Company’s
      Directors and senior management during the year ended April 30, 2006 were as
      follows:





Basic
            PerformanceSalary
            Related
            Sales
            Benefitsand
                fees
            Bonus
            commissions
            in

                kind
            TotalGBP000
            GBP000
            GBP000
            GBP000
            GBP000Leonard
                M. Fertig (1)
            158,000
            -
            -
            1,000
            159,000Mark
                Wilsher (2)
            77,000
            -
            -
            -
            77,000Peter
                Machin (3)
            65,000
            
            -
            1,000
            66,000Jan
                Vandamme (4)
            59,000
            -
            -
            -
            59,000Michael
                Pilsworth (5)
            40,000
            -
            -
            -
            40,000John
                Schwallie (5)
            36,000
            -
            -
            -
            36,000Michiel
                Steel (5)
            34,000
            -
            -
            -
            34,000Stephen
                Oliver (6)
            25,000
            -
            -
            -
            25,000




54




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


(2)
            Mr.
                Wilsher was appointed as CFO in March 2005. Under an employment agreement
                with the Company, Mr. Wilsher’s annual base salary is GBP115,000. Mr.
                Wilsher resigned in December 2005.


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


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


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


(6)
            The
                services of Mr. Oliver as Interim Chief Finance Officer were provided
                under a temporary employment contract from December 2005 up to his
                resignation at the end of March, 2006 whereupon Mr Machin assumed
                the role
                of Interim Chief Finance Officer up until the time of the appointment
                of
                Mr Brian McArthur Musgrove as Chief Finance Officer in July
                2006.





As
      of
      November 13, 2006, 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**Robert
                Bingham
            44,795
            $0.24
            June
                2016Leonard
                M. Fertig
            1,115,000
            $0.22
                to $0.7400
            January
                2016Andrew
                Haire
            110,000
            $0.3316
                to $0.3850
            April
                2016Jan
                Vandamme (1)
            900,000
            $0.10
                to $1.412
            June
                2016Michael
                Pilsworth (2)
            156,027
            $0.24
                to $0.535
            March
                2015John
                Schwallie (2)
            156,027
            $0.24
                to $0.535
            March
                2015Michiel
                Steel (2)
            156,027
            $0.24
                to $0.535
            March
                2015


____________________


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


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




During
      the year ending April 30, 2006, no Directors or members of senior management
      exercised options to purchase Ordinary Shares





55




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




Term
      of
      Office.




At
      the
      General Meeting of Shareholders held on June 8, 2006 all of the following
      Directors were elected of a term ending immediately after the Annual General
      Meeting of 2006, unless their terms are earlier terminated by a vote of the
      shareholders, removal by all of the members of the Board, resignation or death:
      Messrs Fertig, Pilsworth, Steel, Schwallie and Vandamme.




Employment
      and Service Contracts.




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




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




Functioning
      of the Board of Directors and its Special Committees.




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




The
      Audit
      Committee operates pursuant to a written Charter that was approved and adopted
      by the Board of Directors. Under the provisions of the Audit Committee Charter,
      the Audit Committee is responsible for, among other things: recommending to
      the
      Board of Directors the nomination of the independent auditor; reviewing and
      monitoring the financial reporting process and internal control systems;
      reviewing the annual financial statements, the scope of the audit and the role
      and performance of the independent auditor; reviewing the independence of the
      independent auditors; providing an open avenue for communication between the
      independent auditor, management and the Board of Directors; reviewing and
      approving all related party transactions and reviewing its Charter annually.
      The
      Audit Committee is authorized to seek outside legal or other advice to the
      extent it deems necessary or appropriate, provided it shall keep the board
      advised as to the nature and extent of such outside advice. It is furthermore
      authorized to confer with Company management and other employees. In accordance
      with the Sarbanes-Oxley Act and in order to preserve the independence of the
      auditor, the Audit Committee has implemented a pre-approval procedure for audit
      and all permitted non-audit services. According to Nasdaq and SEC rules, the
      Audit Committee must consist of at least three members, all of whom have to
      be
      independent directors. The Audit Committee comprises Messrs Pilsworth
      (Chairman), Steel and Vandamme. The Audit Committee held 8 meetings during
      fiscal 2006. Mr 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.
      Mr
      Pilsworth assumed the chairmanship of the Audit Committee in November 2006.
      The
      Board of Directors has determined that Mr Pilsworth meets the requirements
      of an
      "audit committee financial expert" as such term is defined under currently
      applicable rules of the SEC subject to the following. The applicable SEC rules
      require an "audit committee financial expert" to have an understanding of the
      body of generally accepted accounting principles used by the Company in its
      primary financial statements filed with the SEC. In the Company's case, that
      is
      US GAAP. The Board of Directors has determined that, while Mr Pilsworth has
      an
      extensive understanding of generally accepted accounting principles in certain
      jurisdictions, his direct experience with US GAAP is limited. The Company
      expects to expand the number of individuals who are "audit committee financial
      experts" during 2007; however there can be no assurance that the Company will
      be
      successful in this respect.




56




The
      Compensation Committee is responsible for, among other things, reviewing,
      monitoring and approving the remuneration of the executive directors and senior
      management of the Company and for administering certain aspects of the Company’s
      stock option and equity incentive plans. The Compensation Committee comprises
      Messrs. Steel (Chairman), Schwallie and Pilsworth. The Compensation Committee
      held 8 meetings during fiscal 2006.




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





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





·
            composition
                of the audit committee;




·
            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 ).




57




**D.** **EMPLOYEES.**




At
      November 13, 2006, the Company employed 137 persons, including those employed
      by
      its wholly-owned subsidiaries Executive Business Channel Limited and Button
      Group plc. The breakdown of employees, by function by employer within the
      Futuremedia group, is as follows:




Futuremedia
              PLC
            Executive
              Business
              Channel
            Button
            Open
              Training
            TotalCorporate Officers
            3
            1
            1
            1
            6Tech Support & Delivery
            30
            27
            31
            18
            106Sales & Marketing
            5
            2
            1
            1
            9Admin & Finance
            7
            2
            7
            0
            16Total
            45
            32
            40
            20
            137




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




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




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




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




In
      addition, it is Company policy to employ contract staff to provide specialist
      skills when required and tactically when the workload demands across all areas.
      The Company may offer permanent employment to individual contractors when
      management can reasonably foresee a continuing commercial requirement for the
      contractor’s skills. The average number of temporary employees during the year
      ending April 30, 2006 was twelve, and for 2005 was ten.




None
      of
      the Company’s employees is covered by a collective bargaining agreement. As at
      November 13, 2006, 98 of the Company's employees are employed in the UK, 18
      in
      Sweden, 11 in France and 10 in the USA. The Company believes that its relations
      with its employees are good.




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




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




58




**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 ($160,000) or four times earnings.




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




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




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




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




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




59




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





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





The
      following table summarizes the outstanding options and awards under the plans
      and arrangements described above as at November 13, 2006:




Number
                of Ordinary
              Shares
                subject to
              Options
                or Awards
            Exercise
                Price
            Latest
                Expiry DateApproved
                Executive Share Option Scheme
            24,000
            $0.90625
                to $1.5938
            July
                2010Unapproved
                Executive Share Option Scheme
            3,119,318
            $0.085
                to $1.6220
            January
                20152005
                Share Option Plan for New Employees
            300,000
            $0.71657
            April
                20152005
                Unapproved Share Option Plan
            1,467,499
            $0.240
                to $0.610
            June
                2016Enterprise
                Management Incentive Plan 2005
            5,340,296
            $0.230
                to $0.610
            June
                20162005
                L M Fertig Plan
            1,000,000
            $0.220
                to $0.74
            January
                2016New
                Directors Plan 2005
            18,081
            $0.535
            -Total
            11,269,194





60




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




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




The
      following table sets forth certain information, as of November 13, 2006, to
      the
      extent that it is known to the Company or can be ascertained from public
      filings, as of the date of this Annual Report with respect to the beneficial
      ownership of the Company’s ADSs by (i) each director, senior manager and key
      employee, and (ii) each person known by the Company to own 5% or more of the
      Company’s ADSs. All figures are based on an aggregate of 327,364,794
      Ordinary Shares outstanding, including those Ordinary shares that are issueable
      pursuant to the terms of the various convertible loan, warrants and options
      arrangements entered into.


Name
                  of BeneficialOwner
                  (1)
              
              
              
              Number
                  of
                OrdinaryShares
                BeneficiallyOwned
                  (2)
              
              Number
                  of
                share
                  options
                Beneficiallyowned
              
              Percentage
                BeneficiallyOwned,
                includingoptionsNational
                  Air Cargo,Middle
                  East, FZE (3)
              
              
              
              
              100,000,000
              
              
              -
              
              
              30.547
              %Le
                  Shark Limited (4)
              
              
              
              
              19,900,000
              
              
              -
              
              
              6.079
              %T
                  Bingham
              
              
              
              
              24,460,435
              
              
              -
              
              
              7.472
              %J.
                  Vandannne
              
              Director
                  & Chairman
              
              361,715
              
              
              750,000
              
              
              0.340
              %L
                  Fertig
              
              Director
                  & CEO
              
              345,488
              
              
              550,000
              
              
              0.274
              %M
                  Pilsworth
              
              Director
              
              195,925
              
              
              16,666
              
              
              0.065
              %M
                  Steel
              
              Director
              
              195,925
              
              
              16,666
              
              
              0.065
              %J
                  Schwallie
              
              Director
              
              -
              
              
              16,666
              
              
              0.005
              %Peter
                  Machin
              
              Interim
                  CFO
              
              113,983
              
              
              227,499
              
              
              0.104
              %A
                  Haire
              
              Company
                  Secretary
              
              -
              
              
              20,000
              
              
              0.006
              %Board
                  and Senior Management
                  as a Group
              
              Eight
                  persons
              
              
              25,673,471
              
              
              1,597,497
              
              
              8.331
              %




(1)
            For
                purposes of US securities laws only, persons may be deemed to be
                the
                beneficial owners of securities reflected in this table. It should
                be
                noted, however, that the meaning of beneficial ownership is significantly
                different under English law, and no inference is intended, nor should
                it
                be construed, as to the status of beneficial ownership of these securities
                under the laws of England.  The Company intends to increase its
                authorized share capital at its next Annual General
                Meeting.




(2)
            Includes
                options to purchase Ordinary Shares granted pursuant to the Company’s
                share option plans at prices varying from $0.10 to $1.412. See Item
                6(B).




61


(3)
              In
                  connection with a $5 million financing withNational
                  Air Cargo, Middle East, FZE (also known as NACME),which was conducted in accordance with Rule 903 of Regulation S,
                  promulgated under the United States Securities Act of 1933, as
                  amended,
                  NACME subscribed for and owns, 20,000,000 Ordinary Shares ($3 million
                  in
                  value) of the Company’s Ordinary Shares . NACME also subscribed for and
                  has warrants giving it the right to purchase a further 80,000,000
                  ADSs at
                  $0.025 per share for an additional $2,000,000. The warrants are
                  exercisable for one year. For the warrants, NACME has agreed not
                  to
                  exercise the warrants to the extent Cornell Capital Partners, LP’s
                  beneficial ownership of the Company’s Ordinary Shares would exceed 9.99%
                  of the Company’s Ordinary Shares following such
                  exercise.


62




(4)
            In
                connection with a $800,000 financing with Le Shark Limited, which
                was
                conducted in accordance with Rule 903 of Regulation S, promulgated
                under
                the United States Securities Act of 1933, as amended, Le Shark Limited
                subscribes for, and owns, 16,000,000 Ordinary Shares ($800,000 in
                value)
                of the Company’s Ordinary Shares.****




As
        a part of the Company's $9,000,000 financing with Cornell Capital Partners,
        LP,
        Certain Wealth, Ltd. and TAIB Bank B.S.C .,
        consisting of (i) a $7,500,000 tranche of financing
        with a closing date of April 25, 2006 and (ii) the extension to this $7,500,000 financing
        with an additional $1,500,000 tranche of financing with a closing date of
        August
        3, 2006 (the total financing with Cornell Capital Partners, LP, Certain Wealth, Ltd.
        and
        TAIB Bank, B.S.C. was for $9,000,000), also known as the $9,000,000 Financing,
        the Company issued (i) an Amended and Restated Secured Convertible Note to
        Cornell Capital Partners, LP in the aggregate principal amount of $5,500,000,
        also known
        as
        the Amended and Restated Cornell Note; (ii) a $1,500,000 Secured Convertible
        Note to Cornell Capital Partners, LP, also known as the $1,500,000 Secured Convertible
        Note; and as a part of the Company's $550,000 financing with Cornell Capital
        Partners, LP with a closing date of September 28, 2006, also known as the
        $550,000 Financing, the Company issued a $550,000 Secured Convertible Note
        to Cornell
        Capital Partners, LP, also known as the $550,000 Secured Convertible Note.
        For purposes
        of this paragraph, the Amended and Restated Cornell Note, the $1,500,000
        Secured
        Convertible Note, and the $550,000 Secured Convertible Note, are also collectively
        known as the Cornell Secured Convertible Notes. Under each of the Cornell
        Secured Convertible Notes, Cornell Capital Partners, LP may not convert such Cornell
        Secured Convertible Notes or receive ADSs as payment of interest to the extent such
        conversion or receipt of such interest payment would result in Cornell Capital Partners,
        LP, together with any of Cornell Capital Partners, LP's, affiliates,
        beneficially owning
        in
        excess of 4.9% of the then issued and outstanding ADSs, including shares
        issuable upon conversion of, and payment of interest on, such Cornell Secured Convertible
        Notes.
 
