SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 20-F
(Mark One)

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

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                   For the fiscal year ended April 30, 2004.

                                       OR

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

        For the transition period from ______________ to _______________

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

                                England and Wales
                 (Jurisdiction of incorporation or organization)

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

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

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

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

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital or common stock as of the close of period  covered by the annual report:
87,239,486  Ordinary Shares of 1 1/9 p each.  Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the  Securities  Exchange Act of 1934 during the  preceding 12 months (or for
such shorter  period that the  registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days:

Yes  _X_        No ___

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

Item 17 ____          Item 18  _X_


<PAGE>

                                TABLE OF CONTENTS


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

COMMUNICATIONS WITH HOLDERS OF ADSs............................................4

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

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

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

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

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

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

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS........................23

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..........................32

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...................39

ITEM 8.   FINANCIAL INFORMATION...............................................42

ITEM 9.   THE OFFER AND THE LISTING...........................................43

ITEM 10.  ADDITIONAL INFORMATION..............................................46

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........50

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..............50

PART II.......................................................................51

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.....................51

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
          OF PROCEEDS.........................................................51

ITEM 15.  CONTROLS AND PROCEDURES.............................................52

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT....................................52

ITEM 16B. CODE OF ETHICS......................................................52

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................53

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES..........53

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS .........................................................53


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<PAGE>

PART III......................................................................54

ITEM 17.  FINANCIAL STATEMENTS................................................54

ITEM 18.  FINANCIAL STATEMENTS................................................54

ITEM 19.  EXHIBITS............................................................55

SIGNATURES....................................................................57


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<PAGE>

                                EXPLANATORY NOTE

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

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

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

The Company publishes its Consolidated  Financial Statements expressed in United
Kingdom  ("UK")  pounds  sterling.  Such  financial  statements  are prepared in
conformity  with United States  generally  accepted  accounting  principles ("US
GAAP"). In this document,  references to "US dollars", "US$", "cents" or "$" are
to  United  States  ("US")   currency  and  references  to  "pounds   sterling",
"sterling",  "GBP",  "pence" or "p" are to UK currency.  Solely for convenience,
this Report  contains  translations  of certain pound  sterling  amounts into US
dollars at  specified  rates.  These  translations  should not be  construed  as
representations  that the pound  sterling  amounts  actually  represent  such US
dollar  amounts or could have been or could be converted  into US dollars at the
rates indicated or any other rates. Unless otherwise indicated,  the translation
of pounds  sterling  into US  dollars  have  been made at the rate of  GBP1.00 =
$1.7739,  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, 2004. On September 28, 2004 the Noon
Buying  Rate was GBP  1=$1.8104.  For  information  regarding  rates of exchange
between pounds sterling and US dollars from fiscal 2000 to the present see "Item
3.A. Selected Financial Data - Exchange Rates."

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

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

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

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


                                       3
<PAGE>

                      COMMUNICATIONS WITH HOLDERS OF ADSs

In advance of the Company's  General Meeting held on March 18, 2004, 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 on March 2,
2004. The Company believes that this manner of making  information  available to
holders of ADSs is consistent  with its  obligations  under  applicable  law and
intends to make future information available in a similar manner.


                                       4
<PAGE>

                 WARNINGS REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

-     the  anticipated  growth  rate of the market for  Internet-based  learning
      technologies  and  products  in general  and the  Company's  products  and
      solutions in particular; and

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

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


                                       5
<PAGE>

PART I

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

Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.

Not Applicable.

ITEM 3. KEY INFORMATION.

A.       SELECTED FINANCIAL DATA.

The selected  consolidated  financial data as of April 30, 2003 and 2004 and for
the years ended April 30, 2002, 2003 and 2004 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, 2000, 2001 and
2002, and for the years ended April 30, 2000 and 2001 have been derived from the
audited consolidated financial statements of the Company, which are not included
in this Report.

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

<TABLE>
<CAPTION>
Income Statement Data                                                Years Ended April 30
                                              -------------------------------------------------------------
                                              2004(1)     2004       2003       2002       2001       2000
                                              ------     ------     ------     ------     ------     ------
                                                          (in thousands, except per share data)
<S>                                           <C>        <C>         <C>       <C>        <C>        <C>
                                                $          GBP        GBP        GBP        GBP        GBP
Net sales ................................    33,103     18,661      1,342        911        743        867
Operating loss ...........................    (1,250)      (705)    (1,041)    (2,028)    (3,812)    (2,672)
Net loss .................................    (2,948)    (1,662)    (1,088)    (2,012)    (3,697)    (2,645)
Net loss per share - basic and diluted ...     (3.52)c    (1.98)p    (2.34)p    (6.60)p   (12.71)p   (11.17)p
</TABLE>


                                       6
<PAGE>

<TABLE>
<CAPTION>
Balance Sheet Data                                             As of April 30,
                                   ---------------------------------------------------------------------------
                                     2004(1)       2004         2003          2002        2001         2000
                                   ----------   ----------   ----------   ----------   ----------   ----------
                                                       (in thousands, except number of shares)
<S>                                <C>          <C>          <C>          <C>          <C>          <C>
                                       $             GBP          GBP          GBP         GBP         GBP
Cash and cash equivalents ......        8,250        4,651          437          445        2,547        2,612
Total assets ...................       18,706       10,545        3,156        2,089        4,713        4,437
Total current liabilities ......       15,633        8,813        1,581        1,522        2,208          845
Long-term debt and capital lease
obligations ....................           --           --           --           --          442          384
Stockholders' equity ...........        3,073        1,732        1,575          567        2,063        3,208
Number of shares outstanding ...   87,239,486   87,239,486   78,194,457   29,648,374   29,648,374   27,416,152
Stock to be issued .............           --           --           --   10,346,979           --           --
</TABLE>

(1)   US dollar amounts have been translated  solely for convenience at the Noon
      Buying Rate on April 30, 2004 of GBP1.00 = $1.7739.

EXCHANGE RATES.

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

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

      (a)   The  exchange  rate as of July 31,  2004,  the end of the  Company's
            first fiscal quarter,  was  GBP1=$1.8214,  and at September 28, 2004
            was GBP1=$1.8104

      (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
                                                    ------       ------
                  August, 2004................      1.8437       1.7900
                  July, 2004..................      1.8729       1.8164
                  June, 2004..................      1.8413       1.8136
                  May, 2004...................      1.8385       1.7552
                  April 2004..................      1.8551       1.7720
                  March 2004..................      1.8687       1.8051


                                       7
<PAGE>

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

                  Year Ended April 30,                Average

                  2000...................              1.6113
                  2001...................              1.4676
                  2002...................              1.4339
                  2003...................              1.5684
                  2004...................              1.7193

B.    CAPITALIZATION AND INDEBTEDNESS.

Not Applicable

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS.

Not Applicable

D.    RISK FACTORS.

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

RELIANCE ON CORPORATE CUSTOMERS; LENGTHY SALES CYCLE.

A substantial  portion of the  Company's  revenues are derived from sales of its
products  and  services  to  large   corporate   customers   and  public  sector
organizations that often use the Company's products through the Internet whereby
the  Company  provides  hosting  services  on its  own  network  infrastructure.
Customers  demand highly reliable  products as well as a highly reliable hosting
service,  and  often  require  up to  several  months to  evaluate  and test the
effectiveness  of the Company's  products before  deciding  whether to commit to
purchase. Such evaluations are commonly based on the Company providing access to
demonstration  material based on existing solutions produced for other customers
and frequently require significant pre-sales activity.

The  sales  volume  of some of the  Company's  hosted  and  Learning  For  AllTM
solutions  will be  significantly  dependent on  acceptance  and adoption of the
product by the customer's  employees.  Some of the Company's  customers may also
source third party  e-Learning  content products that compete with the Company's
products.  These  customers  could give higher  priority to the use of competing
products.  Some of the  Company's  customers do not have  exclusive or long-term
purchase  obligations  with the  Company.  The failure of customers to decide to
purchase the Company's products after the Company spends  significant  marketing
resources and the  possibility  that customers may source third party  competing
products could each have a material  adverse  impact on the Company's  business,
financial condition and results of operations.

Some of the Company's 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


                                       8
<PAGE>

such contracts could have a material  adverse impact on the Company's  business,
financial condition and results of operations.

RELIANCE ON SIGNIFICANT CUSTOMERS.

For the fiscal year ended April 30, 2004,  the Company's  two largest  customers
together  represented  approximately 97% of gross sales of the Company. The loss
of either of these major customers  could have a material  adverse effect on the
Company's business, financial condition and results of operations.

SEASONAL DEMAND FOR PRODUCTS.

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

VOLATILITY OF STOCK PRICE.

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

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

      -     variations in anticipated or actual operating results;

      -     general conditions in the e-Learning market;

      -     general conditions in the worldwide economy;

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

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

LISTING  MAINTENANCE  CRITERIA FOR NASDAQ SYSTEM;  DISCLOSURE  RELATING TO
LOW-PRICED STOCKS.

The Company's  ADSs, as evidenced by ADRs,  which in turn evidence the Company's
Ordinary  Shares,  are  currently  traded  on the  Nasdaq  SmallCap  Market.  No
assurance can be given that an orderly  trading  market will be sustained in the
future.  Also,  Nasdaq  requires  that,  in order for a company's  securities to
continue to be listed on the Nasdaq SmallCap  Market,  the company must maintain
either a minimum  stockholders'  equity  of  $2,500,000,  $35,000,000  in market
capitalization  or net income of $500,000 in the most recently  completed fiscal


                                       9
<PAGE>

year or in two of the last three  most  recently  completed  fiscal  years.  The
Company had unaudited stockholders' equity of $1,340,000 at August 31, 2004, net
loss for the  financial  year ended  April 30, 2004 of  $2,948,000  and a market
capitalization  of $83 million on  September  28, 2004.  In addition,  continued
inclusion   requires  that  the  Company  maintain  two  registered  and  active
market-makers.  The failure to meet these  listing  maintenance  criteria in the
future  may  result in the  delisting  of the  Company's  ADSs  from the  Nasdaq
SmallCap  Market.  There can be no  assurances  that the Company will be able to
continue to satisfy the applicable standards for continued listing on the Nasdaq
Smallcap  Market.  A failure  to  maintain  such  listing  could have a material
adverse  effect on the  Company's  business and  financial  condition and on the
liquidity and market value of the ADSs. In addition,  in the event the Company's
ADSs are  delisted  from the Nasdaq  SmallCap  Market,  the  Company's  ADSs and
Ordinary  Shares may become  subject  to the "penny  stock"  rules of the United
States Securities and Exchange Commission (the "Commission"). A "penny stock" is
generally  an equity  security  with a market price of less than $5.00 per share
which is not quoted through the Nasdaq system or a national  securities exchange
in the US.  Due to the risks  involved  in an  investment  in penny  stocks,  US
securities laws and regulations  impose certain  requirements and limitations on
broker/dealers   who  recommend   penny  stocks  to  persons  other  than  their
established  customers  and  accredited  investors,  including  making a special
written suitability determination for the purchaser, providing purchasers with a
disclosure  schedule  explaining  the  penny  stock  market  and its  risks  and
obtaining the  purchaser's  written  agreement to the  transaction  prior to the
sale. These  requirements may limit the ability of  broker/dealers to sell penny
stocks. Also, because of these requirements and limitations, many broker/dealers
may be  unwilling  to sell  penny  stocks at all.  In the  event  the  Company's
Ordinary  Shares  become  subject to the  Commission's  rules  relating to penny
stock, the trading market for the ADSs may be materially adversely affected.

DEPENDENCE ON MARKET FOR E-LEARNING.

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

EARLY STAGE OF MARKET DEVELOPMENT.

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

NEW PRODUCTS AND TECHNOLOGICAL CHANGE.

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


                                       10
<PAGE>

basis,  new  competitive  products with  features  that meet  changing  customer
requirements and address technological developments.

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

Because of the  complexity of the  Company's  products,  significant  delays can
occur  between a product's  initial  introduction  to the market and wide market
acceptance.  In addition,  new products or  enhancements  may contain  errors or
performance  problems when first  introduced,  when new versions are released or
even after such  products or  enhancements  have been used for a period of time.
Despite  testing by the  Company,  such defects may be  discovered  only after a
product has been  installed  and used by customers.  Such errors or  performance
problems  could avoid  detection in future  upgrades and result in expensive and
time consuming design modifications,  damaged customer  relationships and a loss
of market share.

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

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

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

CHANGING CUSTOMER PREFERENCES.

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

COMPETITION.

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

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


                                       11
<PAGE>

DEPENDENCE ON LIMITED SOURCES OF SUPPLY.