 As
        part of the Company's $9,000,000 Financing, the Company issued a
        Warrant to Cornell Capital Partners,
        LP to purchase up to 4,000,000 ADSs at $0.095 per share, also known as the 4,000,000
        ADS Warrant, and a warrant to purchase up to 750,000 ADSs at $0.095 per share,
        also known as the 750,000 ADS Warrant. Cornell Capital Partners, LP has agreed not
        to
        exercise the 4,000,000 ADS Warrant and the 750,000 ADS Warrant to the extent Cornell
        Capital Partners, LP's beneficial ownership of the Company's ADSs would exceed
        4.99% of our ADSs then outstanding following such exercise, except within
        sixty (60)
        days
        of each of the Warrant's expiration date of April 19, 2011.
 
 In
        addition, as part of the Company's December 19, 2005 financing with
        Cornell Capital Partners, LP,
        the
        Company issued a Warrant to purchase up to 250,000, ADSs at $0.095 per share, also
        known as the 250,000 ADS Warrant. Cornell Capital Partners, LP has agreed
        not to exercise
        the 250,000 ADS Warrant to the extent Cornell Capital Partner's beneficial ownership
        of the Company's ADSs would exceed 4.99% of the Company's ADSs then outstanding
        following such exercise, except within sixty (60) days of the 250,000 ADS Warrant's
        expiration date of December 19, 2010


To
      the
      knowledge of the Company the Company’s major shareholders do not have voting
      rights different from other shareholders. As of November 13, 2006, the Company
      had approximately eleven shareholders of record, one of whom acts as Depositary
      for the Company’s ADR facility and is a US resident. At October 31, 2006, the
      Depositary had approximately 125 holders of record of ADSs. Based on information
      received from the Depositary, the Company believes that there are approximately
      12,500 beneficial owners of ADSs ***.***




63




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





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





Percentage
                ownership at April 302006
            2005
            2004Rennes/Jobelin
                Foundations
            4.55
            12.9
            15.4Cornell
                Capital
            37.39
            -
            -T
                Bingham
            8.89
            -
            -M.A.G.
                Capital, LLC
            8.43
            9.0
            -J.
                Vandamme
            0.40
            0.8
            0.9L
                Fertig
            0.32
            0.6
            -M
                Pilsworth
            0.08
            -
            -M
                Steel
            0.08
            -
            -J
                Schwallie
            0.01
            -
            -




**B.** **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
      $41,307.




In
      March,
      2006, the Company contracted and received the 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. The following entities and individuals
      purchased the number of Ordinary Shares indicated in connection with this
      private placement: Mr. L Fertig 83,773 shares.




In
      April,
      2006, the Company contracted and received the 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 entities and individuals
      purchased the number of Ordinary Shares indicated in connection with this
      private placement: Mr. L Fertig, Mr. J Vandamme, Mr. M Pilsworth and Mr. M
      Steel
      each receiving 195,925 shares.





During
      the year ended April 30, 2006, the following directors received payment for
      consultancy services provided through independent service companies: Mr.
      J.Vandamme GBP59,000 ($108,000) and Mr. M Steel GBP34,000 ($62,000).




As
      part
      of the arrangements made for the acquisition of Button Group plc by the Company,
      Mr Thomas Bingham (Managing Director, Button Group) received 24,460,435 Ordinary
      Shares in the Company, as part of the purchase price paid by the Company to
      the
      Sellers of Button Group plc.




64




In
      May
      2006, Company Directors Messrs Vandamme, Fertig, Pilsworth and Steel each
      invested $50,000 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
      November 2006, Company Director Mr Schwallie agreed to provide interim financial
      consultancy services to the Company for a limited period not to extend beyond
      31
      December 2006. As at November 13, 2006, Mr Schwallie had received approximately
      $20,000 in respect of such services.




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




Not
      Applicable




65




**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 not a party to any material legal proceedings.




**Dividend
      Policy**




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




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




Not
      Applicable.




66




**ITEM
      9. THE OFFER AND THE
      LISTING.**




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




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




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




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




(1) The
      five
      most recent full financial years:




**ADS
                Price****Year
                Ending April 30,**
            **High**
            **Low****$**
            **$**2002
            0.380
            0.0502003
            0.159
            0.0602004
            2.080
            0.1002005
            1.630
            0.3402006
            0.641
            0.190







**Warrants
                Price****Year
                Ending April 30,**
            **High**
            **Low****$**
            **$**1999
            0.031
            0.0312000
            0.031
            0.0312001
            0.031
            0.0312002
            0.031
            0.0312003
            0.031
            0.031





67




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




Year
                ended April 30
            High
            Low2005
            First
                quarter
            1.630
            0.820Second
                quarter
            1.040
            0.680Third
                quarter
            1.170
            0.720Fourth
                quarter
            0.820
            0.3402006
            First
                quarter
            0.63
            0.360Second
                quarter
            0.7
            0.490Third
                quarter
            0.530
            0.220Fourth
                quarter
            0.350
            0.1802007
            First
                quarter
            0.300
            0.120





Warrants
            FMDYW
            High
              $
            Low
              $2003
            First
                quarter
            0.031
            0.031Second
                quarter
            0.031
            0.031Third
                quarter
            0.031
            0.031Fourth
                quarter
            0.031
            0.0312004
            First
                quarter
            0.031
            0.031Second
                quarter
            0.031
            0.031




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




**ADS
                Price****High**
            **Low**$
            $August
                2006
            0.176
            0.150July
                2006
            0.219
            0.120June
                2006
            0.290
            0.210May
                2006
            0.290
            0.211April
                2006
            0.350
            0.220March
                2006
            0.270
            0.180




The
      last
      reported sale price of the Ordinary Shares on November 13, 2006 on the Nasdaq
      Capital Market was $0.08.




**B.** **PLAN
      OF DISTRIBUTION.**




Not
      Applicable




**C.** **MARKETS.**




The
      Company’s ADSs are listed on the Nasdaq SmallCap Market under the symbol
“FMDAY”.




68




**D.** **SELLING
      SHAREHOLDERS.**




Not
      Applicable




**E.** **DILUTION.**




Not
      Applicable




**F.** **EXPENSES
      OF THE ISSUE.**




Not
      Applicable




69




**ITEM
      10. ADDITIONAL
      INFORMATION**




**A.** **SHARE
      CAPITAL**.




Not
      Applicable




**B.** **MEMORANDUM
      AND ARTICLES OF ASSOCIATION.**




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




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




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






**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).




70




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;




•
            
            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.




71




**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.**





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.




72




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 £5, 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.





73




***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 £5) plus interest and penalties if not stamped within
      30 days of execution.




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.




74




***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 April 30, 2006, our accumulated deficit was
£28,481,000 ($52,015,000).





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 Commission’s principal office at 450 Fifth Street, NW,
      Washington, D.C. 20549, and copies of all or any part thereof may be obtained
      from the Commission upon payment of certain fees prescribed by the
      Commission.




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




Not
      Applicable





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


The
        various loan arrangements that the company has entered into carry fixed interest rates
        of
        10%, 8% and 7% in each of the three years of the loan periods
        respectively.
 
 All
        of the loans have been arranged using the US dollar as
        a
        currency base, therefore fluctuations
        in the GBP/USD exchange rate may affect the cost of loan
        repayments.
 
 The
        books
        of Open Training are maintained in Swedish Kroner, and the books of Button's
        French and US subsidiaries are kept in Euros and US dollars respectively, however,
        fluctuations in these currencies compared to the GBP are not expected to result
        in
        material exchange rate risk.
 
 Management
        does not believe that it bears material risk from market pricing.
  Changes
        in interest rates could impact Futuremedia's anticipated interest income on
        its cash
        equivalents and interest expense on its debt, other than those arrangements referred
        to above. Due to the short duration of cash deposits and terms of its debt,
        an immediate
        10% increase in interest rates would not have a material adverse impact on Futuremedia's
        future operating results and cash flows.




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




None.




75




**PART
      II**




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




None.




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




None.




**ITEM
      15. CONTROLS AND
      PROCEDURES**




**(a)** **Disclosure
      Controls and Procedures.**




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




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




Not
      applicable.




**(c)** **Attestation
      Report of the Registered Public Accountant** .




Not
      applicable.




**(d)** **Changes
      in Internal Control Over Financial Reporting.**




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




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




Mr.
      Pilsworth assumed the chairmanship of the Audit Committee in November 2006.
      The
      Board of Directors has determined that Mr. Pilsworth meets the requirements
      of
      an "audit committee financial expert" as such term is defined under currently
      applicable rules of the SEC subject to the following. The applicable SEC rules
      require an "audit committee financial expert" to have an understanding of the
      body of generally accepted accounting principles used by the Company in its
      primary financial statements filed with the SEC. In the Company's case, that
      is
      US GAAP. The Board of Directors has determined that Mr Pilsworth has an
      extensive understanding of generally accepted accounting principles in certain
      jurisdictions, his direct experience with US GAAP is limited. The Company
      expects to expand the number of individuals who are "audit committee financial
      experts" during 2007; however there can be no assurance that the Company will
      be
      successful in this respect.




76




**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 .




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




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





2006
            2006
            2005$000’s
            GBP000’s
            GBP000’sAudit
                Fees
            283
            155
            162Audit-Related
                Fees
            22
            12
            6Tax
                Fees
            33
            18
            29All
                Other Fees
            438
            240
            1_____Total
            776
            425
            198





The *Audit
      Fees* for the
      fiscal years ended April 30, 2006 and 2005 were for professional services
      rendered for the annual audits of the Company’s consolidated financial
      statements, statutory audits required by foreign jurisdictions, issuance of
      consents and review of documents filed with the Securities and Exchange
      Commission.




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




*Tax
      Fees* for
      the
      years ended April 30, 2006 and 2005 were for services performed in connection
      with income tax compliance, consulting and tax research services and assistance
      with tax computations.




*Other
      Fees* for the
      year ended April 30, 2006 included £19,000 in respect of consultancy work on
      taxation aspects of the Home Computing Initiative. The remaining £221,000 were
      specific fees associated with audit and due diligence activities regarding
      the
      acquisitions of Executive Business Channel Limited and Button Group
      plc.




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.




77




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




Not
      applicable.




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




Not
      applicable.




78




**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-1Audited
                Financial StatementsConsolidated
                Balance Sheets at April 30, 2006 and 2005
            F-2Consolidated
                Statements of Operations for the fiscal years ended April 30, 2006,
                2005
                and 2004
            F-4Consolidated
                Statements of Changes in Stockholders’ (Deficit)/Equity for the fiscal
                years ended April 30, 2006, 2005 and 2004
            F-5Consolidated
                Statements of Cash Flows for the fiscal years ended April 30, 2006,
                2005
                and 2004
            F-7Notes
                to Consolidated Financial Statements
            F-8




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




79




**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 (the “Registrant”)
                  (previously filed as Exhibit 1.1 to the Registrant’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).
  80
  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).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).
  81
  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).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).
  82
  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).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).
  83
  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).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).
  84
  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).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).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).
  85
  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 Certification (SEC Rule 13a-14(a) / 15d-14(a))
                  (filed
                  herewith).12.2
              Chief
                  Accounting Officer Certification (SEC Rule 13a-14(a) / 15d-14(a))
                  (filed
                  herewith).13.1
              Chief
                  Executive Officer Certification (18 U.S.C. 1350) (filed
                  herewith).13.2
              Chief
                  Accounting Officer Certification (18 U.S.C. 1350) (filed
                  herewith).15.1
              Consent
                  of BDO Stoy Hayward LLP, Independent Registered Accounting Firm,
                  (filed
                  herewith).15.2
              Consent
                  of BDO Stoy Hayward LLP, Independent Registered Accounting Firm,
                  (filed
                  herewith).15.3
              Consent
                  of BDO Stoy Hayward LLP, Independent Registered Accounting Firm,
                  (filed
                  herewith).15.4
              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).15.5
              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).15.6
              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 ).15.7
              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).