The Company  relies on one or only a limited number of suppliers for certain key
software and hardware components, hosting services and e-Learning content. These
suppliers are located in various  countries and typically trade through European
subsidiaries.  As a result, the Company's relationships with these suppliers are
subject to political,  legal,  economic and other uncertainties,  in addition to
general risks associated with reliance on limited sources of supply. A change of
control  of a supplier  could also  adversely  affect the  Company's  ability to
obtain supplies and provide continuity of service on the same or other favorable
terms,  if at all. The Company does not have long-term  purchasing  arrangements
with all of its suppliers. Obtaining an alternative source of supply of critical
software and hardware components,  hosting services and e-Learning content could
involve  significant delays and other costs, may not be available to the Company
on reasonable  terms,  if at all, and may have a material  adverse effect on the
Company's business,  financial condition and results of operations.  The failure
of a software or hardware  component  supplier,  service  provider or e-Learning
content provider to provide acceptable quality and timely updates and/or support
at an acceptable  price,  or an interruption  of supplies,  hosting  services or
support  from  such a  supplier  or  provider  as a  result  of a fire,  natural
calamity,  strike or other  significant  event could  materially  and  adversely
affect the Company's business, financial condition and results of operations.

ABSENCE OF PATENTS PROTECTION.

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

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

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

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

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

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

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


                                       12
<PAGE>

DEPENDENCE ON LICENSING ARRANGEMENTS.

In addition to its internally  generated  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 the  Company,  if at all.  While the Company
believes 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 the future profitability of the Company.

FOREIGN TRADE REGULATIONS.

While the Company sells  non-UK-produced  products,  it generally purchases them
from  associates  of  foreign   suppliers.   The  Company's  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.  The Company's  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.

ABSENCE OF DIVIDENDS.

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

CHANGES IN EXCHANGE RATES.

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

RISKS OF POSSIBLE FUTURE ACQUISITIONS.

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


                                       13
<PAGE>

POSSIBLE ISSUANCE OF ADDITIONAL SHARES.

As at September 28, 2004 the Company presently has outstanding  options pursuant
to which an aggregate of 5,894,576  Ordinary  Shares may be issued upon exercise
thereof.  The  issuance of any  additional  Ordinary  Shares,  whether  upon the
exercise  of  derivative  securities,  including  options  and/or  warrants,  in
connection with a financing or otherwise,  including  additional Ordinary Shares
issueable as a  consequence  of any  anti-dilution  provisions  set forth in the
instruments   evidencing   such   derivative   securities,   would   reduce  the
proportionate ownership and voting power of then-existing Stockholders.

RISKS ASSOCIATED WITH INCORPORATION IN ENGLAND AND WALES.

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

SERVICE AND ENFORCEMENT OF LEGAL PROCESS.

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


                                       14
<PAGE>

ITEM 4. INFORMATION ON THE COMPANY.

A.    HISTORY AND DEVELOPMENT OF THE COMPANY.

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

The Company was  incorporated  in England and Wales as a private limited company
in 1982.

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

The Company  provides  e-Learning  products  and services to the  corporate  and
public sector markets.  The main elements of the products and services currently
provided by the Company are;  (i)  Courseware  production  which  comprises  the
development  and  distribution  of  customer  specific  training  content  and a
simulated  three  dimensional  learning  environment  ("ELSA");  (ii) Courseware
library which comprises the  distribution  of  off-the-shelf  standard  training
courses from leading third party content  providers;  (iii) the  development and
distribution of a proprietary  Internet- or Intranet- based Learning  Management
System,  "Aktivna(TM) " including the  distribution  of proprietary  development
tools  and the  facilitation  of  customer  hosting  services  (ASP);  (iv)  the
provision of e-Learning  through the Company's  "Learning For All(TM)"  program;
and (v) consulting and other  professional  services to support the  development
and the implementation of effective e-Learning solutions and strategies.

Following the Company's  pioneering of interactive  laserdisc  technology in the
1980's and early 90's,  Futuremedia  re-registered  as an English public limited
company and completed its initial public offering on Nasdaq in 1993.  During the
period 1993 to 1996, the Company expanded into Germany,  the Netherlands and the
US, but withdrew  from these markets in 1997 and 1998,  choosing to  concentrate
its focus on the UK home market and the  development of new  Internet-based  and
Intranet training solutions.

Recognizing  the  potential  impact on the learning  market of the  developments
being made in  Intranet  and  Internet  environments,  the  Company  started the
development  of its first  proprietary  LMS  SolstraTM in 1997  together with BT
Group PLC ("BT"). The first version of the product was launched to the market in
February  1998.  In March  2000,  it  launched  easycando,  which  was its first
Internet learning portal.

Since April 30, 2001, the Company has invested in capital  expenditure  totaling
GBP235,000 ($417,000) for upgrades to its hardware and software systems together
with the routine  upgrading  and  provision of desktop and laptop  computers and
accessories  as required.  During the year ended April 30, 2004,  investments in
capital expenditure used GBP86,000  ($153,000) of cash. The Company continues to
outsource a portion of its production  activity and  consequently  the equipment
now used comprises network  hardware,  desktop personal  computers,  laptops and
servers  required to support the ongoing  business.  Since the Company's move to
Brighton in May 2003, the landlord  provides  network  cabling under the leasing
arrangement.  Where  appropriate  Futuremedia  owns its capital  equipment,  and
endeavors  to  maintain a program  of  upgrading  to ensure  the  cost-effective
provision of desktop and laptop tools to its employees.  All equipment  acquired
for this  purpose is  industry-standard.  For  servers to support  its  Internet
portal business,  the Company constantly reviews the buy/lease options available
and has in the past  used both  options  when  appropriate.  This  equipment  is
typically located in secure co-location  sites.  During fiscal 2002, the Company
invested  GBP137,000  in  capital  expenditure,  and in fiscal  2003,  a further
GBP12,000.


                                       15
<PAGE>

In January 2003,  the Company  contracted  for the sale of its premises at Media
House, Arundel Road,  Walberton for a total sale price of GBP750,000.  The terms
of the sale provided for the sale to be divided and sold in two stages,  one for
GBP300,000 in January 2003, and the remaining GBP450,000 at a time in the future
to be determined by the Company's successful acquisition of new leased premises,
however no later than the end of May, 2003. This event subsequently  occurred on
May 27, 2003 on relocation to Brighton in East Sussex.  The ensuing book loss of
GBP118,000 was recognized in the year ended April 30, 2003. On completion of the
first  sale,  Futuremedia  repaid  the  balance  outstanding  on the Loan  Stock
Agreement  that had been extended from its original  maturity date of July 2002.
In  order to be able to do so and  still  provide  ongoing  working  capital,  a
bridging mortgage of GBP300,000 was arranged from a major bank. The mortgage was
repaid in May 2003 on final sale.

RECENT DEVELOPMENTS.

TRANSFORMING  EVENT: LAUNCH OF LEARNING FOR ALL(TM) PRODUCT AND SUBSEQUENT ROYAL
MAIL CONTRACT.

Following the product  announcement  in October 2003, the Company  contracted in
November 2003 with Royal Mail to increase the reach of its  e-Learning  offering
to include all eligible  employees and not limit the  e-Learning  opportunity to
those who have  Internet or Intranet  access in their  workplace.  The  contract
provides  for  Futuremedia  to make  available  its  award-winning  Learning For
All(TM) product providing  participants  with hardware,  software (both off-line
and  on-line),  and  Internet  connection  in their  homes for a period of three
years.  Participants,  who  have to be  employees  of the  client,  use a UK tax
incentive scheme based on a salary  sacrifice  principle to pay for the package.
The   participants   not  only   receive  a  selection  of  desktop  and  laptop
fully-integrated   computers  with  options  for  printers  and  scanners,   but
Futuremedia  also  provides for  delivery,  installation,  training and support.
Participation  by Royal Mail  employees  has been greater than  expected.  Since
inception,  more than 15,500 Royal Mail  employees have signed for this turn-key
solution  service and a second  phase of  marketing  the program was launched in
June 2004.

Futuremedia receives income upon delivery of systems to employee homes, together
with  derivative  earnings from the  development  and sale of  employer-specific
software and communication  tools that support e-Learning on the hardware.  This
income has dramatically  increased revenues more than 20-fold for the Company in
2004.

In March 2004, the new development capability called ELSA (Experiential Learning
Simulation  and  Assessment)  was launched.  Futuremedia  believes that this new
approach  significantly reduces the previous  technological and cost constraints
associated  with  realistic  e-learning  simulation  development.  ELSA  enables
exploratory and experiential  learning to corporate and public sector customers.
This web-based simulation technology offers simulated learning environments that
can be built to encourage interactive discovery learning.

Subsequent to the fiscal year end, in June 2004 the Company launched an approach
to   'just-in-time'   and  blended  learning.   The  new  approach   complements
face-to-face   elements   of   blended   training   programs   by  the   use  of
internet-delivered short (5-minute) motivational learning segments, during which
animated characters deliver key messages on specific topics.

In July 2004 the Company  announced that  Kettering  Borough  Council,  England,
launched  the  Learning  For  All(TM)  program  as the  major  driver in its new
flexible benefit plan. Learning For All(TM) is being implemented to encourage as
many as possible of the Council's employees to develop their computer skills and
to participate in the entertainment and educational  benefits of Internet access
at home.  The  program  is part of  Kettering  Borough  Council's  new  employee
benefits scheme which is designed to help it become an employer of choice in the
region and to provide staff with choices to suit their individual circumstances.


                                       16
<PAGE>

Also in July  2004  the  Surrey  e-Partnership,  England,  launched  an  initial
Learning for All(TM)  program,  the first of seven  campaigns to be  implemented
over the coming three  years.  Surrey  e-Partnership  is one of the UK's largest
groups of local  authorities,  public and voluntary sector  organizations with a
total employee base of over 70,000.  Futuremedia  and Surrey  e-Partnership  are
already  planning to offer the Learning For All(TM)  program to a  significantly
larger number of employees at additional organizations within the Partnership in
the autumn of 2004.

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.

According to the International  Data  Corporation,  as stated in their "European
Corporate  e-Learning Market Forecast and Analysis 2001-2002" published in 2002,
the total spend by West European Corporations on e-Learning was expected to grow
from $409  million in 2001 to $3,246  million in 2006.  The  majority - 52% - of
this spend will be on e-Learning content,  while 32% will be on related services
and the remaining 16% on e-Learning infrastructure.

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


                                       17
<PAGE>

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

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

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

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

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

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

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

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

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

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

During fiscal 2004, operations were reorganized into two main business segments:
the Learning For AllTM segment and the Futuremedia e-Learning segment.

The success of the Learning For AllTM service has brought new capabilities  into
Futuremedia's  organization  which the Futuremedia  e-Learning segment will also
benefit from, beyond the obvious cross-selling opportunities. Learning For AllTM


                                       18
<PAGE>

is a managed service,  covering every area of program management from tax law to
Business-to-Enterprise ("B2E") marketing and call centre management. Having this
internal capability now allows the Company to offer its customers other types of
managed programs around performance and workforce development issues,  operating
as true strategic  partners.  Futuremedia  now has the ability to respond to the
scale of client need with an appropriate scale of learning solution,  leveraging
its wide range of e-Learning  products and services and its unique experience as
first movers in the HCI market.

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

NEW PRODUCTS AND TECHNOLOGICAL CHANGES.

The markets for Futuremedia's  products and services are highly  competitive and
subject to rapid change.  The Company's  success will depend upon its ability to
continue to enhance its existing  products  and  services  and to 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.

As new products are introduced,  Futuremedia  closely  monitors the range of its
products to be replaced  including the  controlled  phase out of production  and
distribution of redundant products.

Futuremedia continues to invest in the development of its products.

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

As of September 28, 2004, the Company employed 13 sales and marketing people out
of a total of 57 employees.

LICENSE AGREEMENTS.

In addition to the Company's internally generated 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 2004, the Company derived  approximately 94% of its gross revenues
from product sales,  approximately  4% from the sale of consultancy and services
and  approximately  2% of its gross  revenues  from its  interactive  production
capability,  all in the UK. The  Learning For AllTM  segment  derived 93% of the
total revenues, and the e-Learning segment the remaining 7%.


                                       19
<PAGE>

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

                                     Year Ended April 30,
                 ---------------------------------------------------------------
                            2004                    2003                2002
                 -------------------------    ---------------    ---------------

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

United Kingdom   33,103    18,661    100.0     1,340     99.9       849     93.2
Rest of Europe       --        --       --         2      0.1         3      0.3
Rest of World        --        --       --        --       --        59      6.5
                 ------    ------    -----    ------    -----    ------    -----
TOTALS           33,103    18,661    100.0     1,342    100.0       911    100.0
                 ======    ======    =====    ======    =====    ======    =====

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

SEASONALITY.

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

MARKETING AND SALES.

Futuremedia  markets its products  primarily to local authorities and commercial
end users in a diverse and growing range of industries mainly through its direct
sales force. Futuremedia provides technical assistance and support to purchasers
of  its  products.  The  technical  assistance  involves  providing  answers  to
questions  ranging from  specifications  and  installation  to  availability  of
supporting  software,  as well as a help  line  and  call  center  for  users of
Learning For AllTM. In fiscal 2004, the two largest customers  accounted for 93%
and 4% of revenues,  representing  an aggregate of 97% of revenues  (compared to
59%  and  10%  for an  aggregate  of 69% in  fiscal  2003  and 69% and 9% for an
aggregate of 78% in fiscal 2002).

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 assure 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 come the
largest e-Learning provider in Europe.


                                       20
<PAGE>

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.

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.

During fiscal 2004 Futuremedia  managed to show significant  revenue growth. The
Company  intends to start rolling out its business in continental  Europe during
fiscal 2005.