86




**SIGNATURES**




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




FUTUREMEDIA
                PLC
              (Registrant)By:
            /s/ Leonard
              M
              FertigName:Leonard
                M Fertig
              Title:
                Chief Executive Officer and Authorized
                Signatory


Date: 
      November 14, 2006




87





**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 and the related consolidated statements of operations,
      stockholders’ deficit, and cash flows for each of the three years ended April
      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 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
      each
      of the three years in the period ended April 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 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 result from the outcome of this uncertainty.







/s/
      BDO Stoy Hayward LLP


BDO
      Stoy
      Hayward LLP


London,
      England





August
      25, 2006




F-1




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**




April
                30,2006
            
            2006
            
            2005($’000)
            
            (GBP’000)
            
            (GBP’000)**ASSETS**Current
                assetsCash
                and cash equivalents
            
            
            2,109
            
            
            1,155
            
            
            1,084Accounts
                receivable, less allowance of GBP73 ($133) in 2006 and GBPNil in
                2005 for
                doubtful accounts
            
            
            2,992
            
            
            1,638
            
            
            1,117Amounts
                recoverable on contracts
            
            
            128
            
            
            70
            
            
            110Accrued
                income
            
            
            1,363
            
            
            746
            
            
            667Amounts
                recoverable from vendors
            
            
            511
            
            
            280
            
            
            -Other
                current assets
            
            
            394
            
            
            216
            
            
            66Receivable
                from stock subscription
            
            
            4,321
            
            
            2,366
            
            
            -Inventories
                - finished goods
            
            
            734
            
            
            402
            
            
            612Prepaid
                expenses
            
            
            1,110
            
            
            608
            
            
            708Total
                current assets
            
            
            13,662
            
            
            7,481
            
            
            4,364Property
                and equipmentAudio
                visual and computer equipment
            
            
            1,712
            
            
            937
            
            
            809Office
                equipment, fixtures and fittings
            
            
            522
            
            
            286
            
            
            71Property
                improvements, plant and machinery
            
            
            263
            
            
            144
            
            
            96Lease
                premium
            
            
            138
            
            
            76
            
            
            742,635
            
            
            1,443
            
            
            1,050Less
                accumulated depreciation
            
            
            (1,939
            )
            
            (1,062
            )
            
            (715
            )696
            
            
            381
            
            
            335Other
                assetsGoodwill
            
            
            9,294
            
            
            5,089
            
            
            83Intangible
                assets
            
            
            1,178
            
            
            645
            
            
            827TOTAL
                ASSETS
            
            
            24,830
            
            
            13,596
            
            
            5,609




See
      accompanying notes to the consolidated financial statements.




F-2




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


April
                  30,2006
              
              2006
              
              2005($’000)
              
              (GBP’000)
              
              (GBP’000)**LIABILITIES
                  AND STOCKHOLDERS’ DEFICIT**Current
                  liabilitiesFees
                  received in advance
              
              
              7,811
              
              
              4,277
              
              
              3,565Accounts
                  payable
              
              
              4,195
              
              
              2,297
              
              
              2,114Other
                  taxes and social security costs
              
              
              1,289
              
              
              706
              
              
              343Other
                  accounts payable
              
              
              230
              
              
              126
              
              
              152Accrual
                  for National Insurance costs on stock options..
              
              
              33
              
              
              18
              
              
              34Accrual
                  for sales commissions due
              
              
              490
              
              
              268
              
              
              79Other
                  accrued expenses
              
              
              2,809
              
              
              1,538
              
              
              902Total
                  current liabilities
              
              
              16,857
              
              
              9,230
              
              
              7,189Convertible
                  debentures, debt and convertible term liability face value
                  $14.0m
              
              
              9,980
              
              
              5,465
              
              
              -Stockholders’
                  deficitOrdinary
                    shares of 1 1/9p each Authorized
                    - 350,000,000 Issued
                    and outstanding- 133,373,349 at April 30, 2006, 91,769,479 at
                    April 30,
                    2005
              
              
              2,707
              
              
              1,482
              
              
              1,019Preference
                    shares of 2p each Authorized
                    - 2,000,000 None
                    issued
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in capital
              
              
              47,517
              
              
              26,018
              
              
              19,257Receivable
                  from stock subscription
              
              
              (33
              )
              
              (18
              )
              
              (18
              )Accumulated
                  deficit
              
              
              (52,015
              )
              
              (28,481
              )
              
              (21,731
              )Other
                  comprehensive loss- cumulative translation adjustment
              
              
              (183
              )
              
              (100
              )
              
              (107
              )Total
                  stockholders’ deficit
              
              
              (2,007
              )
              
              (1,099
              )
              
              (1,580
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS’ DEFICIT
              
              
              24,830
              
              
              13,596
              
              
              5,609




See
      accompanying notes to the consolidated financial statements.




F-3




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




Year
                ended April 30,2006
            
            2006
            
            2005
            
            2004($’000)
            
            (GBP’000)
            
            (GBP’000)
            
            (GBP’000)Net
                salesProducts
            
            
            27,983
            
            
            15,322
            
            
            13,706
            
            
            17,504Services
            
            
            4,087
            
            
            2,238
            
            
            1,945
            
            
            1,157Total
                Net sales
            
            
            32,070
            
            
            17,560
            
            
            15,651
            
            
            18,661Cost
                of salesProducts
            
            
            25,426
            
            
            13,922
            
            
            11,865
            
            
            15,010Services
            
            
            591
            
            
            324
            
            
            2,545
            
            
            1,522Gross
                profit
            
            
            6,053
            
            
            3,314
            
            
            1,241
            
            
            2,129Operating
                expensesSales
                and marketing
            
            
            4,149
            
            
            2,272
            
            
            1,693
            
            
            496General
                and administrative
            
            
            10,383
            
            
            5,685
            
            
            2,994
            
            
            2,869Facilities
                expenses
            
            
            930
            
            
            509
            
            
            316
            
            
            155Total
                operating expenses
            
            
            15,462
            
            
            8,466
            
            
            5,003
            
            
            3,520Operating
                loss
            
            
            (9,409
            )
            
            (5,152
            )
            
            (3,762
            )
            
            (1,391
            )Interest
                income
            
            
            75
            
            
            41
            
            
            119
            
            
            24Interest
                expense
            
            
            (2,982
            )
            
            (1,633
            )
            
            -
            
            
            (2
            )Foreign
                currency losses
            
            
            (11
            )
            
            (6
            )
            
            (10
            )
            
            (6
            )Share
                of loss from equity investment including goodwill impairment of GBP343,000
                ($654,000) in 2005, GBP100,000 in 2004
            
            
            -
            
            
            -
            
            
            (359
            )
            
            (287
            )Profit
                on disposal of equity investment
            
            
            -
            
            
            -
            
            
            54
            
            
            -Net
                loss
            
            
            (12,327
            )
            
            (6,750
            )
            
            (3,958
            )
            
            (1,662
            )Loss
                per share basic and diluted.
            
            
            (13.08)
            c
            
            (7.16)
            p
            
            (4.47)
            p
            
            (1.98)
            pWeighted
                average shares outstanding
            
            
            94,220,879
            
            
            94,220,879
            
            
            88,559,952
            
            
            83,811,982




See
      accompanying notes to the consolidated financial statements.




F-4




**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, 2003
            
            
            78,194,457
            
            
            869
            
            
            16,921
            
            
            -
            
            
            (16,111
            )
            
            (104
            )
            
            1,575Exchange
                translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2
            )
            
            (2
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,662
            )
            
            
            
            
            (1,662
            )Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,664
            )Adjustment
                for Variable options
            
            
            -
            
            
            -
            
            
            686
            
            
            -
            
            
            -
            
            
            -
            
            
            686Issuance
                of shares re exercise of warrants (net of issuance costs of
                GBP5,000)
            
            
            1,594,344
            
            
            18
            
            
            54
            
            
            -
            
            
            -
            
            
            -
            
            
            72Issuance
                of shares re acquisition (net of issuance costs of
                GBP20,000)
            
            
            1,125,000
            
            
            12
            
            
            270
            
            
            -
            
            
            -
            
            
            -
            
            
            282Issuance
                of shares re investment (net of issuance costs of
                GBP50,000)
            
            
            5,173,958
            
            
            57
            
            
            649
            
            
            -
            
            
            -
            
            
            -
            
            
            706Issuance
                of shares re exercise of options (net of issuance costs of
                GBP5,000)
            
            
            1,151,727
            
            
            13
            
            
            62
            
            
            -
            
            
            -
            
            
            -
            
            
            75At
                April 30, 2004
            
            
            87,239,486
            
            
            969
            
            
            18,642
            
            
            -
            
            
            (17,773
            )
            
            (106
            )
            
            1,732Exchange
                translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1
            )
            
            (1
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,958
            )
            
            -
            
            
            (3,958
            )Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,959
            )Receivable
                from subscription
            
            
            -
            
            
            -
            
            
            -
            
            
            (18
            )
            
            -
            
            
            -
            
            
            (18
            )Adjustment
                for Variable options
            
            
            -
            
            
            -
            
            
            (306
            )
            
            -
            
            
            -
            
            
            -
            
            
            (306
            )Issuance
                of shares re acquisition (net of issuance costs of
                GBP160,000)
            
            
            1,735,840
            
            
            19
            
            
            360
            
            
            -
            
            
            -
            
            
            -
            
            
            379Issuance
                of shares re investment (net of issuance costs of
                GBP32,000)
            
            
            1,385,392
            
            
            15
            
            
            442
            
            
            -
            
            
            -
            
            
            -
            
            
            457Issuance
                of shares re exercise of options (net of issuance costs of
                GBP6,000)
            
            
            1,408,758
            
            
            16
            
            
            119
            
            
            -
            
            
            -
            
            
            -
            
            
            135Issuance
                of shares to specific individuals
            
            
            3
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -At
                April 30, 2005
            
            
            91,769,479
            
            
            1,019
            
            
            19,257
            
            
            (18
            )
            
            (21,731
            )
            
            (107
            )
            
            (1,580
            )Exchange
                translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7
            
            
            7Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,750
            )
            
            -
            
            
            (6,750
            )Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,743
            )Adjustment
                for Variable options
            
            
            -
            
            
            -
            
            
            20
            
            
            -
            
            
            -
            
            
            -
            
            
            20





F-5





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


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


Issuance
                of shares re acquisition of EBC Limited (net of issuance costs of
                GBP24,000)
            
            
            4,776,442
            
            
            53
            
            
            623
            
            
            -
            
            
            -
            
            
            -
            
            
            676Issuance
                of shares re acquisition (net of issuance costs of
                GBP37,000)
            
            
            20,867,473
            
            
            233
            
            
            2,070
            
            
            -
            
            
            -
            
            
            -
            
            
            2,303Issuance
                of shares re acquisition costs (net of issuance costs of
                GBP13,000)
            
            
            2,539,848
            
            
            28
            
            
            303
            
            
            -
            
            
            -
            
            
            -
            
            
            331Issuance
                of shares re exercise of options (net of issuance costs of
                GBP6,000)
            
            
            300,000
            
            
            3
            
            
            16
            
            
            -
            
            
            -
            
            
            -
            
            
            19Issuance
                of shares re Loan conversion (net of issuance costs of
                GBP17,000)
            
            
            3,968,255
            
            
            44
            
            
            338
            
            
            -
            
            
            -
            
            
            -
            
            
            382Issuance
                of shares re Loan repayment (net of issuance costs of
                GBP44,000)
            
            
            8,811,911
            
            
            98
            
            
            1,186
            
            
            -
            
            
            -
            
            
            -
            
            
            1,284Issuance
                of shares re settlement of outstanding accounts (net of issuance
                costs of
                GBP2,000)
            
            
            339,941
            
            
            4
            
            
            83
            
            
            -
            
            
            -
            
            
            -
            
            
            87Fair
                value adjustment re convertible debt and warrants
            
            
            -
            
            
            -
            
            
            2,122
            
            
            -
            
            
            -
            
            
            -
            
            
            2,122At
                April 30, 2006
            
            
            133,373,349
            
            
            1,482
            
            
            26,018
            
            
            (18
            )
            
            (28,481
            )
            
            (100
            )
            
            (1,099
            )




See
      accompanying notes to the consolidated financial statements.