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

INTELLECTUAL PROPERTY.

The  Company's  ability to compete  successfully  will  depend 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


                                       21
<PAGE>

patents that may be granted in the future would be  enforceable or would provide
the Company with meaningful protection from competitors.

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

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

C.    ORGANIZATIONAL STRUCTURE.

Futuremedia Plc is the principal  operating  business of the Futuremedia  Group,
which also had the  following  wholly owned  subsidiaries,  none of which traded
operationally at September 28, 2004:

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

D.    PROPERTY, PLANT AND EQUIPMENT.

Since the  completion  of the sale of its main office in Arundel,  West  Sussex,
England,  in June 2003,  Futuremedia owns no real property.  Its offices in Nile
Street, Brighton, England are subject to a lease agreement. The Company believes
that these premises are adequate for its foreseeable needs.


                                       22
<PAGE>

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

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

A.    OPERATING RESULTS.

CRITICAL ACCOUNTING POLICIES.

The  Company   considers  certain   accounting   policies  relating  to  revenue
recognition and  capitalization of research and development costs to be critical
to its business operations.

REVENUE RECOGNITION.

Net sales represent the value of goods and services  delivered,  excluding value
added tax, and for the year ended April 30, 2004 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 milestones being achieved.

Learning Management Systems.

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

Blended Learning Solution.

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


                                       23
<PAGE>

Learning For AllTM.

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

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.  Software  development  costs  capitalized
during fiscal 2004, 2003, and 2002, totaled GBP301,000 ($534,000), GBP62,000 and
GBPNil,   respectively.   Amortization   expense,   included   in  general   and
administrative,  was GBP150,000 ($266,000),  GBPNil, and GBP109,000 for the same
periods, respectively.  Software capitalized in 2004 and 2003 was not internally
generated.  These arose from the acquisition of Temp Limited in 2004 and Activna
Objects  Limited  in  2003.  Capitalized  software  costs,  net  of  accumulated
amortization,  were  GBP214,000  ($380,000)  at April 30, 2004 and  GBP62,000 at
April 30, 2003.  Accumulated  amortization  amounted to  GBP414,000 at April 30,
2004 and GBP264,000 at April 30, 2003.

OVERVIEW OF OPERATING RESULTS.

For the fiscal years ended April 30, 2004,  2003 and 2002, the Company  reported
net  losses  of  GBP1,662,000   ($2,948,000),   GBP1,088,000  and  GBP2,012,000,
respectively,  on  revenues of  GBP18,661,000  ($33,103,000),  GBP1,342,000  and
GBP911,000, respectively. As a consequence of its operating results, the Company
has encountered significant cash constraints on its operations for all of fiscal
years 2002,  2003 and most of fiscal  2004.  The  Company's  Learning  For AllTM
product,  launched  in October  2003,  has  transformed  the  income  statement,
generating an additional  GBP17.4 million ($30.8 million) of revenues and GBP2.2
million ($3.8  million) of gross margin  contribution  in fiscal 2004.  Although
this expansion has required further  investment in infrastructure  costs, it has
resulted in a year-on-year  reduction in operating losses of GBP0.4 million, and
a significant improvement in the Company's cashflow situation as a result of the
Learning  For  AllTM  business  model,  wherein  clients  are  invoiced  100% on
delivery, for both the delivered and deferred revenues.

Operationally,  management  regards  the  business  as  falling  into one of two
business streams: Futuremedia Learning for AllTM and Futuremedia e-Learning. The
summary  income  statement  analyzed into the two segments is as follows for the
year ended April 30:


                                       24
<PAGE>

<TABLE>
<CAPTION>
                              2004                            2004                            2003
                           $ millions                     GBP millions                    GBP millions
                 Revenues    Cost of   Margin   Revenues    Cost of     Margin   Revenues     Cost of   Margin
                             Sales                           Sales                            Sales
<S>                <C>       <C>        <C>       <C>        <C>         <C>       <C>         <C>       <C>
Learning For
  All(TM)          30.8      27.0       3.8       17.4       15.2        2.2        --          --        --
e-Learning          2.3       2.3        --        1.3        1.3         --       1.3         1.1       0.2

Total              33.1      29.3       3.8       18.7       16.5        2.2       1.3         1.1       0.2

Operating
  expenses                              5.0                              2.9                             1.3
Operating loss                         (1.2)                            (0.7)                           (1.1)
</TABLE>


Based on the  continuing  improvement  in levels of order intake and sales since
the end of the fiscal year ended April 30,  2004,  notably the recent  order for
the  Company's   Learning  For  All(TM)  product  from  various  new  customers,
management  believes  that  revenues  and cash flows will be  sufficient  to the
extent that the Company's  requirements for working capital for the remainder of
the  current  fiscal  year  are  required  to be met  from  trading  activities.
Accordingly,  the directors  have prepared the accounts for the year ended April
30, 2004 on a going concern basis.

2004 COMPARED WITH 2003.

Revenues.

The Company  achieved  sales of  GBP18,661,000  ($33,103,000)  in the year ended
April 30,  2004,  an increase  of 1290% when  compared  to  GBP1,342,000  in the
previous year. The  improvement in revenues has occurred  during the latter half
of fiscal 2004,  as a result of the  introduction  of the new Learning for AllTM
product.  At April 30, 2004, the Company's  forward  customer orders amounted to
approximately GBP4,327,000 ($7,676,000), that will be substantially fulfilled in
the following  twelve to 36 months,  compared with GBP873,000 at April 30, 2003.
The increase in the value of the  outstanding  order book reflects the nature of
the revenue  recognition  methodology  associated  with the Learning For All(TM)
product, which dictates that approximately 85% of the revenues are recognized on
delivery,  with the remaining 15% recognized  over the three-year  period of the
contract. The revenues arising from the traditional e-Learning business remained
at approximately the same levels as the previous year.

Cost of Sales.

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


                                       25
<PAGE>

Gross Profit.

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

Operating Expenses.

Operating   expenses   increased   significantly   in  2004   to   approximately
GBP2.8million ($5.0 million) or 15% of revenue from approximately GBP1.3 million
($2.1 million) or 95% of total revenues in 2003. The increase,  however includes
an  exceptional  item for UK National  Insurance  dues on  outstanding  options,
arising from the increased  trading  price of the  Company's  ADR's at April 30,
2004,  of  GBP242,000  ($429,000).  After  deducting  the above,  the  resultant
operating  expenses  for 2004 are  GBP2,592,000  ($4,598,000).  The  increase of
GBP1,323,000  in cost when compared to 2003 reflects the investment  Futuremedia
has made in sales and  marketing  activities  to promote the  Learning For AllTM
product and to launch each separate sales campaign, together with an increase in
the numbers of sales and  marketing  staff  required to grow the two segments in
accordance   with  the  strategic  plan  amounting  to  GBP405,000   ($718,000).
Additional costs amounting to GBP111,000 ($197,000) have also been incurred as a
result  of the move to  Brighton,  where  the  Company  now  leases  its  office
premises.  Further increases amounting to GBP807,000  ($1,432,000) were incurred
in the area of general and administrative expenses for additional administrative
staff,  depreciation of intangible assets,  external  professional  consultancy,
accounting and legal fees and provisions for unrecoverable debts.

Interest Income and Expense.

Net interest income for 2004 was GBP22,000  ($39,000) compared to a net interest
expense for 2003 of GBP47,000,  as a result of the discharge of the  outstanding
Convertible loan on which interest was paid in 2003 and interest income received
in 2004 arising from the tactical  investment  of surplus funds  generated  from
the Learning For AllTM activity, which is strongly cash flow positive.

Foreign Currency Gains/Losses.

There was a foreign currency loss in fiscal 2004 of GBP6,000 ($11,000) resulting
from minor  movements  in exchange  rates  between  GBP and USD,  compared to no
financial gains or losses from exchange rate movements in fiscal 2003.

Income/loss from Equity investment.

Under equity  accounting  rules with regard to its  investment  in Luvit AB, the
Company has taken a charge of GBP187,000  ($332,000) in the current  fiscal year
in respect of its share of losses  incurred  by that  company,  together  with a
further charge of GBP100,000 ($177,000) as a result of impairment testing of the
remaining  goodwill  arising  from  the  investment.  Due  to  the  date  of the
investment,  April 2003,  no  inclusion  was  necessary in the year to April 30,
2003, in respect of profits or losses arising from the  investment,  nor was any
impairment test necessary.

Stock compensation arising from Variable options accounting.

In February,  2002, 1,075,000 existing options to purchase ordinary shares under
the  Unapproved  Executive  Share Option Scheme at prices  varying from $0.59 to
$3.00 per Ordinary  share were  cancelled  and replaced with options to purchase


                                       26
<PAGE>

556,417  Ordinary shares at $0.10 per Ordinary share and 518,083 Ordinary shares
at $0.15 per Ordinary  share,  vesting between July 2002 and March 2003, and are
now accounted for as variable options. As a result of the difference between the
exercise  price of the variable  options and the trading  price of the Company's
stock at the year end, a compensation expense was recorded in the current fiscal
year  amounting  to  GBP686,000  ($1,217,000)  compared to GBPNil in the year to
April 30, 2003.

Income Tax Expense.

There was no income tax charge to the Company in fiscal 2004 and in fiscal 2003.
The Company  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, 2004,  potential deferred tax assets
amounted to  GBP4,411,000  ($7,825,000),  of which GBPnil ($nil) was recognized,
compared to  GBP4,323,000  at April 30, 2003, of which GBPnil was  recognized in
expectation of the results for the year to April 30, 2005.

2003 COMPARED WITH 2002.

Revenues.

The Company achieved sales of GBP1,342,000  ($2,147,000) in the year ended April
30, 2003 an increase of 47% when compared to  GBP911,000  in the previous  year.
The improvement in revenues resulted not only from the continued increase in the
core business of providing  e-Learning  management  systems and generic products
from  GBP743,000 in 2001,  GBP911,000 in 2002 to  GBP1,142,000  in 2003 but also
from the  acquisitions  made in April 2002 and May 2002 which had had the effect
of  broadening  the  offering the Company is able to make,  enabling  clients to
contract  with  Futuremedia  as a single  point of supply  for their  e-Learning
requirements  and  added a  further  GBP200,000  revenue  in  2003  of  resource
consultancy.  At April 30,  2003,  the Company had  forward  customer  orders of
approximately GBP873,000 ($1,397,000),  that were substantially fulfilled in the
following  twelve  months,  compared with  GBP1,122,000  at April 30, 2002.  The
reduction  in the value of the  outstanding  order  book  reflected  the  market
wherein clients more often contracted for services on a single year basis rather
than committing to multiple year contracts.  The acquisition of C2W in May 2002,
analyzed as a separate  business segment for that year,  resulted in an increase
in revenues from this discrete activity of GBP200,000 ($320,000)

Cost of Sales.

The Company's  cost of sales as a percentage  of revenues  decreased to 83% from
169% in 2002.  The  improvement in percentage for fiscal 2002 reflected not only
the increase in revenues,  but also the cost  reductions made in the latter part
of fiscal  2002 that were  sustained  throughout  the  fiscal  year.  These cost
savings were made largely  through  reduced  headcount and  consequently  direct
labor cost,  which can be regarded as fixed by nature,  making the cost of sales
percentage  to sales  figures  sensitive to changes in volume.  Also,  since the
acquisition of the assets and staff of Palm Teach Limited,  at the end of fiscal
2002,  the Company had benefited  from the skills and expertise  acquired in the
management of bespoke projects, with a resultant improvement in project margins.

Gross Profit.

Gross  Profit as a  percentage  of  revenues  improved  from (69)% gross loss in
fiscal  2002 to 17% gross  profit  in  fiscal  2003.  Cost of sales  included  a
significant  element of cost  which was  regarded  as fixed by nature,  since it
represented  the cost of permanent  staff and third party hosting whose function
was  to  provide  the  resources   necessary  to  ensure  the  availability  and
effectiveness  of the  services  offered by the  Company to its  customers.  The
reduction  to certain of these  fixed  costs as a result of the  Company's  cost
reduction  plans  executed  in the  latter  part of  fiscal  2002 and  sustained
throughout  fiscal  2003,  together  with  increased  revenues,  resulted in the


                                       27
<PAGE>

reversal of the prior year gross loss into a gross profit.  The  acquisition  of
C2W limited had a positive impact on gross margin of GBP41,000 in fiscal 2003.

Operating Expenses.

Operating  expenses  reduced by 10% to  approximately  GBP1.3  million or 95% of
total revenues in fiscal 2003 from GBP1.4 million,  or 154% of total revenues in
fiscal 2002.  The decrease in actual  expenditure  in fiscal 2003  resulted from
management's cost reduction  policies  implemented during the latter part of the
previous year,  sustained  throughout fiscal 2003. These cost reductions largely
resulted from a reduction in headcount in the support areas such as the finance,
management and HR areas.

Interest Income and Expense.

Net interest  expense for fiscal 2003 was  GBP47,000  compared to a net interest
income for fiscal 2002 of GBP3,000,  as a result of higher rate interest charges
incurred  as a  result  of  the  delayed  settlement  of  the  then  outstanding
Convertible  loan,  whereby,  since the loan was not repaid on the due date, the
contractual interest rate increased from two percentage points over base to 20%.