F-6




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




Year
                ended April 30,2006
            
            2006
            
            2005
            
            2004($’000)
            
            (GBP’000)
            
            (GBP’000)
            
            (GBP’000)Operating
                activitiesNet
                loss
            
            
            (12,327
            )
            
            (6,750
            )
            
            (3,958
            )
            
            (1,662
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activitiesDepreciation
            
            
            259
            
            
            142
            
            
            114
            
            
            69Shares
                issued for services
            
            
            163
            
            
            89
            
            
            -
            
            
            -Profit
                on disposal of investment
            
            
            -
            
            
            -
            
            
            (54
            )
            
            (33
            )Loss/(profit)
                on disposal of fixed assets
            
            
            -
            
            
            -
            
            
            3
            
            
            -Amortization
                of intangible assets
            
            
            552
            
            
            302
            
            
            176
            
            
            150Interest
                charge arising on Convertible loan
            
            
            2,586
            
            
            1,416
            
            
            -
            
            
            -Loss
                from equity investment
            
            
            -
            
            
            -
            
            
            343
            
            
            286Goodwill
                impairment
            
            
            55
            
            
            30
            
            
            -
            
            
            -Stock
                compensation arising from Variable option accounting
            
            
            -
            
            
            -
            
            
            (306
            )
            
            686Accounts
                receivable
            
            
            (1,065
            )
            
            (583
            )
            
            915
            
            
            (1,661
            )Allowance
                for doubtful accounts
            
            
            133
            
            
            73
            
            
            -
            
            
            39Amounts
                recoverable on contracts
            
            
            135
            
            
            74
            
            
            (68
            )
            
            2Other
                current assets
            
            
            213
            
            
            117
            
            
            1,072
            
            
            (1,720
            )Non
                current assets
            
            
            (98
            )
            
            (54
            )
            
            -
            
            
            -Inventories
            
            
            402
            
            
            220
            
            
            22
            
            
            (634
            )Prepaid
                expenses
            
            
            431
            
            
            236
            
            
            (195
            )
            
            (2
            )Fees
                received in advance
            
            
            1,082
            
            
            593
            
            
            575
            
            
            2,562Accounts
                payable
            
            
            181
            
            
            99
            
            
            184
            
            
            1,472Other
                accounts payable
            
            
            (53
            )
            
            (29
            )
            
            33
            
            
            26Other
                taxes and social security costs
            
            
            241
            
            
            132
            
            
            (1,278
            )
            
            1,420Other
                accrued expenses
            
            
            1,362
            
            
            746
            
            
            (1,303
            )
            
            2,052Net
                cash provided by/(used in) operating activities
            
            
            (5,744
            )
            
            (3,145
            )
            
            (3,725
            )
            
            3,052Investing
                activitiesAcquisition
                of EBC Limited
            
            
            (6,849
            )
            
            (3,750
            )
            
            (419
            )
            
            -Acquisition
                costs
            
            
            (1,141
            )
            
            (625
            )
            
            -
            
            
            -Capital
                expenditures
            
            
            (314
            )
            
            (172
            )
            
            (321
            )
            
            (86
            )Proceeds
                on disposal of investment
            
            
            -
            
            
            -
            
            
            351
            
            
            51Proceeds
                on disposal of fixed assets
            
            
            -
            
            
            -
            
            
            3
            
            
            450Net
                cash provided by/(used in) investing activities
            
            
            (8,304
            )
            
            (4,547
            )
            
            (386
            )
            
            415Financing
                activitiesProceeds
                of share issues
            
            
            75
            
            
            41
            
            
            612
            
            
            1,125Share
                issue costs
            
            
            (355
            )
            
            (194
            )
            
            (67
            )
            
            (80
            )(Repayment
                of)/Proceeds from short-term debt
            
            
            -
            
            
            -
            
            
            -
            
            
            (300
            )Proceeds
                from Convertible Loans
            
            
            14,424
            
            
            7,898
            
            
            -
            
            
            -Net
                cash provided by financing activities
            
            
            14,145
            
            
            7,745
            
            
            545
            
            
            745Effects
                of exchange rate changes
            
            
            32
            
            
            18
            
            
            (1
            )
            
            2Net
                (decrease)/increase in cash and cash equivalents
            
            
            129
            
            
            71
            
            
            (3,567
            )
            
            4,214Cash
                and cash equivalents at beginning of period
            
            
            1,980
            
            
            1,084
            
            
            4,651
            
            
            437Cash
                and cash equivalents at end of period
            
            
            2,109
            
            
            1,155
            
            
            1,084
            
            
            4,651Supplemental
                disclosure of cashflow informationInterest
                paid during the period
            
            
            -
            
            
            -
            
            
            -
            
            
            2Supplemental
                disclosure of non-cash transactionsIssuance
                of shares in acquisitions
            
            
            1,907
            
            
            1,044
            
            
            538
            
            
            302Issuance
                of shares for services
            
            
            163
            
            
            83
            
            
            -
            
            
            -Issuance
                of shares in investment
            
            
            4,359
            
            
            2,387
            
            
            630
            
            
            -Receivable
                from stock subscription
            
            
            4,321
            
            
            2,366
            
            
            18
            
            
            24




See
      accompanying notes to the consolidated financial statements.




F-7





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SUMMARY
      OF**  **SIGNIFICANT
      ACCOUNTING POLICIES**




**Description
      of Business**


Futuremedia
      PLC was incorporated in England in 1982 as Futuremedia Limited and re-registered
      as a public company in 1993. The Company offers the following products and
      services:




·
            Consultancy
                Services - providing a wide range of technical and practical services
                to
                help the Company’s clients to establish their training needs and solutions




·
            Custom
                Designed Content Products - specifically designed content to meet
                our
                customer’s individual e-learning needs. Following the acquisition of
                Executive Business Channel Limited (EBC), 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





·
            Managed
                Benefit Programs- comprising a combination of hardware, software
                and
                services, which the Company installs at the homes of participating
                employees of its clients that contract with it 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.




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
      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. The Company continues to provide services
      to HCI clients and over 40,000 employee-subscribing households without
      interruption. The future of HCI remains unclear, although, the UK Government
      is
      considering plans for a revised version. The timetable for the release of such
      a
      scheme is unknown. Futuremedia will continue to provide Managed Benefit Services
      to UK companies. The elimination of the HCI tax benefit by the UK Government
      is
      likely to materially change the nature of our business.




F-8




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**





On
      March
      23, 2006, the Company entered into an agreement to acquire Button Group plc,
      ‘Button’. The acquisition was completed on May 26, 2006. The purchase price for
      the acquisition was GBP 5.3 million ($9.9 million), consisting of a combination
      of cash GBP 2.3 million ($4.3 million) and our ADSs valued at GBP 3 million
      ($5.6 million) issued at the share closing price on May 25, 2006. Button is
      an integrated design and brand communications agency providing strategic marketing
      solutions to blue chip European  and
      US
      companies.





On
      April
      25, 2006, the Company completed the acquisition of the holding company for
      Executive Business Channel Limited, (“EBC”). Under the terms of the agreement,
      the Company acquired EBC for GBP 4.45 million, consisting of a combination
      of
      cash (GBP 3.75 million or $6.675 million) and our ADSs (valued at GBP 700,000
      or
      $1.25 million and consisting of 4.8 million ADSs). EBC is a recognised UK
      provider of Custom Designed Content Products.




On
      April
      27, 2006, the Company expanded its portfolio with the launch of a new Managed
      Benefits solution, FlexsmartTM, at the Employee Benefits North Conference and
      Exhibition. This new service, while not incorporating tax benefits, provides
      the
      opportunity for employers to offer employees and their families home-based
      education and digital access for work, school and life enhancement, improving
      computer skills throughout the UK’s workforce and helping bridge the digital
      divide. This service builds on the original ideas behind HCI, and targets both
      companies which previously offered HCI, plus those other companies whose plans
      to do so were cut short by the UK Government’s change in the tax regulations.
      Through FlexsmartTM, employees will be able to purchase competitively priced
      computer equipment from PCWorld and other suppliers. They will also become
      members of e-lifeTM, an online community created by Futuremedia to enable
      employees across the UK to develop and enhance their professional, personal
      and
      family lives through a comprehensive range of learning tools. Also included
      in
      the FlexsmartTM package will be online and telephone support, plus optional
      sessions with a personal trainer to ensure employees are able to make the most
      of e-lifeTM.





**Principles
      of Consolidation**


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




**Financial
      Resources and Going Concern**


In
      the
      course of its operations the Company has sustained continuing operating losses
      which have resulted in the Company requiring short-term bank and other loans
      and
      equity and loan stock finance to sustain its operations.




Since
      its
      initial public offering (“IPO”), the Company has incurred net losses and
      experienced negative cash flows from operating activities. Net losses since
      its
      IPO have resulted in an accumulated deficit of GBP28,481,000 as of April 30,
      2006. At August 30, 2006, the Company’s cash resources and available borrowings
      are insufficient to fund the current level of operations for the next twelve
      months. 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 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. Management has therefore prepared these financial
      statements on a going concern basis. There can be no assurance however that
      the
      Company will be successful in implementing these plans. The Company’s financial
      statements do not include any adjustments to reflect the possible future effects
      on the recoverability and classification of assets or the amounts and
      classification of liabilities that may result from the outcome of this
      uncertainty.




F-9




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**




**Impairment
      of long-lived assets**




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




Management
      has undertaken an impairment review in accordance with FAS144 “Accounting for
      the impairment or disposal of long-lived assets”, based upon financial forecasts
      presented to the Board of Directors on June 6, 2006. This review was conducted
      by comparing the sum of the future undiscounted cash flows expected to be
      derived from an asset or a group of assets to their carrying value. As a result
      of this review, management believes that no impairment has occurred with the
      exception of the GBP30,000 ($55,000) that arose on the acquisition of C2W
      Limited whose activities were transferred to a third party during the year
      ended
      April 30, 2006. Consequently, the whole of this goodwill item was written off
      via an impairment charge.




**Estimates**




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




**Convenience
      Translations**




Translation
      of the financial statements at April 30, 2006 and for the year then ended from
      sterling into US dollars is for informational purposes only and has been made
      at
      the April 30, 2006 Noon Buying Rate of GBP1.00 to $1.8263.





**Cash
      and Cash Equivalents**




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




**Inventories**




Inventories
      are stated at the lower of cost, determined on the basis of the first in, first
      out method, and net realizable value. At April 30, 2006, inventories held of
      GBP402,000 ($734,000) represent Learning For AllTMgoods.
      All stocks are held on behalf of the Company by its appointed distribution
      agent
      at their premises, and are controlled under a perpetual inventory management
      system.




F-10




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**




**Property
      and Equipment**




Property
      and equipment is carried at cost. Depreciation is charged on a straight-line
      basis assets 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
      and Intangible Assets**




Goodwill
      arising on acquisition is accounted for in accordance with FAS141. Where
      separable are identified on acquisition, these are excluded from the calculation
      of goodwill and categorised as intangible assets. Intangible assets are written
      off over the useful life of the asset.




**Revenue
      Recognition**




Net
      sales
      represent the value of goods and services delivered, excluding value added
      tax,
      and for the year ended April 30, 2006 and can be categorized by activity into
      one of five sources:





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




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




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




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




F-11




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**  **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**




Learning
      for All TM - The
      Guidance applied when recording revenues in connection with Learning For AllTM is
      in accordance with EITF 00-21 “Accounting for revenue arrangements with multiple
      deliveries”.




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




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




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


2
            no
                post-contract customer support is provided;
                and


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




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




The
      Company believes that the guidance given under EITF 00-3: Application of AICPA
      SOP 97-2, “Software Revenue Recognition,” to Arrangements That Include the Right
      to Use Software Stored on Another Entity’s Hardware, that seeks to determine
      whether certain software elements should be recognized separately does not
      apply
      in the case of the Learning For All TM product
      because the contractual arrangements do not allow the customer the right to
      take
      the software at any time during the hosting period.




F-12





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**




The
      nature of the sale therefore does not meet the requirement that both the
      following criteria are satisfied:




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


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




Revenues
      are categorized as being either ‘delivered’ or ‘deferred’ depending on the
      nature of each element of the installed package. Typically, all hardware,
      operating software and any software programs delivered on local media, either
      CD-rom or loaded on the hard disc, are treated as ‘delivered’ revenues, whilst
      the remaining services, which typically comprise telephone and e-mail support,
      the provision and hosting of a Learning Management System and various online
      software programs, are treated as ‘deferred’ revenues. For revenue recognition
      purposes, the package price is allocated by element in accordance with fair
      values of each element. The fair values of each element were determined by
      taking the price of similar products being offered by competitors, as advertised
      on the Internet or in trade publications. This was done at the outset of each
      campaign, and therefore reflected the ‘spot price’ of each element. Once
      established, the fair values remained unchanged for the duration of the
      campaign, typically two to three months. These values are then used to compile
      a
      fair value for the total package being offered, and the percentage of this
      total
      that each element represents was used to derive the actual revenue recognized
      in
      the income statement. Those elements that have been categorized as ‘delivered’
are recognized on the completion and acceptance of installation by the
      participant, and those revenues that are categorized as ‘deferred’ are
      recognized over the period of the agreement. As at April 30, 2006 Futuremedia
      has contracted with approximately 35 clients and implemented approximately
      51
      campaigns for the provision of its LFA TM product.
      The proportions of delivered and deferred revenues were established for each
      in
      accordance with the process described above. The ratios derived in each case
      showed a consistent ratio of 85% to 15% for delivered and deferred revenues
      respectively. In order to reduce the administrative cost, particularly for
      smaller schemes, Futuremedia may choose in the future to adopt these ratios
      as
      standard for each campaign, subject to periodic review.