Foreign Currency Gains/Losses.

There were no financial  gains or losses from exchange rate  movements in fiscal
2003,  compared  with a gain  of  GBP13,000  in  fiscal  2002,  as a  result  of
relatively stable GBP, USD and euro currencies throughout the period.

Income Tax Expense.

There was no tax charge in fiscal 2003 and in fiscal 2002. The Company possessed
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, 2003,  potential deferred tax assets amounted to GBP323,000,
of which GBPnil was  recognized,  compared to GBP4,142,000 at April 30, 2002, of
which GBPnil was recognized in expectation of the results for the fiscal year to
April 30, 2004.

Recent Accounting Pronouncements.

There  are no  accounting  pronouncements  issued  before  April 30,  2004,  but
effective after April 30, 2004,  which are expected to have a material impact on
our financial reporting.

B.    LIQUIDITY AND CAPITAL RESOURCES.

INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY.

In January 2003, the Company  contracted for the sale of its premises at Arundel
Road,  Walberton,  West  Sussex for a total  price of  GBP750,000  ($1,330,000),
GBP118,000  ($209,000)  below the  carrying  value.  Under the terms of the sale
contract,  the  property  was divided  into two parts and sold in two lots,  the
first for GBP300,000 ($532,000),  took place in January 2003, and the second for
GBP450,000  ($798,000)  took  place  in  May,  2003.  On  the  first  sale,  the
outstanding loan under the Loan Stock Agreement between the Company and Waverton
Holdings  Limited was repaid in full,  and at that time,  the Company took out a
GBP300,000  ($532,000)  mortgage  provided by a major bank,  repayable  on final
completion,  to enable both the full  repayment of the  outstanding  loan and to
provide  working  capital  pending the receipt of the balance of monies due from
the sale of the premises.  The mortgage was repaid in full in May 2003, when the
sale was completed.

Since its initial  public  offering in 1993, the Company has undertaken a series
of private  placements  to fund its working  capital and to allow  investment in
product  developments.  Between May 2000 and April 2003,  the Company  issued an
aggregate of 39,531,356  Ordinary Shares to  approximately  30 non-US persons in


                                       28
<PAGE>

reliance on Regulation S,  representing  aggregate gross proceeds to the Company
of approximately GBP4.8 million ($8.5 million).  During the year ended April 30,
2004,  the  Company  also  issued a  further  5,173,959  shares in  reliance  of
Regulation S, representing aggregate gross proceeds of GBP756,000  ($1,341,000),
all of which had been received by the year end.

Also during the year ended April 30, 2004, a number of staff  exercised  options
for the  purchase  of an  aggregate  of  1,151,727  ordinary  shares  under  the
Unapproved Executive Share Option Scheme,  representing aggregate gross proceeds
of GBP80,000  ($142,000),  of which  GBP24,000  ($43,000) was outstanding at the
year  end.  Also in the  year to  April  30,  2004,  Waverton  Holdings  Limited
exercised their total holding of warrants to purchase  1,594,344 ordinary shares
representing gross proceeds of GBP77,000 ($137,000).

At September 28, 2004,  the Company's  cash  resources and available  borrowings
amounted to (pound)3,026,000  ($5,368,000).  Based on the continuing improvement
in levels of order intake and sales since the end of the fiscal year ended April
30,  2004,  notably  the recent  order for the  Company's  Learning  For All(TM)
product from various new customers,  management  believes that revenues and cash
flows will be  sufficient  to the extent  that the  Company's  requirements  for
working  capital for the remainder of the current fiscal year are required to be
met from  trading  activities.  Accordingly,  the  directors  have  prepared the
accounts for the year ended April 30, 2004 on a going concern basis.

SOURCES AND AMOUNTS OF CASH FLOWS.

On September 28, 2004,  the latest date  available at time of filing,  the total
amount  of cash  and cash  equivalents  on hand  was  GBP3,026,000  ($5,368,000)
compared  with a total  of cash  and  cash  equivalents  at  April  30,  2004 of
GBP4,651,000.  This decrease  primarily  represents  losses incurred in the five
months to September 30, 2004.

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

The Company's  ratio of current  assets to current  liabilities  stood at 1.1 at
April 30, 2004,  compared with 0.9 at April 30, 2003, the numbers for April 2003
include the entire balance outstanding on the short-term mortgage.  As at August
31, 2004, this ratio was 0.95.

On April 30,  2003,  the total amount of cash and cash  equivalents  on hand was
GBP437,000  as compared to cash and cash  equivalents  of GBP445,000 as at April
30, 2002. This minor change  represented  the effect of the losses  sustained in
the year, offset by the funding initiatives undertaken by the Company,  together
with the  proceeds  from the  first  part of the  sale of its  premises  and the
provision  of a  mortgage  pending  completion  on the second  part,  net of the
repayment  of the  amounts  outstanding  under the Loan  Stock  Agreement..  The
Company's ratio of current assets to current  liabilities  stood at 0.9 at April
30, 2003, compared with 0.6 at April 30, 2002, the entire balance outstanding on
the Loan Stock being current as at April 30, 2002.

As of April 30,  2004,  the Company had no long-term  obligations,  the mortgage
from a major bank being  repaid in full on final  completion  of the sale of the
Company's premises in May, 2003.

At  April  30,  2004,  the  Company  had  no  material  commitment  for  capital
expenditure.  As of September 28, 2004, the Company had no material  commitments
for capital expenditures.


                                       29
<PAGE>

COMMITMENTS.

The Company has secured the  provision of its Internet  Service  Provider  (ISP)
service requirements with Siemens UK Ltd. for a period of three years commencing
September  2001. This contract was not renewed on expiry in September 2004, when
the Company changed  supplier to IX Europe Limited for reasons of reduced costs.
In April 2001, the Company  contracted  with Consignia Plc (UK), now Royal Mail,
for the provision of a learning  management  system  comprising a hosted service
together  with  learning  content for a period of 22 months  commencing  June 1,
2001.   The  total  value  of  the  contract  was   approximately   GBP1,000,000
($1,438,600). This contract was renewed for a further period of twelve months in
with effect from April 1, 2004.  In October 2003,  the Company  launched its LFA
product.  It is  expected  that  the  Company  will  have  to  make  significant
commitment  to third  party  suppliers  in the  delivery of these  products  and
services.  Following the Company's move to Brighton, it has entered into a lease
arrangement  for  office  facilities  for a period of nine  years,  with a break
clause after four years, up to which time the rental charge is fixed. Initially,
this  arrangement was for a serviced area of 4,700 square feet, but,  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,  including  service  charges,  is  approximately
GBP138,000 ($245,000)

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

COMPANY SPONSORED RESEARCH AND DEVELOPMENT.

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

During the fiscal year ended April 30, 2004, a total of GBP196,000 ($348,000) of
research and development costs was expensed. During the fiscal years ended April
30, 2003 and 2002,  GBP131,000 and GBP311,000,  respectively,  of research costs
were  expensed.  An  average  of three  staff  were  employed  on  research  and
development activities in the year ended April 30, 2004.

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  easycando.  To date,  the
Company has contracted with  KnowledgePool Ltd. (UK),  Intellexis  International
Ltd. (UK), Xebec McGraw-Hill, (UK), and SkillSoft (US).

D.    TREND INFORMATION.

The fiscal year 2004  demonstrated  the advantages of the Company's  strategy of
establishing and maintaining  partnerships with its customers and of continually
investing in product development and support. At September 28, 2004, the Company
had a  forward  order  book of  customer  orders of  approximately  GBP4,017,000


                                       30
<PAGE>

($7,125,000) of which GBP3,081,000  ($5,465,000)  represents  Learning For AllTM
deferred  revenues,  compared  with  GBP4,327,000  at April 30,  2004,  of which
GBP2,685,000  represented  Learning For AllTM deferred revenues.  As a result of
the increase in deferred  revenue forward orders,  Futuremedia  believes that it
has gained market share.

Therefore,  Futuremedia is entering fiscal 2005 with a great deal of confidence.
The Company expects that market-driven  growth will come on top of other factors
including  continued  market  share  gains,  and  revenues  from new products in
existing and emerging markets.

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, 2004:

<TABLE>
<CAPTION>
                                                        Payments due by Period

Contractual Obligations             Total      Less than 1 year    1-3 years       3-5 years       More than 5
GBP000's                                                                                              years

<S>                                  <C>             <C>              <C>              <C>              <C>
Long-Term Debt Obligations            -               -                -               -                -

Capital (Finance) Lease
Obligations                           -               -                -               -                -

Purchase Obligations                 85               85               -               -                -

Operating lease obligation           507             153              354              -                -
Other Long-Term Liabilities
Reflected on the Company's
Balance Sheet under the GAAP
of the primary financial
statement                             -               -                -               -                -

Total                                592             238              354              -                -
</TABLE>

As of April 30,  2004,  the  Company  had no  material  contractual  obligations
outstanding with respect to capital expenditure.


                                       31
<PAGE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.       DIRECTORS AND SENIOR MANAGEMENT.

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

<TABLE>
<CAPTION>
           NAME             AGE    SINCE             POSITION WITH THE COMPANY
           ----             ---    -----             -------------------------
<S>                          <C>    <C>    <C>
BOARD MEMBERS:

David Bailey .............   40     2002   Director and Managing Director, Learning For All
Leonard M Fertig(1)(2)....   57     2004   Non-executive Director
Mats Johansson(3).........   46     1996   Director and Chief Executive Officer
Carl Kleman (1)(2)........   58     2003   Non-executive Director
Jan Vandamme(1)(2)........   45     1998   Non-executive Director and Chairman of the Board
                                           of Directors
SENIOR MANAGEMENT:
Peter Machin .............   55     2000   Company Secretary and Chief Financial Officer
</TABLE>

(1)  Member of the Audit Committee.
(2)  Member of the Remuneration Committee
(3)  Resigned as Director January 2002, re-appointed April 2002

Mr. David Bailey has served as a director since his  appointment to the board in
April 2002. Mr. Bailey was appointed to the board on the nomination of a private
UK investor.  Prior to joining the Company,  Mr.  Bailey worked for both Ernst &
Young and Coopers & Lybrand,  specializing in the turnaround market and business
development.  Mr  Bailey  now  has  his  own  independent  consultancy  business
providing advice on business growth  strategies and delivering  profitability to
largely  bank-led  clients.  Since October.  2003, Mr Bailey has had operational
responsibility for theLearning For AllTMbusiness segment.

Mr. Leonard  Fertig has served the Company as an Independent  Director since his
appointment  in August  2004.  Mr.  Fertig  currently  is a  Consultant  at, and
President  of The Acorn  Consulting  Group Inc.,  which  provides  advisory  and
strategic   consulting  services  to  investors  and  companies  in  the  media,
entertainment,  and communications  industries. 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. Mats Johansson joined  Futuremedia in 1996 as Director of Marketing.  He was
promoted to Managing  Director in 1998, and appointed Chief Executive Officer in
December  2000.  Prior  to  joining  the  Company,  Mr.  Johansson  held  senior
management  positions at Student  Literature AB, and American Express Inc. Prior
to joining the Company Mr.  Johansson also  co-founded a national  catalogue and
retail  business  in the US.  Mr.  Johansson  has an MBA from  Harvard  Business
School.

Mr. Carl Kleman,  a graduate of the  Stockholm  School of Economics and Business
Administration,  and a major in the Swedish Army (Reserve),  joined the Board in
August 2003. He has held several  Chief  Financial  Officer and Chief  Executive
Officer positions within European and Scandinavian  companies.  Mr Kleman brings
wide  experience  of  general   management,   acquisitions,   divestitures   and
reorganizations  to the Company.  Mr. Kleman is currently  also serving as a non
executive  director of, and advisor to, two  privately  held Swedish  technology
corporations,   Munkeby   Systems  AB,   (Intranet  based  quality  control  and
performance systems) and ScandiNova System AB (a supplier of turn-key modulators


                                       32
<PAGE>

and surface irradiation systems), and as a member of the advisory board of Wmode
Inc.,  Calgary  (Content  management and micro payment  clearing  system for the
mobile internet industry).

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.

B.    COMPENSATION.

The total remuneration  (excluding pension  contributions) paid to the Company's
directors and  executive  officers (a total of five persons) for fiscal 2004 was
GBP533,000  ($945,000),  including  fees  paid to  non-executive  directors  for
consultancy services.

At April 30, 2004, a total of GBP329,000  ($584,000)  in respect of  outstanding
sales commission earned was owed to executive officers.

The Company may reimburse  non-employee  directors for their costs and expenses
incurred in attending  Board  meetings and may enter into contracts for services
with non-employee directors.