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




Following
      the acquisition of Button in May 2006, the Company intends to bring the revenue
      recognition policy that will apply to this new business stream into line with
      the rest of the group.




F-13




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**





**Convertible
      loans**





Derivative
      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", ("SFAS No. 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 accounting principles generally accepted in the United States
      ("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 or other comprehensive
      income depending on the nature of the derivative or hybrid instruments. 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 if they can be reliably measured. When the
      fair value of embedded derivative features can not be reliably measured, the
      Company measures and reports the entire hybrid instrument 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
      and
      precluding the use the "blockage" discounts or premiums in determining the
      fair
      value of a large block of financial instruments. Fair value under
      these conditions
      does not necessarily represent fair value determined using valuation standards
      that give
      consideration to blockage discounts and other factors that may be considered
      by
      market participants in establishing fair value.




**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.




F-14





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**  **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**







The
      following amounts are estimated to have been charged to expense during the
      year:




Year
                ended April 302006
            2006
            2005
            2004$000’s
            GBP000’s
            GBP000’s
            GBP000’sResearch
                and development expense
            
            502
            275
            261
            196




**Pensions**




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




**Foreign
      Currency Translation**




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




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




**Equity
      Method Investments**




Investments
      in companies in which Futuremedia 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.




**Loss
      Per Share**




Loss
      per
      share figures have been calculated using the method required by Statement of
      Financial Standards No. 128 “Earnings per Share”. Under the provisions of SFAS
      No.128, basic net loss per share is computed by dividing the loss attributable
      to common stockholders for the period by the weighted average number of shares
      of common stock outstanding during the period, which included shares to be
      issued. The calculation of diluted loss per share gives effect to common stock
      equivalents, however, potential common shares are excluded if their effect
      is
      anti-dilutive. The calculation excludes a total of 8,638,817 options to purchase
      Ordinary shares outstanding as at April 30, 2006 under the Company’s various
      Approved and Unapproved Share Option Schemes, 11,497,128 and warrants to
      purchase ordinary shares arising under the three convertible loan arrangements.
      Also excluded from the loss per share calculation is an indeterminate number
      of
      shares to be issued on conversion of the various convertible loans, which,
      based on the share price at April 30, 2006 of $0.318 per share, would
      potentially aggregate a further 41,823,899 shares to be issued.




F-15




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**




**Income
      Taxes**




The
      Company accounts for income taxes using the liability method required by
      statement of Financial Accounting Standards No. 109, “Accounting for Income
      Taxes.” Deferred income taxes reflect the net tax effects of temporary
      differences between the carrying amounts of assets and liabilities for financial
      reporting purposes and the amounts used for income tax purposes. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amount expected to be realized.




**Stock-based
      employee compensation**




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




F-16




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**




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




April
                30,2006
            
            2005
            
            2004Risk-free
                interest rate
            
            
            4.25
            %
            
            3.63
            %
            
            2.4
            %Volatility
            
            
            112
            %
            
            61
            %
            
            26.7
            %Dividend
                yield
            
            
            0
            %
            
            0
            %
            
            0
            %Expected
                life (years)
            
            
            3.3
            
            
            3.3
            
            
            3.3




Year
                ended April 302006
            
            2006
            
            2005
            
            2004($’000)
            
            
            (GBP
                ‘000)
            
            
            (GBP
                ‘000)
            
            
            (GBP
                ‘000)Net
                loss as reported
            
            
            (12,327
            )
            
            (6,750
            )
            
            (3,958
            )
            
            (1,662
            )Add/Deduct
                stock compensation arising from variable option accounting
            
            
            (37
            )
            
            (20
            )
            
            (306
            )
            
            686Add:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of tax and stock compensation
                arising from variable option accounting
            
            
            (695
            )
            
            (381
            )
            
            (99
            )
            
            (777
            )Pro-forma
                net loss
            
            
            (13,059
            )
            
            (7,151
            )
            
            (4,363
            )
            
            (1,753
            )Net
                loss per share as reported, basic and diluted
            
            
            (13.08)
            c
            
            (7.16)
            p
            
            (4.47)
            p
            
            (1.98)
            pPro
                forma net loss per ordinary share:Basic
                and diluted
            
            
            (13.86)
            c
            
            (7.59)
            p
            
            (4.92)
            p
            
            (2.01)
            p





F-17




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.** **SIGNIFICANT
      ACCOUNTING POLICIES- (continued)**





**Advertising
      Costs**




All
      advertising costs incurred in the promotion of the Company’s products and
      services are expensed as incurred. Advertising costs were GBP15,000 ($27,000),
      GBP20,000 and GBP126,000 for the years ended April 30, 2006, 2005 and
      2004.




**Allowance
      for doubtful accounts**




Accounts
      receivable consist primarily of amounts due to us from the Company’s normal
      business activities. The Company’s ability to collect outstanding receivables
      from its customers is critical to its operating performance and cash flows.
      Futuremedia maintains an allowance for doubtful accounts to reflect the
      estimated future uncollectability of accounts receivable based on past
      collection history and specific risks that have been identified by reviewing
      current customer information. After
      all
      attempts to collect a receivable have failed, the receivable is written off
      against the allowance. Based on the information available to it, the Company
      believes its allowance for doubtful accounts as of April 30, 2006, is
      adequate. However, actual write-offs might exceed the recorded
      allowance.




Year
                ended April 302006
            2006
            2005($’000)
            (GBP’000)
            (GBP’000)Allowance
                at May 1
            -
            -
            74(Utilized)
                released during year
            86
            47
            (74)Provided
                in year
            (219)
            (120)
            -Allowance
                at April 30
            (133)
            (73)
            -




**2.** **FAIR
      VALUES OF FINANCIAL INSTRUMENTS**





April
                30,2006
            
            2005Carrying
              Value
            Fair
              Value
            
            Carrying
              Value
            Fair
                Value(GBP’000)
            (GBP’000)
            
            (GBP’000)
            (GBP’000)Cash
                and cash equivalents
            1,155
            1,155
            
            1,084
            1,084





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




See
      note
      11 for details of the fair values of financial instruments relating to
      convertible.




F-18




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**3.** **INCOME
      TAXES**




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




April
                30,2006
            
            2005(GBP’000)Book
                over tax depreciation
            
            
            100
            
            
            100Operating
                losses carried forward
            
            
            6,408
            
            
            5,293Other
                timing differences
            
            
            11
            
            
            416,519
            
            
            5,434Less:
                valuation allowance
            
            
            (6,519
            )
            
            (5,434
            )Net
                deferred tax assets
            
            
            -
            
            
            -




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




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




Year
                ended April 30,2006
            
            2005
            
            2004(GBP’000)United
                Kingdom
            
            
            (6,395
            )
            
            (3,973
            )
            
            (1,662
            )Overseas
            
            
            (355
            )
            
            15
            
            
            -(6,750
            )
            
            (3,958
            )
            
            (1,662
            )




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




Year
                ended April 30,2006
            
            2005
            
            2004(GBP’000)
            
            %
            
            (GBP’000)
            
            %
            
            (GBP’000)
            
            %Statutory
                rate
            
            
            (1,507
            )
            
            (30.0
            )
            
            (1,299
            )
            
            (30.0
            )
            
            (261
            )
            
            (30.0
            )Unrelievable
                UK tax losses
            
            
            1,066
            
            
            21.2
            
            
            1,106
            
            
            25.5
            
            
            79
            
            
            9.1Non
                deductible expenses
            
            
            441
            
            
            8.8
            
            
            189
            
            
            4.4
            
            
            112
            
            
            12.9Other
                sundry items
            
            
            -
            
            
            -
            
            
            4
            
            
            0.1
            
            
            70
            
            
            8.0-
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





F-19




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**4.** **LEASE
      COMMITMENTS**




The
      future minimum rental payments under non-cancelable operating leases at April
      30, 2006 are:




Equipment
            Rental(GBP’000)
            (GBP’000)2007
            2
            3942008
            2
            1262009
            2
            892010
            2
            452011
            -
            -2012
            -
            -





Rental
      expense was GBP209,000 ($382,000), GBP153,000 and GBP112,000 for the years
      ended
      April 30, 2 0 06,
      2005
      and 2004 in respect of the Company’s UK operations. The annual cost of rental
      expense for Open Training AB in Sweden is GBP89,000 ($163,000). The annual
      cost
      of rental expense for EBC is GBP40,000 ($73,000).




**5.** **PREPAID
      EXPENSES**




Prepaid
      expenses for the year ended April 30, 2006 of GBP608,000 ($1,110,000) include
      the forward purchase of learning materials in respect of existing customer
      contracts of GBP221,000, together with prepaid expenses for hosting services,
      dues and subscriptions, and insurances of GBP387,000.




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




F-20




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**6.** **SEGMENT
      INFORMATION, EXPORT SALES AND MAJOR CUSTOMERS**




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




Year
                ended April 302006
            
            2006
            
            2005
            
            2004$’000
            
            GBP’000
            
            GBP’000
            
            GBP’000Net
                Sales:Learning
                For AllTM
            
            
            27,804
            
            
            15,224
            
            
            14,036
            
            
            17,366e-Learning
                services
            
            
            4,266
            
            
            2,336
            
            
            1,615
            
            
            1,295Total
                Net Sales
            
            
            32,070
            
            
            17,560
            
            
            15,651
            
            
            18,661Cost
                of salesLearning
                For AllTM
            
            
            23,385
            
            
            12,805
            
            
            13,003
            
            
            15,246e-Learning
                services
            
            
            2,632
            
            
            1,441
            
            
            1,407
            
            
            1,286Total
                Cost of sales
            
            
            26,017
            
            
            14,246
            
            
            14,410
            
            
            16,532Gross
                profit/(loss):Learning
                For AllTM
            
            
            4,419
            
            
            2,419
            
            
            1,033
            
            
            2,120e-Learning
                services
            
            
            1,635
            
            
            895
            
            
            208
            
            
            9Total
                Gross profit
            
            
            6,053
            
            
            3,314
            
            
            1,241
            
            
            2,129Operating
                expenses:Learning
                For AllTM
            
            
            10,150
            
            
            5,558
            
            
            3,420
            
            
            1,508e-Learning
                services
            
            
            5,312
            
            
            2,908
            
            
            1,583
            
            
            2,012Total
                Operating expenses
            
            
            15,462
            
            
            8,466
            
            
            5,003
            
            
            3,520Operating
                profit/(loss)Learning
                For AllTM
            
            
            (5,732
            )
            
            (3,139
            )
            
            (2,387
            )
            
            612e-Learning
                services
            
            
            (3,677
            )
            
            (2,013
            )
            
            (1,375
            )
            
            (2,003
            )Total
                Operating loss
            
            
            (9,409
            )
            
            (5,152
            )
            
            (3,762
            )
            
            (1,391
            )




F-21




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




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




At
                April 30,2006
            
            2006
            
            2005$’000
            
            GBP’000
            
            GBP’000Assets:Learning
                For AllTM
            
            
            4,210
            
            
            2,305
            
            
            2,134e-Learning
                services
            
            
            11,977
            
            
            6,558
            
            
            1,958Total
                segment assets
            
            
            16,187
            
            
            8,863
            
            
            4,092Unallocated
                assets:Cash
            
            
            2,109
            
            
            1,155
            
            
            1,084Prepaid
                expenses
            
            
            550
            
            
            301
            
            
            86Other
                current assets
            
            
            4,912
            
            
            2,690
            
            
            12Property
                and equipment
            
            
            1,072
            
            
            587
            
            
            335Total
                assets
            
            
            24,830
            
            
            13,596
            
            
            5,609




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




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




Year
                ended April 30,2006
            
            
            2005
            
            
            2004(GBP’000)United
                Kingdom
            
            
            16,642
            
            
            15,398
            
            
            18,661Rest
                of Europe
            
            
            918
            
            
            253
            
            
            -Rest
                of the World
            
            
            -
            
            
            -
            
            
            -17,560
            
            
            15,651
            
            
            18,661





During
      the year ended April 30, 2006, Customer E accounted for 33% of sales and
      Customer A for 32% of sales; during the year ended April 30, 2005, Customer
      A
      accounted for 79% of sales and Customer B for 3% of sales, and during the year
      ended April 30, 2004, Customer A accounted for 93% of sales and Customer C
      for
      4% of sales.




At
      April
      30, 2006 the major customers identified above accounted for 13% of the accounts
      receivable and 17% in 2005.




F-22




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**7.** **PENSION
      PLANS**




The
      Company operates various defined contribution pension plans on behalf of the
      directors and other staff. Contributions payable are charged to the income
      statement as incurred. Contributions by the Company are determined in accordance
      with the rules of the pension plans. Contributions aggregated GBP94,000
      ($172,000) in fiscal 2006, GBP87,000 ($164,000) in fiscal 2005 and GBP41,000
      in
      fiscal 2004. The Company has no obligations in respect of post retirement
      benefits other than the pension obligations described above.




**8.** **ACQUISITIONS**




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




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





The
      Sale
      and Purchase Agreement pertaining to the acquisition of Open Training AB
      provided for a contingency payment conditional on the company achieving agreed
      levels of performance during the period November 1, 2004 to October 31 2005.
      Taking into consideration the actual results of Open Training AB for the period
      November 1, 2004 to October 31, 2005, the conditions for the contingency payment
      to become due were not met, therefore no provision was required for such
      payment.




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





F-23





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**8.** **ACQUISITIONS
      (continued)**





On
      April
      25, 2006, the Company completed the acquisition of the holding company for
      Executive Business Channel Limited, (“EBC”). Under the terms of the agreement,
      the Company acquired EBC for GBP 4.45 million, consisting of a combination
      of
      cash (GBP 3.75 million or $6.675 million) and our ADSs (valued at GBP 700,000
      or
      $1.25 million and consisting of 4.8 million ADSs). The cash portion of the
      purchase price was financed by Cornell Capital Partners, LP, Certain Wealth,
      Ltd. and TAIB Bank B.S.C.(c) in the form of a $7.5 million private placement.





The
      total
      purchase price for the acquisition is analyzed as follows:





Consideration
                satisfied by :
            
            $000’s
            
            GBP000’sCash
            
            
            6,849
            
            
            3,750Shares
                issued
            
            
            1,278
            
            
            700Acquisition
                costs
            
            
            1,961
            
            
            1,07410,088
            
            
            5,524Net
                assets acquired
            
            
            891
            
            
            488Goodwill
                (note 9)
            
            
            9,197
            
            
            5,036





At
      the
      time of acquisition, the condensed balance sheet of EBC was as
      follows:





As
                at April 25, 2006$000
            
            GBP000Property
                and equipment
            
            
            53
            
            
            29Intangible
                assets
            
            
            104
            
            
            57Current
                assets
            
            
            1,684
            
            
            922Current
                liabilities
            
            
            (952
            )
            
            (521
            )Net
                current assets
            
            
            889
            
            
            487Total
                Equity and reserves
            
            
            889
            
            
            487





There
      was
      no material difference between the book values and fair values of the assets
      and
      liabilities at the time of acquisition. Given the proximity of the acquisition
      date to the Company’s year end, trading results for EBC Limited are immaterial
      to the Company’s results and have therefore been excluded. The acquisition of
      EBC will considerably increase Futuremedia’s presence on the Custom Designed
      Content Products market place and the integration of the EBC operation with
      Futuremedia’s e-learning activities should enable synergistic savings to be
      made.





F-24





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**8.** **ACQUISITIONS
      (continued)**




The
      unaudited pro forma consolidated statement of operations below, for the
      12 months ended April 30, 2006 gives effect to the acquisition of EBC as if
      it had occurred at the beginning of Fiscal 2006:




2006
            
            2006
            
            2005$000
            
            GBP000
            
            GBP000Revenues
            
            
            35,682
            
            
            19,538
            
            
            16,359Net
                Loss
            
            
            (12,108
            )
            
            (6,630
            )
            
            (3,930
            )Basic
                and diluted net loss per share
            
            
            (12.85)
            c
            
            (7.04)
            p
            
            (4.42)
            pWeighted
                average shares outstanding
            
            
            94,220,879
            
            
            94,220,879
            
            
            88,811,982




Management
      has completed the purchase price allocation with respect to this acquisition
      in
      accordance with SFAS 141 considers the areas of company name, the valuation
      of
      existing contracts, customer relationships and non-compete clauses are those
      that should be considered for separate valuation. Of these, management has
      determined that an amount of GBP57,000 ($104,000) is attributable to the
      combined work in progress and sales order book of EBC Limited at the time of
      the
      acquisition, with the balance treated as goodwill.




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




F-25




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**9.** **INTANGIBLE
      ASSETS AND GOODWILL**




**Intangible
      Assets**




At
                April
                302006
            
            2006
            
            2005Cost
            
            $’000
            
            (GBP’000)At
                May 1
            
            
            2,588
            
            
            1,417
            
            
            790Additions
            
            
            203
            
            
            111
            
            
            627Exchange
                rate impact
            
            
            17
            
            
            9
            
            
            -At
                April 30
            
            
            2,808
            
            
            1,537
            
            
            1,417AmortizationAt
                May 1
            
            
            1,078
            
            
            590
            
            
            414Charge
                for year
            
            
            552
            
            
            302
            
            
            176At
                April 30
            
            
            1,630
            
            
            892
            
            
            590Net
                book amount at April 30
            
            
            1,178
            
            
            645
            
            
            827




The
      addition in 2006 of GBP111,000 ($203,000) results from a GBP54,000 tax debtor
      within the books of Open Training together with the purchase price allocation
      arising on the acquisition of EBC Limited and reflects the value placed on
      the
      work in progress GBP37,000 ($67,000) and sales order pipeline GBP20,000
      ($37,000) at the time of the acquisition. This intangible will be written of
      over the six months commencing May 1, 2006. Both valuations are based on the
      gross values of the work in progress and sales order pipeline, discounted to
      reflect expected margins, probabilities of winning orders and the effect of
      UK
      corporation taxes. No other assets were considered separable or material, thus
      no values have been attributed.




The
      table
      below shows expected amortization expense for acquired intangible assets
      recorded as of April 30, 2006.




2007
            2008
            2009
            2010
            2011Amortization
                expense (GBP’000)
            
            208
            126
            126
            126
            59





With
      the
      exception of the GBP57,000 arising from the acquisition of EBC Limited which
      is
      to be written off over 6 months, intangible assets are being written off over
      a
      period of three to five years, depending on the expected useful life of the
      asset. The above amortization expense forecast is an estimate. Actual amounts
      of
      amortization expense may differ from estimated amounts due to additional
      intangible asset acquisitions, impairment of intangible assets, accelerated
      amortization of intangible assets, and other events





F-26





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**9.** **INTANGIBLE
      ASSETS AND GOODWILL (continued)**





**Goodwill**




At
                April 30,2006
            
            2005Cost
            
            (GBP’000)At
                May 1
            
            
            83
            
            
            722Additions
            
            
            5,036
            
            
            -Sale
                of Luvit shares
            
            
            -
            
            
            (296
            )Impairment
                loss
            
            
            (30
            )
            
            (343
            )At
                April 30
            
            
            5,089
            
            
            83





The
      addition in the year ended April 30, 2006 of GBP5,036,000 ($9,197,000)
      represents the goodwill arising on the acquisition of EBC Limited and is net
      of
      GBP57,000 ($104,000) recorded as intangible assets resulting from the purchase
      price allocation conducted in accordance with SFAS 141.





In
      accordance with the requirements of SFAS 142, an impairment test was conducted
      in respect of the GBP83,000 carrying value of goodwill as at May 1 2005, as
      a
      result of which, the GBP30,000 ($55,000) goodwill arising on the acquisition
      of
      C2W Limited was written off due to the cessation of that activity.





All
      of
      the GBP5,089,000 goodwill at April 30, 2006 is attributable to the e-Learning
      business segment.





F-27




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**10.** **PROPERTY
      PLANT AND EQUIPMENT**




At
                April 30,2006
            
            
            
            
            
            2005Cost
            
            Accumulated
              depreciation
            
            Net
                book
              value
            
            Cost
            
            Accumulated
              depreciation
            
            Net
                book
              value(GBP’000)Audiovisual
                and computer equipmentMid-term
            
            
            78
            
            
            78
            
            
            -
            
            
            78
            
            
            78
            
            
            -Short-term
            
            
            859
            
            
            673
            
            
            186
            
            
            588
            
            
            416
            
            
            172Office
                Equipment
            
            
            286
            
            
            222
            
            
            64
            
            
            214
            
            
            158
            
            
            56Property
                improvements
            
            
            144
            
            
            21
            
            
            123
            
            
            96
            
            
            9
            
            
            87Lease
                premium
            
            
            76
            
            
            68
            
            
            8
            
            
            74
            
            
            54
            
            
            201,443
            
            
            1,062
            
            
            381
            
            
            1,050
            
            
            715
            
            
            335




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




**11.** **CONVERTIBLE
      LOANS**





During
      the year ended April 30, 2006, the Company entered a number of separate
      agreements to provide funds for the purpose of its working capital requirements
      and to enable it to achieve its acquisitions strategy.





In
      July
      2005, the Company entered into an agreement 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, to
      provided US$4 million of growth capital to Futuremedia. The proceeds of the
      transaction will be used for the continued expansion of the Company’s employee
      benefit program products and service and general working capital.





The
      investment was made via a private placement in the form of a convertible loan
      that is convertible (subject to certain terms and conditions) into Ordinary
      Shares of Futuremedia. The conversion rate of $0.4858 per Ordinary share is
      based on the volume weighted average price of the Company’s ADSs for the five
      trading days prior to July 13, 2005, the date that the Company entered into
      a
      term sheet with MAG for the investment. The loan bears interest at an annual
      rate equal to the greater of 8.5% or Wall Street Journal Prime Rate plus 3%,
      but
      in no event greater than 10%. Futuremedia also issued warrants to the investors
      covering an aggregate of 6.2 million Ordinary Shares with an exercise price
      of
      $0.61 per share.




F-28




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**11.** **CONVERTIBLE
      LOANS (continued)**




The
      Company determined the fair value of the warrants and allocated the proceeds
      between the debt injstrument and the warrants. The discount related to warrants
      and any beneficial conversion feature is being amortized over the life of the
      loan and accreted on a pro-rata basis as the loan was converted. The fair value
      of the warrants was derived using Black Scholes methodology. In the year to
      April 30, 2006, a total of GBP1,362,000 ($2,487,000) has been charged to the
      income statement categorised as interest expense.





In
      December 2005, the Company arranged for the provision of tiered funding whereby
      Cornell Capital Partners, LP had agreed to provide up to US$10 million of growth
      capital to Futuremedia. The proceeds of the transaction were to be used for
      the
      acquisition of EBC **** and
      working capital for growth. The financing was arranged to be provided in two
      tranches, $2.5 million and $7.5 million subject to certain conditions which
      were
      subsequently met.





Accordingly,
      in December 2005, t he
      first
      US$2.5 million investment was made via a private placement in the form of a
      loan
      that is convertible (subject to certain terms and conditions) into Ordinary
      Shares of Futuremedia .
      The
      loan may be converted from time to time at the investors’ option (subject to
      certain restrictions and limitations on the amount of shares converted) and
      must
      be entirely converted by maturity. The
      loan
      may be converted from time to time at Cornell’s option (subject to certain
      restrictions and limitations).  The
      conversion rate is based on the lesser of 105% of the closing price of
      Futuremedia ADR’s on December 6 2005 (US$0.525) 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
      loan has a term of three years and bears interest initially at an annual rate
      of
      10% (reducing to 9% in year two and 7% in year three). In connection with the
      investment, 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 US$0.70 per share. Cornell also received a commitment fee
      of
      US$187,500.





As
      required, in accordance with FAS 133, Accounting for embedded derivatives,
      a
      fair value adjustment totalling GBP690,000 ($1,260,000) was made to the
      conversion feature and the warrants at the time of establishing the arrangement
      and the remainder was allocated to the loan account. The discount will be
      charged to the income statement over the thirty six month period of the loan.
      The fair value adjustment was derived using Black Scholes methodology, and
      was
      again revalued as required as at April 30, 2006, resulting in an amendment
      to
      the fair value adjustment to GBP438,000 ($800,000). In the year to April 30,
      2006, a total of GBP53,000 ($97,000) has been charged to the income statement
      categorized as interest expense.





In
      March
      2006, and April 2006, the holder chose to convert a total of $700,000
      (GBP383,000) loan into Futuremedia Ordinary shares, resulting in the issuance
      of
      3,968,255 ordinary shares at an average price of $0.176 per share.