In October 1997,  non-employee  director Mr. Wit was granted options to purchase
5,000 Ordinary shares at a price of $0.594 per Ordinary  share,  and in November
1998, was granted  options to purchase a further  100,000  Ordinary  Shares at a
price of $1.00 per Ordinary  Share under the Unapproved  Executive  Share Option
Plan. These options were cancelled in February 2002 and replaced with options to
purchase  52,250  Ordinary  Shares at a price of $0.10 per  ordinary  shares and
52,250 Ordinary  Shares at $0.15 per Ordinary  Share,  which vested in July 2002
and expire at the end of February  2010.  At the same time,  further  options to
purchase  150,000  Ordinary  Shares at $0.10  per  ordinary  share  and  150,000
Ordinary Shares at $0.15 per Ordinary Share were granted to Mr. Wit. In November
1998,  non-executive  director  Mr.  Vandamme  was  granted  options to purchase
100,000  Ordinary Shares at a price of $1.00 per Ordinary  Share.  These options
were  cancelled in February  2002 and replaced  with options to purchase  50,000
Ordinary  Shares at a price of $0.10 per  ordinary  shares and  50,000  Ordinary
Shares at $0.15 per Ordinary Share,  which vested in July 2002 and expire at the
end of February  2010.  At the same time,  further  options to purchase  250,000
Ordinary Shares at $0.10 per ordinary share and 250,000 Ordinary Shares at $0.15
per Ordinary  Share were granted to Mr.  Vandamme.  In February 2002, a total of
745,000  options to purchase  Ordinary  Shares at various  prices  ranging  from
$0.594 to $3.00 per Ordinary  Share  previously  granted to Mr.  Johansson  were
cancelled and replaced  with options to purchase  372,500  Ordinary  Shares at a
price of $0.10 per  ordinary  shares and  372,500  Ordinary  Shares at $0.15 per
Ordinary  Share,  which  vested in July 2002 and  expire at the end of  February
2012.  At the same time, a further  grant was made to Mr.  Johansson to purchase
150,000  ordinary  shares at a price of $0.10  per  Ordinary  Share and  150,000
Ordinary  Shares at a price of $0.15 per Ordinary  Share vesting in February and
March 2003, which will expire in February 2010.

In April 2002, Mr. Johansson agreed to sacrifice  GBP31,433  ($45,990) of salary
over the period January 2002 to August 2002 in exchange for the issue of 648,183
Ordinary Shares at a value of $0.07 per Ordinary Share.

In November 2002, a total of 500,000 options to purchase  Ordinary Shares at the
then market price of $0.091 per Ordinary Share,  vesting  between  November 2004
and  November  2005,  were granted  to Mr. Bailey.  Of these,  250,000 were only


                                       33
<PAGE>

exercisable on the achievement of specific  performance  targets. As at November
12,  2003,  these  performance  targets had not been met, and  therefore,  these
options lapsed.

On October 31, 2003,  options to purchase  495,000 Ordinary shares at a price of
$0.28 were granted to Mr. Bailey, vesting in three equal tranches on October 31,
2004, 2005 and 2006.

In November,  2003, Mr. Bailey was granted  options to purchase  70,000 Ordinary
Shares at a price of $0.64 per Ordinary share, vesting on May 1, 2004

In November,  2003,  Mr. Wit was granted  options to purchase  100,000  Ordinary
Shares at a price of $0.64 per Ordinary share, vesting on May 1, 2004.

In November, 2003, Mr. Vandamme was granted options to purchase 150,000 Ordinary
Shares at a price of $0.64 per Ordinary share, vesting on May 1, 2004

In November,  2003, Mr. Kleman was granted  options to purchase  37,500 Ordinary
Shares at a price of $0.64 per Ordinary share, vesting on May 1, 2004

In January  2004,  Mr. Wit  exercised  all options  with the  exception of those
granted in November 2003

At September  28,  2004,  with the  exception  of those  exercised by Mr. Wit as
described, none of the above options had been exercised.

C.     BOARD PRACTICES.

TERM OF OFFICE.

At the  General  Meeting  of  Shareholders  held on  March  18,  2004 all of the
following  Directors were elected of a term ending  immediately after the Annual
General Meeting of 2005, unless their terms are earlier  terminated by a vote of
the  shareholders,  removal by all of the members of the Board,  resignation  or
death: Messrs Bailey, Johansson, Kleman, Vandamme and Wit.

At a Special  Meeting of Directors held on July 15, 2004,  Cornelis Wit resigned
as director and Leonard Fertig was appointed as non-executive Director.

EMPLOYMENT AND SERVICE CONTRACTS.

Only the services  provided to the Company by Mr.  Johansson  and Mr.  Bailey in
their capacities as executive directors are retained under ongoing contracts.

Mr.  Johansson's  services are retained  partly through a contract of employment
and partly through a service  agreement,  both of which are terminable by either
party by the serving of three  months  notice or payment in lieu of notice.  The
service contract is subject to English employment laws, 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.

Mr.  Bailey's  services are retained  under a 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  employment laws, 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.


                                       34
<PAGE>

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 nine meetings
during fiscal 2004.

The main topics on which the Board of Directors  deliberates are the mission and
strategy of the Company,  matters of world-wide  importance,  the development of
new activities or discontinuation of existing activities,  general corporate and
social policy, mergers and acquisitions, and the hiring of senior management.

The Audit Committee is responsible for, among other things:  recommending to the
Board  of  Directors  the  nomination  of  the  Company's  independent  auditor;
reviewing and monitoring the Company's  financial reporting process and internal
control systems;  reviewing the Company's annual financial statements, the scope
of the audit and the role and performance of the independent auditor;  reviewing
the  independence  of the  independent  auditors;  and  providing  a channel for
communication  between  the  independent  auditor,  management  and the Board of
Directors.  At a meeting of Directors  held on November 19, 2003,  the following
directors were elected to the Audit Committee:  Messrs: Kleman (Chair), Vandamme
and  Wit.  At a  meeting  of  Directors  held on  August  26,  2004,  Mr.  Wit's
resignation  was accepted and at the same  meeting,  Mr. Fertig was appointed to
the Audit Committee.

The Remuneration  Committee is responsible  for, among other things,  reviewing,
monitoring and approving the remuneration of the executive  directors and senior
management of the Company.  At a meeting of directors on November 19, 2003,  the
following directors were elected to the Remuneration Committee:  Messrs: Kleman,
Vandamme and Wit (Chair). At a meeting of Directors held on August 26, 2004, Mr.
Wit's resignation was accepted and at the same meeting, Mr. Fertig was appointed
to the Remuneration Committee (Chair).

As a special matter of attention,  the Board of Directors is closely  monitoring
the Company's compliance,  within the applicable time frames for foreign private
issuers, with the SEC rules and Nasdaq listing standards implemented as a result
of the  Sarbanes-Oxley  Act.  Some of these  matters  are  delegated  to special
committees operating under a written charter from the Board of Directors.

D.     EMPLOYEES.

At  September  28,  2004,  the Company  employed 58 persons,  three of whom were
corporate officers. Of the remainder, 36 were engaged in technology delivery and
support, thirteen in sales and marketing and six 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.

As of April 30,  2002,  the  Company  employed  20  persons,  three of whom were
corporate officers. Of the other employees as of April 30, 2002, 13 were engaged
in  technology  delivery  and  support,  two in sales and  marketing  and two in
administrative and financial matters.

In addition,  it is Company policy to employ contract staff from time to time to
support  specialized  production  requirements  and to increase  its  production
capacity  and  flexibility  and to reduce  lead  times.  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, 2004 was
six.


                                       35
<PAGE>

None of the Company's employees is covered by a collective bargaining agreement.
All of the Company's employees are employed in the UK. The Company believes that
its relations with its employees are good.

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

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

E.       SHARE OWNERSHIP.

SHARE OWNERSHIP.

With respect to the share ownership in the Company of the officers and directors
of the Company, see the disclosure in "Major Shareholders".

EMPLOYEE PROFIT-SHARING AND OPTION PLANS.

In July 1993, the Company  adopted three  employee  profit share or share option
plans: the "Approved  Executive Option Scheme," the "Unapproved  Executive Share
Option Scheme", and the "Employee Share Ownership Plan".

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.

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.  The value of
options to be granted is not subject to any financial limit, although the number
of  shares  over  which  options  may  be  granted  is  subject  to  an  overall
restriction, as described below.

In August 1993,  options to purchase an aggregate of 45,186  Ordinary  Shares at
$4.25 per Ordinary Share were granted to employees under the Approved  Executive
Share Option Scheme. In May 1995,  options to purchase 44,647 Ordinary Shares at
$2.55 per Ordinary Share were granted to employees under the Approved  Executive
Share Option Scheme.  In February  1998,  options to purchase  121,000  Ordinary
Shares at  $0.90625  per  Ordinary  Share were  granted to  employees  under the
Approved Share Option Scheme. In July 2000,  options to purchase 90,000 Ordinary
shares at $1.5938 per  Ordinary  Share were  granted  under the  Approved  Share
Option Scheme. No options have been exercised under the Approved Executive Share
Option  Scheme.  Taking into  consideration  options  that have lapsed  prior to
exercise and upon termination of employment, options to purchase 20,500 Ordinary
shares at $0.90625 per Ordinary  Share and options to purchase  12,000  Ordinary
shares at $1.5938 per  Ordinary  share  respectively  remained  outstanding  and
unexercised as at September 28, 2004.


                                       36
<PAGE>

The following  options have been issued and remain  outstanding  as of September
28, 2004, under the Company's "Unapproved Executive Share Option Scheme":

<TABLE>
<CAPTION>
      NO OF    SUBSCRIPTION      DATE                         EXERCISABLE WHEN THE MARKET
     SHARES        PRICE      EXERCISABLE     EXPIRY DATE     PRICE AT LEAST EQUALS
     ------    ------------   -----------     -----------     ---------------------------
<S>               <C>          <C>            <C>             <C>
    428,333       $0.64        Current        Nov 2013        No Restriction
      5,000       $0.59        Current        Sep 2010        No Restriction
    165,000       $0.28        10/31/04       Oct 2013        No Restriction
    165,000       $0.28        10/31/05       Oct 2013        No Restriction
    165,000       $0.28        10/31/06       Oct 2013        No Restriction
      5,000       $0.19        Current        Sep 2010        No Restriction
    100,000       $1.00        Current        Sept 2010       No Restriction
     57,250       $0.35        Current        May 2011        No Restriction
     57,250       $0.35        Current        May 2011        No Restriction
     57,250       $0.35        Current        May 2011        No Restriction
     57,250       $0.35        11/01/04       May 2011        No Restriction
    100,000       $0.25        Current        Oct 2006        $1.00
  1,225,851       $0.15        Current        Feb 2012        No Restriction
  1,178,892       $0.10        Current        Feb 2012        No Restriction
     50,000       $0.09        10/16/04       Oct 2012        No Restriction
     50,000       $0.09        10/16/05       Oct 2012        No Restriction
    125,000       $0.09        11/01/04       Nov 2012        No Restriction
    125,000       $0.09        11/01/05       Nov 2012        No Restriction
     60,000       $0.385       Current        Jul 2013        No Restriction
     60,000       $0.385       07/29/05       Jul 2013        No Restriction
     60,000       $0.385       07/29/06       Jul 2013        No Restriction
     75,000       $0.376       Current        Nov 2013        No Restriction
     50,000       $0.332       10/10/04       Oct 2013        No Restriction
     50,000       $0.332       10/10/05       Oct 2013        No Restriction
     50,000       $0.332       10/10/06       Oct 2013        No Restriction
     25,000       $0.338       10/02/04       Oct 2013        No Restriction
     25,000       $0.338       10/02/05       Oct 2013        No Restriction
     25,000       $0.338       10/02/06       Oct 2013        No Restriction
    100,000       $0.338       10/02/04       Oct 2013        See Note (1)
    100,000       $0.338       10/02/05       Oct 2013        See Note (1)
     25,000       $0.286       11/03/04       Nov 2013        No Restriction
     25,000       $0.286       11/03/05       Nov 2013        No Restriction
     25,000       $0.286       11/03/06       Nov 2013        No Restriction
    100,000       $0.286       11/03/04       Nov 2013        See Note (1)
    100,000       $0.286       11/03/05       Nov 2013        See Note (1)
     75,000       $0.638       Current        Jan 2014        No Restriction
     75,000       $0.638       01/05/06       Jan 2014        No Restriction
     75,000       $0.638       01/05/07       Jan 2014        No Restriction
     20,000       $0.63        01/14/05       Jan 2014        No Restriction
     20,000       $0.63        01/14/06       Jan 2014        No Restriction
     20,000       $0.63        01/14/07       Jan 2014        No Restriction
     33,332       $0.63        01/14/05       Jan 2014        See Note (1)
     33,334       $0.63        01/14/06       Jan 2014        See Note (1)
     33,334       $0.63        01/14/07       Jan 2014        See Note (1)
</TABLE>


                                       37
<PAGE>

<TABLE>
<CAPTION>
<S>               <C>          <C>            <C>             <C>
     15,000       $1.207       03/15/05       Mar 2014        No Restriction
     15,000       $1.207       03/15/06       Mar 2014        No Restriction
     15,000       $1.207       03/15/07       Mar 2014        No Restriction
     15,000       $1.622       04/05/05       Apr 2014        No Restriction
     15,000       $1.622       04/05/06       Apr 2014        No Restriction
     15,000       $1.622       04/05/07       Apr 2014        No Restriction
    210,000       $1.412       05/01/05       Jun 2014        No Restriction
     15,000       $1.574       05/12/05       May 2014        No Restriction
     15,000       $1.574       05/12/06       May 2014        No Restriction
     15,000       $1.574       05/12/07       May 2014        No Restriction
     20,000       $1.604       05/17/05       May 2014        No Restriction
     20,000       $1.604       05/17/06       May 2014        No Restriction
     20,000       $1.604       05/17/07       May 2014        No Restriction

  5,862,076
</TABLE>

(1)   Exercisable  provided that the grantee  achieves  specific  personal sales
      targets.