In
      April
      2006, the Company took up the balance of the earlier $10.0 million loan
      arrangement with Cornell Capital Partners, LP, TAIB Bank B.S.C. and Certain
      Wealth, Ltd. **** in
      the
      form of a $7.5 million loan which is convertible (subject to certain terms and
      conditions) into Ordinary Shares of Futuremedia. The loan may be converted
      from
      time to time at the investors’ option (subject to certain restrictions and
      limitations on the amount of shares converted) and must be entirely converted
      by
      maturity. The conversion rate is based on the lesser of $0.34 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 loan is secured by the
      assets of Futuremedia PLC and has a term of three years and bears interest
      initially at an annual rate of 10% (reducing to 9% in year two and 7% in year
      three).




F-29




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**12.** **CHANGES
      IN SHAREHOLDER EQUITY**





In
      connection with the investment, Futuremedia 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 and warrants to purchase an additional 750,000
      Ordinary Shares with an exercise price of $0.70 per share. Cornell also received
      a commitment fee of $562,500 .





As
      required, in accordance with FAS 133, Accounting for embedded derivatives,
      a
      fair value adjustment totalling GBP2,093,000 ($3,822,000) was made to the
      conversion feature and the warrants, at the time of establishing the
      arrangement, and the remainder was allocated to the loan account. The discount
      will be charged to the income statement over the thirty six month period of
      the
      loan, commencing May, 2006. The fair value adjustment was derived using Black
      Scholes methodology. In the year to April 30, 2006, due to the proximity of
      the
      transaction date to the company’s year end, no amount has been charged to the
      income statement, nor any revaluation undertaken.





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




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




In
      July
      2003, the Company issued 1,125,000 Ordinary shares in the acquisition of the
      entire share capital of Temp Limited, into which had been transferred the
      business and assets of IQDos Limited, valuing the


acquisition
      at approximately GBP302,000 ($536,000) gross, GBP282,000 ($500,000)
      net.





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




F-30




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**12.** **CHANGES
      IN SHAREHOLDER EQUITY (continued)**




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




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




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




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




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


members
      of Futuremedia staff, one of whom was an Affiliate.




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




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




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




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




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




In
      June,
      2005, the Company issued 124,147 Ordinary shares at an average price of $0.43
      per Ordinary share for a total aggregate purchase price of GBP29,000 ($53,000)
      gross, GBP28,000 ($51,000) net, pursuant to the settlement of an outstanding
      item on the purchase ledger.




F-31




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**12.** **CHANGES
      IN SHAREHOLDER EQUITY (continued)**




In
      July
      2005, the Company issued 21,118 Ordinary shares at an average price of $0.45
      per
      Ordinary share for a total aggregate purchase price of GBP5,000 ($9,000) gross,
      and net, pursuant to the settlement of an outstanding item on the purchase
      ledger.





In
      August
      2005, the Company issued 250,000 Ordinary shares at an average price of $0.096
      per Ordinary share for a total aggregate purchase price of GBP13,000 ($24,000)
      gross, GBP12,000 ($22,000) net, pursuant to the exercise of share
      options.





Also
      in
      August 2005, the Company issued 120,245 Ordinary shares of which 28,219 were
      at
      a purchase price of $0.55 per Ordinary share and 92,026 were at an average
      price
      of $0.45 per Ordinary share for a total aggregate purchase price of GBP32,000
      ($58,000) gross, GBP31,000 ($57,000) net, pursuant to the settlement of
      outstanding items on the purchase ledger.





In
      September 2005, the Company issued 35,000 and 15,000 Ordinary shares at an
      average price of $0.35 and $0.15 respectively per Ordinary share for a total
      aggregate purchase price of GBP8,000 ($15,000) gross and net, pursuant to the
      exercise of share options.





Also
      in
      September 2005, the Company issued 74,431 Ordinary shares at an average price
      of


$0.55
      per
      Ordinary share for a total aggregate purchase price of GBP23,000 ($42,000)
      gross, GBP22,000 ($40,000) net, pursuant to the settlement of outstanding sales
      commissions.





In
      December 2005, the Company issued 187,500 Ordinary shares at an average price
      of
      $0.40 per Ordinary share for a total aggregate purchase price of GBP42,000
      ($77,000) gross, GBP41,000 ($75,000) net, pursuant to the settlement of an
      outstanding item on the purchase ledger.





In
      March
      2006, the Company issued 83,773 Ordinary shares at an average price of $0.194
      per Ordinary share for a total aggregate purchase price of GBP9,000 ($16,000)
      gross, and net, pursuant to a Regulation ‘S’ private placement by an
      Affiliate.





Also
      in
      March 2006, the Company issued 1,417,234 Ordinary shares at an average price
      of
      $0.176 per Ordinary share for a total aggregate purchase price of GBP143,000
      ($261,000) gross, GBP137,000 ($250,000) net, pursuant to the conversion of
      debt
      into equity.





In
      April
      2006, the Company issued 562,500 Ordinary shares at an average price of $0.32
      per Ordinary share for a total aggregate purchase price of GBP101,000 ($184,000)
      gross, GBP98,000 ($179,000) net, pursuant to the settlement of outstanding
      items
      on the purchase ledger.





Also
      in
      April 2006, the Company issued 1,789,848 Ordinary shares at an average price
      of
      $0.20 per Ordinary share for a total aggregate purchase price of GBP201,000
      ($367,000) gross, GBP193,000 ($352,000) net, pursuant to the settlement of
      outstanding items on the purchase ledger.




F-32




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**12.** **CHANGES
      IN SHAREHOLDER EQUITY (continued)**




Also
      in
      April 2006, the Company issued 4,776,442 Ordinary shares at an average price
      of
      $0.2552 per Ordinary share for a total aggregate purchase price of GBP700,000
      ($1,278,000) gross, GBP676,000 ($1,235,000) net, pursuant to the acquisition
      of
      EBC Limited.





Also
      in
      April 2006, the Company issued 783,700 Ordinary shares at an average price
      of
      $0.33 per Ordinary share for a total aggregate purchase price of GBP142,000
      ($259,000) gross, GBP138,000 (252,000) net, pursuant to a Regulation ‘S’ private
      placement undertaken by four individuals, all of whom were Affiliates.





Also
      in
      April 2006, the Company issued 20,000,000 Ordinary shares at an average price
      of
      $0.20 per Ordinary share for a total aggregate purchase price of GBP2,236,000
      ($4,084,000) gross, GBP2,147,000 ($3,921,000) net, pursuant to Regulation ‘S’
private placements. At April 30, 2006, the whole of the purchase price was
      outstanding.





Also
      in
      April 2006, the Company issued 2,551,021 Ordinary shares at an average price
      of
      $0.1764 per Ordinary share for a total aggregate purchase price of GBP255,000
      ($466,000) gross, GBP244,000 ($446,000) net, pursuant to the conversion of
      debt
      into equity..





Under
      the
      terms of the Convertible Loan entered into in July 2005, monthly repayments
      commencing in October 2005, were satisfied by the issuance of an aggregate
      of
      8,811,911 Ordinary shares at average prices ranging from $0.4757 to $0.176
      per
      Ordinary share for a total aggregate purchase price of GBP1,329,000 ($2,427,000)
      gross, GBP1,285,000 ($2,347,000) net, of which £182,000 ($332,000) remained
      outstanding at April 30, 2006.





In
      July
      2005, the Company issued 6,175,104 warrants to purchase an equivalent number
      of
      Ordinary shares at a purchase price of $0.61 per Ordinary share, pursuant to
      the
      Convertible Loan arrangement with MAG. As at April 30, 2006, none of the
      warrants had been exercised.





Also
      in
      July 2005, the Company issued 322,024 warrants to purchase an equivalent number
      of Ordinary shares at a purchase price of $0.59 per Ordinary share, pursuant
      to
      an agreement with Alegro Capital for its assistance in arranging the Convertible
      Loan arrangement with MAG. As at April 30, 2006, none of the warrants had been
      exercised.




In
      December 2005, the Company issued 250,000 warrants to purchase an equivalent
      number of Ordinary shares at a purchase price of $0.70 per Ordinary share,
      pursuant to the Convertible Loan arrangement with Cornell Capital. As at
      April30, 2006, none of the warrants had been exercised.





In
      April
      2006, the Company issued 750,000 warrants to purchase an equivalent number
      of
      Ordinary shares at a purchase price of $0.70 per Ordinary share, and 4,000,000
      warrants to purchase an equivalent number of Ordinary shares at a purchase
      price
      of $0.20 per Ordinary share pursuant to the Convertible Loan arrangement with
      Cornell Capital. As at April 30, 2006, none of the warrants had been
      exercised.





F-33




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.** **EMPLOYEE
      PROFIT-SHARING AND OPTION PLANS**




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




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




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




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




In
      January 2005, the Company adopted a new option plan, the “Futuremedia Unapproved
      Executive Share Option Scheme for Len Fertig”. Under this scheme, options were
      granted to the Option Holder on his appointment as Chief Executive Officer,
      for
      the purposes of inducement to retain the services of the Option Holder, to
      provide long-term incentive and rewards to the Option Holder and to associate
      more closely the interests of the Option Holder with those of the Company’s
      shareholders. During
      the year ended April 30, 2006, a further 500,000 options at an exercise price
      of
      $0.74 were granted in accordance with the terms of Mr Fertig’s employment
      agreement. At April 30, 2006, no options granted under this plan had been
      exercised, and options to purchase 1,000,000 Ordinary shares of which 500,000
      are exercisable at $0.22 and 500,000 are exercisable at $0.74 per Ordinary
      share
      remained outstanding.




F-34




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.** **EMPLOYEE
      PROFIT-SHARING AND OPTION PLANS (continued)**




**No
                of**
              **SHARES**
            **Subscription**
              **PRICE**
            **Date**
              **EXERCISABLE**
            **EXPIRY
                DATE**500,000
            $0.22
            01/26/07
            01/27/2017500,000
            $0.740
            01/24/2006
            01/24/2015




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




Under
      the
      Company’s Unapproved 2005 Scheme for New Employees, Options may be granted
      exclusively to persons not previously employees or directors of the Company
      (or
      following a bona fide period of non-employment) as an inducement material to
      entering into employment with the Company.




As
      at
      April 30, 2006, no options granted under this plan had been exercised, and
      the
      following have been issued and remain outstanding:




**No
                of**
              **SHARES**
            **Subscription**
              **PRICE**
            **Date**
              **EXERCISABLE**
            **EXPIRY
                DATE**100,000
            $0.7163
            02/14/2006
            02/14/2015100,000
            $0.7163
            02/14/2007
            02/14/2015100,000
            $0.7163
            02/14/2008
            02/14/201520,000
            $0.4735
            04/04/2006
            04/04/201520,000
            $0.4735
            04/04/2007
            04/04/201520,000
            $0.4735
            04/04/2008
            04/04/2015360,000




A
      summary
      of the option outstanding under the Company’s “Unapproved Scheme for New
      Employees” as at April 30, 2006 is as follows:




Number
                of Shares
              Under
                Option
            Weighted
              Average
                Option
              Price
                Per ShareOptions
                granted and outstanding at May 1, 2005
            610,000
            $0.6445Options
                lapsed
            (250,000)
            $0.5995Options
                outstanding at April 30, 2006
            360,000
            $0.6758





F-35




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.** **EMPLOYEE
      PROFIT-SHARING AND OPTION PLANS (continued)**




Under
      the
      Company’s 2005 Unapproved Share Option Scheme, Options may be granted for the
      purpose of providing Options to (a) employees, officers, directors, consultants and
      advisors of the Company and its Subsidiaries, and (b) any other person who
      is
      determined by the Directors (or a committee thereof) to have made (or is
      expected to make) contributions to the Company of
      inducement to retain the services of the Option holder. As at April 30 2006,
      no
      options granted under this plan had been exercised, and the following have
      been
      issued and remain outstanding:




No
                of
              Shares
            Subscription
              Price
            Date
              Exercisable
            Expiry
                Date405,000
            $0.535
            05/01/2005
            03/17/2015




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




At
      April
      30, 2006, 20,500, under the Company’s Approved share option scheme options were
      outstanding at an exercise price of $0.90625 and may be exercised until January
      16, 2008 and 12,000 options were outstanding at an exercise price of $1.5938
      and
      may be exercised until July 25, 2010.




A
      summary
      of the option outstanding under the Company’s “Approved Share Option Scheme” as
      at April 30, 2006 is as follows:




Number
                of Shares
              Under
                Option
            Weighted
              Average
                Option
              Price
                Per ShareOutstanding
                April 30, 2003
            35,706
            $1.2809Options
                forfeited
            (3,206)
            $2.505Outstanding
                April 30, 2004, 2005 and 2006
            32,500
            $1.160





The
      following options have been issued under the Company’s “Unapproved Executive
      Share Option Scheme”, and were outstanding as at April 30, 2006.