The Company's  "Employee  Share  Ownership Plan" (also known as 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.


                                       38
<PAGE>

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A. MAJOR SHAREHOLDERS.

The following table sets forth certain information, as of September 28, 2004, to
the extent  that it is known to the  Company or can be  ascertained  from public
filings, as of the date of this Report with respect to the beneficial  ownership
of the Company's ADSs by (i) each director, senior manager and key employee, and
(ii) each person known by the Company to own 5% or more of the Company's ADSs.

<TABLE>
<CAPTION>
  Name of Beneficial Owner(1)                           Number of ADSs    Number of share    Percentage
                                                         Beneficially         options       Beneficially
                                                            Owned          Beneficially         Owned,
                                                                             owned (3)        including
                                                                                               options
<S>                           <C>                        <C>                   <C>              <C>
  Rennes Foundation (2)                                  13,150,218                 --          15.1
  Jobelin Foundation (2)                                    447,778                 --           0.5
  D. Bailey                   Board Member                  821,154            690,833           0.9
  M Johansson                 Board Member & C.E.O        2,368,846                 --           2.7
  J. Vandamme                 Board Member & Chairman       750,001             75,000           0.9
  C. Kleman                   Board Member                   37,500             50,000          0.04
  L Fertig                    Board Member                      Nil                Nil           Nil
  Board as a Group            Five persons                3,977,501            815,833           4.5
</TABLE>

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

(2)   Beneficially  owned by entities of which  directors or executive  officers
      (or former  directors  or  executive  officers)  of the  Company  are also
      directors, executive officers or shareholders. The directors and executive
      officers of the Company disclaim beneficial ownership of these shares. Mr.
      Rolf  Herter,  who  served  on the  Board  on  the  nomination  of  Rennes
      Foundation  and  Jobelin  Foundation,  resigned as a Director on August 5,
      2003. To the Company's knowledge, Rennes Foundation and Jobelin Foundation
      are under common control.

(3)   Includes  options to  purchase  Ordinary  Shares  granted  pursuant to the
      Company's  share option plans at prices  varying from $0.09 to $1.00.  See
      "Share Ownership".

Except for the status as director(s)  and/or  officer(s) of certain of the major
shareholders  listed above,  to the knowledge of the Company the Company's major
shareholders do not have voting rights different from other shareholders.  As of
September 28, 2004, the Company had approximately  eight shareholders of record,
one of whom  acts as  Depositary  for the  Company's  ADR  facility  and is a US
resident. At September 28, 2004, the Depositary had approximately 111 holders of
record of ADSs. Based on information  received from the Depositary,  the Company
believes that there are approximately 12,400 beneficial owners of ADSs.

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


                                       39
<PAGE>

B.    RELATED PARTY TRANSACTIONS.

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

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

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

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

Also in April 2002,  the Company  contracted  for the issue of 803,046  Ordinary
Shares  at a  price  of  $0.07  per  Ordinary  Share  under a  Salary  sacrifice
arrangement,  representing an aggregate purchase price of $56,000. The following
individual  purchased the number of Ordinary Shares indicated in connection with
this transaction: Mr. Mats Johansson (648,183 shares). At the same time, Mr. Jan
Vandamme  agreed  to  accept  102,000  Ordinary  Shares  at a price of $0.07 per
Ordinary Share in settlement of outstanding  invoiced  charges for work done for
the Company.

In October  2002,  the Company  completed a new  investment  round from existing
investors and affiliates,  raising a further GBP150,000 ($230,000),  represented
by the issuance of a further 2.7 million  (approximately)  ordinary  shares at a
price of $0.085 per share,  at market rate.  The following  individuals/entities
purchased the number of shares  indicated in connection  with this  transaction:
Rennes Foundation (1,177,647 shares), Mr. Mats Johannson (181,176 shares).

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

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

In August 2003,  the Company  contracted  and received the cash for the issue of
387,597  Ordinary  shares at a market price of $0.387 per  Ordinary  share for a
total  aggregate  price of  $150,000.  The  following  individuals  and entities


                                       40
<PAGE>

purchased  the number of  Ordinary  Shares  indicated  in  connection  with this
private placement: Volito AB (387,597 shares).

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

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

During the year ended April 30, 2004, the following  directors  received payment
for consultancy  services provided through  independent  service companies:  Mr.
J.Vandamme GBP90,000 ($160,000), Mr. C.Kleman GBP40,000 ($71,000).


C.    INTERESTS OF EXPERTS AND COUNSEL.

Not Applicable.


                                       41
<PAGE>

ITEM 8. FINANCIAL INFORMATION.


A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.

CONSOLIDATED FINANCIAL STATEMENTS.

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

LEGAL PROCEEDINGS.

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

DIVIDEND POLICY.

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

B.    SIGNIFICANT CHANGES.

Not Applicable.


                                       42
<PAGE>

ITEM 9. THE OFFER AND THE LISTING.

A.    OFFER AND LISTING DETAILS.

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

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

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

(1)   The five most recent full financial years:

                                                       ADS PRICE

                 YEAR ENDING APRIL 30,           HIGH              LOW
                                                   $                $
                                                 -----            -----
                         2000                    3.844            0.469
                         2001                    3.125            0.160
                         2002                    0.380            0.050
                         2003                    0.159            0.060
                         2004                    2.080            0.100


                                                     WARRANTS PRICE

                 YEAR ENDING APRIL 30,           HIGH              LOW
                                                   $                $
                                                 -----            -----
                         1999                    0.031            0.031
                         2000                    0.031            0.031
                         2001                    0.031            0.031
                         2002                    0.031            0.031
                         2003                    0.031            0.031


                                       43
<PAGE>

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

Year ended April 30                                High             Low
-------------------                                ----             ---
2003           First quarter.................      0.120           0.070
               Second quarter................      0.140           0.060
               Third quarter.................      0.159           0.100
               Fourth quarter................      0.101           0.060
2004           First quarter.................      0.520           0.100
               Second quarter................      0.460           0.250
               Third quarter.................      1.170           0.250
               Fourth quarter................      2.080           0.890
2005           First quarter.................      1.630           0.870


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

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

                                                 ADS PRICE
                                             -----------------
                                             HIGH         LOW
                                              $            $
                                             ----         ----
                    August 2004              0.86         0.68
                     July 2004               1.18         0.87
                     June 2004               1.63         1.19
                     May 2004                1.63         1.15
                    April 2004               2.08         1.32
                    March 2004               1.93         0.98

The  share  price  of the  Ordinary  Shares  on July  31,  2004,  the end of the
Company's first fiscal quarter,  was $0.87,  the last reported sale price of the
Ordinary Shares on September 28, 2004 on the Nasdaq SmallCap Market was $0.95.

B.    PLAN OF DISTRIBUTION.

Not Applicable.

C.    MARKETS.

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


                                       44
<PAGE>

D.    SELLING SHAREHOLDERS.

Not Applicable.

E.    DILUTION.

Not Applicable.

F.    EXPENSES OF THE ISSUE.

Not Applicable.


                                       45
<PAGE>

ITEM 10. ADDITIONAL INFORMATION.

A. SHARE CAPITAL.

Not Applicable.

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION.

Incorporated  by reference to the Company's  Registration  Statement on Form F-I
(Registration No. 33-639941) and as amended  (previously filed as Exhibit 3.1 to
the Company's  Annual Report on Form 20-F for the year ended April 30, 2000) and
as further  amended and as filed as Exhibit  1.2 to this  Annual  Report on Form
20-F for the year ended April 30, 2004.

C.    MATERIAL CONTRACTS.

The Company has secured the  provision of its Internet  Service  Provider  (ISP)
service requirements with Siemens UK Ltd. for a period of three years commencing
September  2001.  The terms of the contract  allow  termination  on three months
notice after the completion of the first year.

In April 2001, the Company  contracted  with Consignia (now Royal Mail) (UK) for
the  provision  of a Learning  Management  System  comprising  a hosted  service
together  with  learning  content for a period of 22 months  commencing  June 1,
2001. The total value of the original  contract was  approximately  GBP1,000,000
($1,774,000), and was renewed for a further twelve months with effect from April
1, 2003, and again with effect from April 1, 2004.

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)

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

In June, 2004, a second phase was launched within Royal Mail that is expected to
result in further  revenues  aggregating  approximately  GBP6.0  million  ($10.6
million) over the period from July 2004 to June 2007.


                                       46
<PAGE>

D.    EXCHANGE CONTROLS.

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

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

E.    TAXATION.

UNITED KINGDOM INCOME TAX.

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

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

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

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

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

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

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


                                       47
<PAGE>

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

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

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

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

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

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

Dividends  (including  amounts in  respect  of the tax  credit  and any  amounts
withheld)  must be included in gross income by a US holder,  and will  generally
constitute foreign source "passive" or "financial  services" income for purposes
of applying the foreign tax credit  limitations.  Such  dividends will generally
not be eligible for the dividends received deduction allowed to US corporations.
Subject  to certain  limitations,  the  applicable  UK  withholding  tax will be
treated as a foreign tax  eligible for credit  against such  holder's US federal
income tax.

UNITED KINGDOM TAXATION ON CAPITAL GAINS.

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


                                       48
<PAGE>

federal  income tax on such gains to the same  extent as on any other gains from
sales of stock.

UNITED KINGDOM INHERITANCE TAX.

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

UNITED KINGDOM STAMP DUTY AND STAMP DUTY RESERVE TAX.

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

UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING.

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

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

F.    DIVIDENDS AND PAYING AGENTS.

Not Applicable.

G.    STATEMENT BY EXPERTS.

Not Applicable.


                                       49
<PAGE>

H.    DOCUMENTS ON DISPLAY.

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

I.    SUBSIDIARY INFORMATION.

Not Applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

None.


                                       50
<PAGE>

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

None.

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

None.


                                       51
<PAGE>

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 principal
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 principal  financial officer concluded that the Company's
disclosure  controls  and  procedures  are  designed to ensure that  information
required to be  disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934, as amended,  is recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and are operating in an effective manner.

(b)   MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.

Not applicable.

(c)   ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTANT.

Not applicable.

(d)   CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.

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

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

The  Board  of  Directors  has  determined   that  Mr.  Carl  Kleman  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. Kleman has an extensive understanding of generally accepted accounting
principles  in  various  jurisdictions,  his direct  experience  with US GAAP is
limited. The Company expects to expand the number of independent,  non-executive
directors on the Board of Directors in the next 12 months  including one or more
individuals who are "audit committee  financial experts" however there can be no
assurance that the Company will be successful in this respect.

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 is filed as Exhibit
11.1 to this  Annual  Report  on Form  20-F  and is  posted  on its  website  at
www.futuremedia.co.uk.


                                       52
<PAGE>

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

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

                                        2004            2004            2003
                                       $000's         GBP000's        GBP000's
           Audit Fees                    137             77              82
           Audit-Related Fees             12              7               7
           Tax Fees                        7              4               4
           All Other Fees                 --             --              --
                                       -----          -----           -----
           Total                         156             88              93

The Audit  Fees for the  fiscal  years  ended  April 30,  2004 and 2003 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, 2004 and 2003 were
for specific accounting and consultation issues.

Tax Fees for the years ended April 30, 2004 and 2003 were for services performed
in connection with income tax compliance,  consulting and tax research  services
and assistance with tax computations.

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.


                                       53
<PAGE>

PART III

ITEM 17. FINANCIAL STATEMENTS.

Not applicable.

ITEM 18. FINANCIAL STATEMENTS.

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

FINANCIAL STATEMENTS.                                                    Page
                                                                         ----

Report of Independent Registered Public Accounting Firm                   F1

Audited Financial Statements

      Consolidated Balance Sheets at April 30, 2004 and 2003              F2

      Consolidated Statements of Income for the fiscal years ended
      April 30, 2004, 2003 and 2002                                       F4

      Consolidated  Statements of Changes in Stockholders'  Equity
      for the fiscal years ended April 30, 2004, 2003 and 2002            F5

      Consolidated  Statements  of Cash Flows for the fiscal years
      ended April 30, 2004, 2003 and 2002                                 F6

      Notes to Consolidated Financial Statements                          F7

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


                                       54
<PAGE>

ITEM 19. EXHIBITS.

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

Exhibit
Number                          Exhibit Description
-------                         -------------------

1.1        Memorandum and Articles of Association of the Registrant,  as amended
           (previously  filed as Exhibit 3.1 to the  Company's  Annual Report on
           Form 20-F for the year ended  April 30, 2000 (the "2000  20-F"),  and
           incorporated herein by reference).

1.2        Amended and Restated Articles of Association of the Registrant (filed
           herewith).

2.1        Description  of the  Registrant's  Ordinary  shares  (included in the
           Registrant's  Memorandum  and  Articles of  Association,  as amended,
           previously  filed as Exhibit 3.1 to the 2000 20-F,  and  incorporated
           herein by reference).

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

2.3        Form of Deposit Agreement,  as amended  (including  specimen American
           Depositary  Receipt),  as amended (previously filed as Exhibit 4.5 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 F-1 Registration  Statement,  and incorporated herein by
           reference).

2.5        Loan Stock  Agreement  between the Registrant and  Futuremedia  (BVI)
           Limited (the "Loan Stock Agreement") (previously filed as Exhibit 4.5
           to the 2000 20-F, and incorporated herein by reference).

2.6        Form of Warrant  issued in connection  with the Loan Stock  Agreement
           (previously  filed as Exhibit 4.6 to the 2000 20-F, and  incorporated
           herein by reference).

4.1        Approved Executive Share Option Scheme, as Amended  (previously filed
           as Exhibit 99.1 to the  Registrant's  Registration  Statement on Form
           S-8 filed April 12, 2000 (File No. 33 - 11828) (the "S-8 Registration
           Statement"), and incorporated herein by reference).

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

4.3        Approved Net Profit Sharing Scheme,  as Amended  (previously filed as
           Exhibit 10.20 to the F-1  Registration  Statement,  and  incorporated
           herein by reference).

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

4.5        Subscription Agreement executed April 23, 2003 between the Registrant
           and Volito AB (filed herewith).


                                       55
<PAGE>

4.6        Subscription  Agreement  executed April 23, 2003 between Luvit AB and
           Registrant (filed herewith).

4.7        Subscription Agreement executed April 14, 2003 between the Registrant
           and Rennes Foundation (filed herewith).

4.8        Subscription  Agreement  executed  September  30,  2002  between  the
           Registrant and Charles Farr (filed herewith).

4.9        Subscription Agreement executed March 15, 2002 between the Registrant
           and Silverdash Limited (filed herewith).

4.10       Agreement  dated  November 5, 2003 between  Registrant and Royal Mail
           Group Plc  relating  to the  Learning  For  All(TM)  services  (filed
           herewith).

4.11       Agreement  dated  July 25,  2003  between  the  Registrant  and IQDOS
           Limited  relating  to the sale of the whole of the issued  capital of
           Temp Limited (filed herewith).

4.12       Agreement  dated April 22, 2003 between the  Registrant and Volito AB
           relating to the  Registrant's  investment in Luvit AB and Volito AB's
           investment in the Registrant (filed herewith).

4.13       Agreement  dated April 17, 2003 between the  Registrant and Volodymyr
           V.  Donchenko  and  Michael  Uyttebroeck  relating to the sale of the
           whole of the issued share capital of Aktivna  Objects  Limited (filed
           herewith).

4.14       Agreement  dated January 10, 2003 between the Registrant and Wavedean
           Limited relating to Media House,  Arundel Road, Walberton West Sussex
           (filed herewith).

8.1        List of Subsidiaries of the Registrant  (previously  filed as Exhibit
           8.1 to the  Company's  Annual  Report on Form 20-F for the year ended
           April 30, 2001, and incorporated herein by reference).

11.1       Code of  Business  Conduct,  adopted  by the  Registrant's  Board  of
           Directors on April 22, 2004 (filed herewith).

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       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 (filed herewith).

15.3       Policy Statement on Securities Trades by Company  Personnel,  adopted
           by the  Registrant's  Board  of  Directors  on  July 2,  2003  (filed
           herewith).


                                       56
<PAGE>

                                   SIGNATURES

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

                                            FUTUREMEDIA PLC.
                                            (Registrant)

                                            By:  /s/ Mats A. I. Johansson
                                               --------------------------
                                            Name:    Mats A. I. Johansson
                                            Title:   Chief Executive Officer and
                                                     Authorized Signatory
Date: September 28, 2004.


                                       57
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Futuremedia PLC

We have audited the accompanying  consolidated balance sheets of Futuremedia PLC
as of  April  30,  2004  and 2003 and the  related  consolidated  statements  of
operations,  stockholders'  equity,  and cash flows for each of the three  years
ended April 30, 2004. 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.  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, 2004 and 2003, and the results of its operations and its cash flows
for each of the three years in the period  ended April 30, 2004,  in  conformity
with accounting principles generally accepted in the United States of America.


/s/ BDO Stoy Hayward LLP

London, England

July 27, 2004


                                      F-1
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       April 30,
                                                             ----------------------------
                                                              2004       2004       2003
                                                             ------     ------     ------
                                                             ($'000)   (GBP'000)  (GBP'000)
<S>                                                          <C>        <C>         <C>
ASSETS

Current assets
   Cash and cash equivalents ...........................      8,250      4,651        437
   Accounts receivable, less allowance of GBP74,000
   ($131,000) in 2004 and GBP35,000 in 2003 for
   doubtful accounts ...................................      3,351      1,889        267
   Amounts recoverable on contracts ....................         75         42         44
   Accrued income ......................................      1,478        833         --
   Amounts recoverable from vendors ....................      1,426        804         --
   Other current assets ................................        170         96         13
   Receivable from stock subscription ..................         43         24        239
   Inventories - finished goods ........................      1,125        634          1
   Prepaid expenses ....................................        671        378        376
                                                             ------     ------     ------
   Total current assets ................................     16,589      9,351      1,377

Equity investment in Luvit AB                                    --         --        204

Property held for Sale .................................         --         --        450

Property and equipment
    Audio visual and computer equipment ................        908        512        427
    Office equipment ...................................        126         71         71
                                                             ------     ------     ------
                                                              1,034        583        498
Accumulated depreciation ...............................        864        487        419
                                                             ------     ------     ------
                                                                170         96         79

Other assets
Goodwill ...............................................        147         83        245

Intangible assets ......................................        667        376         62
Goodwill on Investment in Luvit AB .....................      1,133        639        739
                                                             ------     ------     ------
TOTAL ASSETS ...........................................     18,706     10,545      3,156
                                                             ======     ======     ======
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       F-2
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                April 30,
                                                                   ---------------------------------
                                                                     2004        2004         2003
                                                                   -------      -------      -------
                                                                   ($'000)     (GBP'000)    (GBP'000)
<S>                                                                 <C>          <C>          <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Fees received in advance .................................       5,304        2,990          428
    Accounts payable .........................................       3,399        1,916          444
    Other taxes and social security costs ....................       2,691        1,517           97
    Other accounts payable ...................................         239          135          109
    Accrual for National Insurance costs on stock options ....         415          234           --
    Accrual for sales commissions due ........................       1,575          888            6
    Other accrued expenses ...................................       2,010        1,133          197
     Bank mortgage ...........................................          --           --          300
                                                                   -------      -------      -------
        Total current liabilities ............................      15,633        8,813        1,581


Stockholders' equity
         Ordinary shares of 1 1/9p each
         Authorized - 125,000,000
         Issued and outstanding- 87,239,486 at April 30, 2004,
         78,194,457 at April 30, 2003 ........................       1,719          969          869
         Preference shares of 2p each
         Authorized - 2,000,000
         None issued .........................................          --           --           --
         Additional paid-in capital ..........................      33,069       18,642       16,921
         Accumulated deficit .................................     (31,527)     (17,773)     (16,111)

Other comprehensive loss- cumulative translation
adjustment ...................................................        (188)        (106)        (104)
                                                                   -------      -------      -------
Total stockholders' equity ...................................       3,073        1,732        1,575
                                                                   -------      -------      -------
Total liabilities and sTOCKholders' equity ...................      18,706       10,545        3,156
                                                                   =======      =======      =======
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       F-3
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           Year ended April 30,
                                                       (in 000's except share data)
                                             ----------------------------------------------
                                               2004         2004         2003         2002
                                             -------      -------      -------      -------
                                            ($,000's)   (GBP000's)   (GBP000's)   (GBP000's)
<S>                                           <C>          <C>           <C>         <C>
Net sales
    Products ...........................      31,050       17,504          622          394
    Services ...........................       2,053        1,157          720          517
                                             -------      -------      -------      -------
Total Net sales ........................      33,103       18,661        1,342          911

Cost of sales
    Products ...........................      26,627       15,010          379          315
    Services ...........................       2,699        1,522          735        1,221
                                             -------      -------      -------      -------
Total Cost of sales ....................      29,326       16,532        1,114        1,536

Gross profit/(loss) ....................       3,777        2,129          228         (625)

Operating expenses
     Sales and marketing ...............         880          496           91          165
     General and administrative ........       3,872        2,183        1,134        1,175
     Facilities expenses ...............         275          155           44           63

Total operating expenses ...............       5,027        2,834        1,269        1,403

Operating loss .........................      (1,250)        (705)      (1,041)      (2,028)

Interest income ........................          43           24            1           32
Interest expense .......................          (4)          (2)         (48)         (29)
Foreign currency (losses)/gains ........         (11)          (6)          --           13

Share of loss from equity investment
including goodwill impairment of
GBP100,000 .............................        (509)        (287)          --           --
Stock compensation arising from Variable
option accounting ......................      (1,217)        (686)          --           --
                                             -------      -------      -------      -------
Net loss ...............................      (2,948)      (1,662)      (1,088)      (2,012)
                                             =======      =======      =======      =======

Loss per share basic and diluted .......       (3.52)c      (1.98)p      (2.34)p      (6.60)p

Weighted average shares outstanding.....  83,811,982   83,811,982   46,414,194   30,501,619
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       F-4
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                          Number of       Share       Additional                                    Cumulative         Total
                           Ordinary      Capital       Paid-in     Shares to be     Accumulated     Translation    Stockholders'
                            Shares        Amount       Capital        Issued          Deficit       Adjustment         Equity
                         ------------- ------------- ------------- -------------- ---------------- -------------- -----------------
                                         (GBP'000)     (GBP'000)     (GBP'000)       (GBP'000)       (GBP'000)        (GBP'000)
<S>                       <C>              <C>           <C>           <C>            <C>              <C>             <C>
At April 30, 2001         29,648,374           329        14,822             -        (13,011)             (77)         2,063
                                                                                                                  -----------------
Exchange translation
adjustments.....                   -             -             -             -              -               10             10
Net loss........                   -             -             -             -         (2,012)               -         (2,012)
                                                                                                                  -----------------
Comprehensive loss                 -             -             -             -              -                -         (2,002)
                                                                                                                       -------
                                                                                                                  -----------------
Shares to be issued
(net of issuance costs
of GBP 64,000             10,346,979             -             -           506              -                -            506
                         ------------- ------------- ------------- -------------- ---------------- -------------- -----------------
At April 30, 2002         39,995,353           329        14,822           506        (15,023)             (67)           567
                                                                                                                  -----------------
Exchange translation
adjustments.....                   -             -             -             -              -              (37)           (37)
Net loss........                   -             -             -             -         (1,088)               -         (1,088)
                                                                                                                  -----------------
Comprehensive loss                 -             -             -             -              -                -         (1,125)
                                                                                                                  -----------------
Issuance of shares
(net of issuance
costs of GBP120,000)      38,199,104           540         2,099          (506)             -                -          2,133
                         ------------- ------------- ------------- -------------- ---------------- -------------- -----------------
At April 30, 2003         78,194,457           869        16,921             -        (16,111)            (104)         1,575
                                                                                                                  -----------------
Exchange translation
adjustments.....                   -             -             -             -              -               (2)            (2)
Net loss........                   -             -             -             -         (1,662)                         (1,662)
                                                                                                                  -----------------
Comprehensive loss                 -             -             -             -              -                -         (1,664)
                                                                                                                  -----------------
Adjustment for
Variable options                   -             -           686             -              -                -            686
Issuance of shares  re
exercise of warrants
(net of issuance costs
of GBP5,000)....           1,594,344            18            54             -              -                -             72
Issuance of shares re
acquisition (net of
issuance costs of
GBP20,000)......           1,125,000            12           270             -              -                -            282
Issuance of shares re
investment (net of
issuance costs of
GBP50,000)......           5,173,958            57           649             -              -                -            706
Issuance of shares  re
exercise of options
(net of issuance costs
of GBP5,000)....           1,151,727            13            62             -              -                -             75
                         ------------- ------------- ------------- -------------- ---------------- -------------- -----------------
At April 30, 2004         87,239,486           969        18,642             -        (17,773)            (106)         1,732
                         ============= ============= ============= ============== ================ ============== =================
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       F-5
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        Year ended April 30,
                                                           ------------------------------------------
                                                            2004        2004        2003        2002
                                                           ------      ------      ------      ------
                                                           $'000       GBP'000     GBP'000     GBP'000
<S>                                                        <C>         <C>         <C>         <C>
Operating activities
Net loss .............................................     (2,948)     (1,662)     (1,088)     (2,012)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
   Depreciation ......................................        122          69         131         147
   Shares issued for services ........................         --          --          11          94
   Profit on disposal of investment ..................        (58)        (33)         --          --
   Loss/(profit) on disposal of fixed assets .........         --          --         118          (1)
   Amortization of intangible assets .................        266         150          --          --
   Loss from equity investment including goodwill
   impairment ........................................        507         286          --          --
   Stock compensation arising from Variable option
   accounting ........................................      1,217         686          --          --
   Accounts receivable ...............................     (2,946)     (1,661)       (149)        221
   Allowance for doubtful accounts ...................         69          39         (24)        142
   Amounts recoverable on contracts ..................          4           2         (29)        118
   Other current assets ..............................     (3,052)     (1,720)        (10)         33
   Inventories .......................................     (1,125)       (634)         --          --
   Prepaid expenses ..................................         (4)         (2)         17          51
   Fees received in advance ..........................      4,545       2,562        (285)       (212)
   Accounts payable ..................................      2,611       1,472         248        (466)
   Other accounts payable ............................         46          26          89        (107)
   Other taxes and social security costs .............      2,519       1,420          15         (49)
   Other accrued expenses ............................      3,640       2,052          84        (262)
                                                           ------      ------      ------      ------
Net cash provided by/(used in) operating activities ..      4,413       3,052        (872)     (2,303)
                                                           ------      ------      ------      ------
Investing activities
Purchase of equity investment ........................         --          --        (641)         --
Capital expenditures .................................       (153)        (86)        (12)       (137)
Proceeds on disposal of investment ...................         91          51          --          --
Proceeds on disposal of fixed assets .................        798         450         300           1
                                                           ------      ------      ------      ------
Net cash provided by/(used in) investing activities ..        736         415        (353)       (136)
                                                           ------      ------      ------      ------
Financing activities
Proceeds of share issues .............................      1,996       1,125       1,447         423
Share issue costs ....................................       (142)        (80)       (120)        (64)
(Repayment of)/Proceeds from short-term debt .........       (532)       (300)        300          --
(Repayment of)/proceeds from Waverton ................         --          --        (410)        (32)
                                                           ------      ------      ------      ------
Net cash provided by financing activities ............      1,322         745       1,217         327
                                                           ------      ------      ------      ------
Effects of exchange rate changes .....................          4           2          --          10
                                                           ------      ------      ------      ------
Net (decrease)/increase in cash and cash equivalents .      7,475       4,214          (8)     (2,102)
Cash and cash equivalents at beginning of period .....        775         437         445       2,547
                                                           ------      ------      ------      ------
Cash and cash equivalents at end of period ...........      8,250       4,651         437         445
                                                           ======      ======      ======      ======
Supplemental disclosure of cashflow information
Interest paid during the period ......................          4           2          48          29
                                                           ======      ======      ======      ======
Supplemental disclosure of non-cash transactions
Issuance of shares in acquisitions ...................        536         302         253          53
Issuance of shares for services ......................         --          --          11          94
Issuance of shares in investment .....................         --          --         300          --
Receivable from stock subscription ...................         43          24         239          --
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       F-6
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