As
      at
      April 30 th ,
      2006,
      there were a total number of share options outstanding of 3,193,318 that are
      exercisable at prices ranging from $0.24 to $0.6106 between 30 th April
      2006 and 8 th June
      2009, and which will expire at various dates, the latest being 2014.





F-36





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.** **EMPLOYEE
      PROFIT-SHARING AND OPTION PLANS (continued)**




Since
      the
      introduction of the various new schemes in 2005 no further grants have been
      made
      or will be made under this scheme.





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




F-37




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.** **EMPLOYEE
      PROFIT-SHARING AND OPTION PLANS (continued)**




A
      summary
      of the options outstanding under the Company’s “Unapproved Share Option Scheme”
as at April 30, 2006 is as follows:




Number
                of
              Shares
                Under
              Option
            
            Weighted
              Average
              Option
                Price
              Per
                ShareOutstanding
                at April 30, 2003
            5,396,245
            
            $0.095Options
                granted
            2,353,333
            
            $0.469Options
                lapsed, cancelled and exercised
            (2,202,502)
            
            $0.2276Outstanding
                at April 30, 2004
            5,547,076
            
            $0.2864Options
                granted
            345,000
            
            $1.4178Options
                lapsed, cancelled and exercised
            (1,863,758)
            
            $0.2100Outstanding
                at April 30, 2005
            4,028,318
            
            $0.4327Options
                lapsed, cancelled and exercised
            (835,000)
            
            $0.3218Outstanding
                at April 30,2006
            3,193,318
            
            $0.4617







The
      Company held an Extraordinary General Meeting on July 28, 2005 **** for
      the
      purpose of gaining the approval for the adoption by the Company of an all
      employee Share Incentive Plan, an Enterprise Management Incentive Plan and
      an
      Unapproved Share Option Scheme. Following adoption, options issued under the
      Futuremedia Unapproved Executive Share Option Scheme for Len Fertig and the
      Futuremedia Plc Unapproved 2005 Scheme for New Employees were incorporated
      into
      the new Unapproved Share Option Scheme.




In
      July
      2005 the Company adopted a new option plan, the “Enterprise Management
      Incentive” Plan (“EMI”) for the purposes of granting tax beneficial options to
      UK employees. During the year ended April 30, 2006, 3,812,999 options were
      granted under this scheme, of which 165,000 options lapsed due to employees
      leaving employment, resulting in a total of 3,647,999 outstanding as at April
      30, 2006.




F-38





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.** **EMPLOYEE
      PROFIT-SHARING AND OPTION PLANS (continued)**




Number
                of Shares
              Under
                Option
            Weighted
              Average
                Option
              Price
                Per ShareOptions
                Granted
            3,812,999
            $0.5093Options
                lapsed
            (165,000)
            $0.6012Outstanding
                April 30, 2006
            3,647,999
            $0.5051




The
      weighted average fair value of the 2,832,999 share options granted at market
      price in the year ended April 30, 2006 was GBP0.219 ($0.40). The weighted
      average fair value of the 1,473,081 share options granted at market price in
      the
      year ended April 30, 2005 was GBP0.11 ($0.20).




The
      weighted average fair value of the 80,000 options granted at below market price
      in the year ended April 30, 2006 was GBP0.49 ($0.89). There were no options
      granted at below market price in the year ended April 30, 2005




The
      weighted average fair value of the 110,000 options granted above market price
      in
      the year ended April 30, 2006 was GBP0.435 ($0.794). There were no options
      granted at above market price in the year ended April 30, 2005




The
      determination of the fair value of all stock options granted in 2006, 2005,
      and
      2004 was calculated using the Black Scholes method based on (i) risk-free
      interest rates of 4.75% (2005: 3.63% and 2004: 2.38%), (ii) expected option
      lives of 3 to 5 years (weighted average 3.3 years), (iii) dividend yield of
      0%
      and iv) a volatility of 0.9 (2005: 0.610 and 2004: 0.267).




**14.** **NEW
      ACCOUNTING PRONOUNCEMENTS**




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




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




F-39





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**14.** **NEW
      ACCOUNTING PRONOUNCEMENTS (continued)**




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




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




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




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections—a replacement of APB Opinion No. 20 and FASB Statement
      No. 3” (“SFAS No. 154”). This standard establishes, unless
      impracticable, retrospective application as the required method for reporting
      a
      change in accounting principle in the absence of explicit transition
      requirements specific to the newly adopted accounting principle. SFAS
      No. 154 will become effective for the Company for accounting changes and
      corrections of errors beginning in fiscal 2007. SFAS No. 154 may have a
      significant effect on the Company’s consolidated financial statements to the
      extent that the Company changes its accounting principles in the future.





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Instruments” (“SFAS No. 155”). SFAS No. 155 amends SFAS No. 133
      and SFAS No. 140, “Accounting for Transfers and Servicing of Financial
      Assets and Extinguishments of Liabilities.” SFAS No. 155, among other
      things: permits the fair value remeasurement of any hybrid financial instrument
      that contains an embedded derivative that otherwise would require bifurcation;
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of SFAS No. 133; and establishes a requirement to
      evaluate interests in securitized financial assets to identify interests that
      are freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation. SFAS No. 155 is
      effective for all financial instruments acquired or issued in fiscal years
      beginning after September 15, 2006. The Company is currently evaluating
      what effect the adoption of SFAS No. 155 will have on the Company’s future
      results of operations and financial condition.




F-40




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**14.** **NEW
      ACCOUNTING PRONOUNCEMENTS (continued)**




I n
      June
      2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes, an
      Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in accordance with SFAS
      No. 109 and prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 will become effective for the Company
      beginning in fiscal 2008. The Company is currently evaluating what effect the
      adoption of FIN 48 will have on the Company’s future results of operations and
      financial condition.





**15.** **COMMITMENTS**




The
      Company has entered into contracts with IX Europe Limited for the provision
      of
      the hosting and support elements of its ISP requirements, and with MIS Limited
      for the firewall and security elements. Both contracts are renewable on an
      annual basis. The Company’s office facilities in Brighton are occupied pursuant
      to two leases, respectively over the second floor and third floor of Nile House,
      Nile Street, Brighton, UK, at an approximate annual cost of GBP209,000
      ($382,000). Both leases expire on 1 April 2014, although in addition either
      the
      Company or its landlord at Nile House may terminate either lease on 25 June
      2007, by giving the other not less than six months’ notice (if the Company
      exercised the break clause, then a penalty payment of one quarter’s rent plus
      VAT would also be due under the relevant lease). Executive Business Channel
      Limited occupies premises in Milton Keynes, UK, under a lease which expires
      on
      31 March 2008, at an annual cost of GBP40,000 plus VAT, plus GBP800 annual
      maintenance. Open Training AB occupies three sites in Sweden, all of which
      are
      leasehold premises, with an annual cost of GBP89,000 ($162,000) per annum




**16.**  **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
      $41,307.




In
      March,
      2006, the Company contracted and received the 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. The following entities and individuals
      purchased the number of Ordinary Shares indicated in connection with this
      private placement: Mr. L Fertig 83,773 shares.




In
      April,
      2006, the Company contracted and received the 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 entities and individuals
      purchased the number of Ordinary Shares indicated in connection with this
      private placement: Mr. L Fertig, Mr. J Vandamme, Mr. M. Pilsworth and Mr. M
      Steel each receiving 195,925 shares.




F-41




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**16.** **RELATED
      PARTY TRANSACTIONS (continued)**




During
      the year ended April 30, 2006, the following directors received payment for
      consultancy services provided through independent service companies: Mr.
      J.Vandamme GBP59,000 ($108,000) and Mr. M Steel GBP34,000 ($62,000).




**17
      .** **SUBSEQUENT
      EVENTS**




On
      May 4,
      2006, the Company announced a private placement of ADSs for subscriptions
      totaling $4,315,000. The Company will use the proceeds of this placement to
      finance the acquisition of Button Group plc, which was completed on May 26,
      2006, and for additional working capital. Of the $4,315,000 private placement,
      $3,500,000 has been invested by Le Shark Limited, a UK-based investor, at the
      price of $0.20 per share for a total of 17,750,000 ADSs. Futuremedia Directors
      Jan Vandamme, Leonard M. Fertig, Mick Pilsworth and Michiel Steel also each
      invested $50,000 in the Company’s ADSs, 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 ADSs. In addition, $565,000 has been invested by Spintop Venture
      Holdings Limited, a British Virgin Islands based investment group, and $50,000
      has been invested by Marc Renson, a private European investor, both at a price
      of $0.20 per share, representing 3,075,000 ADSs. A finder’s fee has been paid on
      this transaction, in ADSs, at price of $0.20 per share, representing 773,575
      ADSs.





On
      May
      26, 2006 the Company completed its acquisition of Button Group plc, also known
      as Button. The purchase price for the acquisition was GBP 5.3 million ($9.9
      million), consisting of a combination of cash GBP 2.3 million ($4.3 million)
      and
      Futuremedia ADSs valued at GBP 3 million ($5.6 million) issued at the share
      closing price on May 25, 2006. Button is an integrated design and brand communications agency providing strategic marketing
      solutions to blue chip European and US companies.





On August
      7,
      2006 the Company announced that it had 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. Previously, Button and EBC
      were on a June 30 and December 31 fiscal year end, respectively.





On
      August
      7, 2006, the Company also announced that Cornell Capital Partners, LP, has
      agreed to provide it with an additional $1,500,000 of capital, also known as
      the
      Additional $1,500,000 Financing. The proceeds of the transaction will be used
      for payments on the remaining debt to M.A.G. Capital, LLC, as well as to provide
      working capital for growth in the Company’s new businesses. The Company has
      repaid $3,330,000 of the $4,000,000 convertible loan to MAG in the past 10
      months including a cash payment for the month of July, 2006. Cornell Capital
      Partners, LP’s $1,500,000 investment was made as an extension of the existing
      $7,500,000 financing loan from April 2006 (which was provided by Cornell Capital
      Partners, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. and is convertible
      (subject to certain restrictions and limitations) into the Company’s ADSs. The
      amended loan, totaling an aggregate of $9,000,000, may
      be
      converted from time to time at the investor’s option (subject to certain
      restrictions andlimitations)
      and is secured by the Company’s assets. In connection with the further
      investment, Futuremedia also issued to Cornell Capital Partners, LP 165,000
      ADSs
      at nominal value. Cornell Capital Partners, LP also received a commitment and
      structuring fee totaling $150,000. The Company also obtained limited waivers
      from Cornell Capital Partners, LP regarding certain of its obligations related
      to filing audited financial statements for the year ended April 30, 2006 with
      the SEC and with MAG Capital LLC related to maintaining effective registration
      statements with the SEC in connection with its financing
      arrangements.




F-42




**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**17.** **SUBSEQUENT
      EVENTS (continued)**


As
      part
      of the Additional $1,500,000 Financing, the Company amended certain of the
      terms
      and conditions relating to the $7,500,000 financing from Cornell Capital
      Partners, LP, Certain Wealth Ltd. and TAIB Banks, B.S.C. which signed on April
      19, 2006 and closed on April 25, 2006, also known as the $7,500,000 Financing.
      The $7,500,000 Financing and the Additional $1,500,000 Financing are together
      also known as the $9,000,000 Financing. As a result of such amendments, the
      conversion rate for the $9,000,000 Financing is equal to the lesser of (a)
      $0.30
      or (b) an amount equal to eighty percent (80%) of the average of the three
      (3)
      lowest volume weighted average prices of the ADSs, as quoted by Bloomberg,
      LP,
      during the thirty (30) trading days immediately preceding the conversion date.
      The Secured Convertible Notes underlying the $9,000,000 Financing continue
      to
      bear interest in accordance with the terms of the $7,500,000 Financing. Pursuant
      to the $9,000,000 Financing up to an additional 95,477,500 of our ADSs will
      be
      issuable (or have been issued) (i) upon conversion of an aggregate of $9,000,000
      of Secured Convertible Notes issued to Cornell Capital Partners, LP, Certain
      Wealth, Ltd. and





TAIB
      Bank, B.S.C. (all such Secured Convertible Notes amounting to 90,000,000 ADSs
      in
      the aggregate); (ii) upon exercise of the 4,000,000 ADS Warrant and the 750,000
      ADS Warrant held by Cornell Capital Partners, LP in connection with the
      $7,500,000 Financing; and (iii) in connection with an aggregate of 727,500
      ADSs
      which were issued to Cornell Capital Partners, LP without further consideration
      (representing 562,500 ADSs from the $7,500,000 Financing plus 1650,000 ADSs
      from
      the $1,500,000 Financing). The Company has withdrawn the registration statement
      on Form F-3, File No. 333-134835, filed in connection with the $7,500,000
      Financing and expects to file a new registration statement with the Securities
      and Exchange Commission reflecting the $9,000,000 million
      Financing.





F-43