DESCRIPTION OF BUSINESS.

Futuremedia PLC was  incorporated in England in 1982 as Futuremedia  Limited and
re-registered  as a public  company in 1993.  The  Company's  activities  can be
regarded as falling into one of two business segments.  The first and largest is
that of the  provision of the  Company's  new  Learning For AllTM  fully-managed
service  that  includes  the  provision  of PC,  Internet  access,  delivery and
installation,  e-Learning courses, and a personal focused e-Learning environment
managed by the Company.  The second is that of  e-Learning,  which  includes the
provision  of Internet and Intranet  learning  and  communications  products and
services,  with some production of learning and communications material on other
media, such as CD-ROM.

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,  however, the completion of the sale of its premises in Arundel early in
2003,  together with the positive  cashflow  arising from the Learning For AllTM
business model has allowed it to discharge all existing bank and other loans.

Since its initial public offering  ("IPO"),  the Company has incurred net losses
and experienced negative cash flows from operating activities.  At September 28,
2004,  the  Company's  cash  resources  and  available  borrowings  amounted  to
(pound)3,026,000 ($5,368,000).  Based on the continuing improvement in levels of
order  intake and sales since the end of the fiscal  year ended April 30,  2004,
notably the recent order for the  Company's  Learning  For All(TM)  product from
various new customers,  management believes that revenues and cash flows will be
sufficient to the extent that the Company's requirements for working capital for
the  remainder  of the current  fiscal year are  required to be met from trading
activities.  Accordingly,  the directors have prepared the accounts for the year
ended April 30, 2004 on a going concern basis.

ESTIMATES.

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

CONVENIENCE TRANSLATIONS.

Translation of the financial  statements at April 30, 2004 and for the year then
ended from sterling into US dollars is for  informational  purposes only and has
been made at the April 30, 2004 Noon Buying Rate of GBP1.00 to $1.7739.


                                       F-7
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED).

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,  2004,
inventories held of GBP634,000  ($1,125,000) represent Learning For AllTM goods,
net of a provision of GBP202,000  ($358,000) for  slow-moving and excess stocks.
All stocks are held on behalf of the Company by its appointed distribution agent
at their premises,  and are controlled  under a perpetual  inventory  management
system.

PROPERTY AND EQUIPMENT.

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

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

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

GOODWILL.

The Company adopted SFAS No. 142 on May 1, 2002.  Under this standard,  goodwill
will be tested for  impairment  on an annual  basis or  whenever  indicators  of
impairment arise. The Company completed its transitional impairment tests in the
quarter ended October 31, 2002 and no impairment  was recorded.  Prior to May 1,
2002,  goodwill was tested for impairment in a manner  consistent with property,
plant and equipment and intangible assets with a definite life.
The Company  performed  the required  annual  impairment  test as of February 1,
2004.  This test  indicated  that there was a requirement  to make an impairment
charge in respect of the goodwill  held in the books  arising from the Company's
equity investment in Luvit AB of GBP100,000 ($177,000).

REVENUE RECOGNITION.

Net sales represent the value of goods and services  delivered,  excluding value
added  tax,  and for the year ended  April 30,  2004 and can be  categorized  by
activity into one of five sources.


                                       F-8
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED).

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

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

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

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

Learning  for AllTM - Learning  For AllTM  solutions  are those that  comprise a
combination  of  hardware,  software  and  services,  installed  at the homes of
participating  employees  of clients  that  contract  with  Futuremedia  for the
provision of such services. Revenues are categorized as being either `delivered'
or `deferred'  depending on the nature of each element of the installed package.
Typically, all hardware,  operating software 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.  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.  The client,  or
participating  finance house,  is invoiced for the full amount on completion and
acceptance of installation.

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."


                                       F-9
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED).

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

EQUITY METHOD INVESTMENTS.

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

LONG-LIVED ASSETS.

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

COMPREHENSIVE INCOME (LOSS).

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

LOSS PER SHARE.

Loss per  share  figures  have been  calculated  using the  method  required  by
Statement  of  Financial  Standards  No. 128  "Earnings  per  Share".  Under the
provisions of SFAS No.128,  basic net loss per share is computed by dividing the
loss attributable to common  stockholders for the period by the weighted average
number of shares of common stock outstanding  during the period,  which included
shares to be issued.  The  calculation of diluted loss per share gives effect to
common stock equivalents, however, potential common shares are excluded if their
effect is anti-dilutive.  The calculation  excludes a total of 5,579,579 options
to purchase Ordinary shares outstanding as at April 30, 2004 under the Company's
Executive Approved and Unapproved Share Option Schemes.

INCOME TAXES.

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


                                      F-10
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED).

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.

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,
                                             2004       2003        2002
                                             -----      -----       ----
           Risk-free interest rate            2.4%       4.0%        3.8%
           Volatility                        26.7%      19.0%       31.8%
           Dividend yield                       0%         0%          0%
           Expected life (years)              3.3        3.3         3.3

<TABLE>
<CAPTION>
                                                                Year ended April 30
                                                    --------------------------------------------
                                                     2004        2004        2003        2002
                                                     ----        ----        ----        ----
                                                    ($'000)   (GBP '000)  (GBP '000)  (GBP '000)
<S>                                                 <C>         <C>         <C>         <C>
Net loss as reported ..........................     (2,948)     (1,662)     (1,088)     (2,012)
Deduct stock compensation arising from
variable option accounting ....................      1,217         686          --          --
Add: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax and stock
compensation arising from variable option
accounting ....................................     (1,378)       (777)       (106)        (44)
Pro-forma net loss ............................     (3,109)     (1,753)     (1,194)     (2,056)

                                                                              GBP         GBP
Net loss per share as reported, basic and .....                                          (3.52)
diluted .......................................                  (1.98)      (2.34)      (6.60)
Pro forma net loss per ordinary share:
         Basic ................................      (3.56)c     (2.01)p     (2.57)p     (6.74)p
         Diluted ..............................      (3.56)c     (2.01)p     (2.57)p     (6.74)p
</TABLE>


                                      F-11
<PAGE>

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 GBP126,000 ($223,000),
GBPNil and GBPNil for the years ended April 30, 2004, 2003 and 2002.

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, 2004, is adequate.  However,  actual  write-offs  might
exceed the recorded allowance.

       ----------------------------------------------------------------------
                                      2004           2004          2003
       ----------------------------------------------------------------------
                                      $'000         GBP'000      GBP'000
       ----------------------------------------------------------------------

       ----------------------------------------------------------------------
       Allowance at May 1              62             35            59
       ----------------------------------------------------------------------

       ----------------------------------------------------------------------
       Utilized during year           (28)           (16)          (59)
       ----------------------------------------------------------------------

       ----------------------------------------------------------------------
       Provided in year                97             55            35
       ----------------------------------------------------------------------

       ----------------------------------------------------------------------
       Allowance at April 30           131            74            35
       ----------------------------------------------------------------------

2.    LOANS.

The Convertible  Loan was due for repayment in July, 2002, but was not repaid on
the due date due to a lack of available  funds,  but the  convertible  loan note
holder  agreed to defer  repayment  until the  Company  had  secured  additional
financing to enable it to do so. Under the  contractual  term of the convertible
loan,  interest was payable at 20% per annum beyond the  contractual  settlement
date. The convertible  loan remained in place on these terms until January 2003,
when a final settlement was agreed simultaneously with the Company concluding an
agreement for the sale of its premises at Arundel, West Sussex.

At the same time,  the Company  entered into a short term  mortgage  arrangement
with a major bank under which it drew down  GBP300,000  ($532,000) to enable the
full repayment of the above loan and to provide  further  working  capital until
such time that the total proceeds of sale were received. Interest was payable at
the rate of 6.0% per annum.


                                      F-12
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.    LOANS - (CONTINUED).

                                                      April 30
                                               ---------------------
                                               2004             2003
                                               ----             ----
                                                     (GBP'000)

Bank mortgage loan                              --              300

The Bank  mortgage  loan,  which was secured by way of a charge on the property,
included a maximum loan period not to exceed twelve months,  an interest rate of
2% above the Bank's own base rate, payable on repayment.  The loan was repaid in
May 2003 when the second part of the property sale was completed.

3.    FAIR VALUES OF FINANCIAL INSTRUMENTS.

                                                  April 30,
                              --------------------------------------------------
                                        2004                        2003
                              --------------------------------------------------
                              Carrying        Fair        Carrying       Fair
                               Value         Value          Value        Value
                              --------       -----        --------       -----
                              (GBP'000)    (GBP'000)      (GBP'000)    (GBP'000)

Cash and cash equivalents...    4,651        4,651           437          437
Short term mortgage ........      --           --            300          300

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

4.    INCOME TAXES.

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

                                                            April 30,
                                                    ------------------------
                                                      2004             2003
                                                    -------           ------
                                                           (GBP'000)

Book over tax depreciation                               67               99
Operating losses carried forward                      4,274            4,224
Other timing differences                                 70               --
                                                    -------           ------
                                                      4,411            4,323
Less:  valuation allowance                           (4,411)          (4,323)
Net deferred tax assets                                  --               --
                                                    =======           ======


                                      F-13
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.    INCOME TAXES - (CONTINUED).

There is no time  limit  on the  utilization  of the  operating  losses  carried
forward tax value provided no substantial change in the nature of trade. GBP14.2
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,
                                     ------------------------------------
                                      2004            2003         2002
                                      ----            ----         ----
                                                   (GBP'000)
United Kingdom                       (1,662)        (1,027)       (1,985)
Overseas                                 --            (61)          (27)
                                     ------         ------        ------
                                     (1,662)        (1,088)       (2,012)
                                     ======         ======        ======

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

<TABLE>
<CAPTION>
                                                                Year ended April 30,
                                    ----------------------------------------------------------------------------
                                             2004                       2003                           2002
                                   (GBP'000)       %         (GBP'000)           %          (GBP'000)        %
<S>                                  <C>         <C>           <C>            <C>             <C>         <C>
Statutory rate.................      (261)       (30.0)        (326)          (30.0)          (604)       (30.0)
Unrelievable UK tax losses.....        79         9.1           291            26.8            550         27.3
Non deductible expenses........       112        12.9            35             3.2             54          2.7
Other sundry items.............        70         8.0            --              --             --           --
                                    -----       -----         -----           -----          -----       ------
                                       --          --            --              --             --           --
                                    =====       =====         =====           =====          =====       ======
</TABLE>

5.    LEASE COMMITMENTS.

The future minimum  rental  payments under  non-cancelable  operating  leases at
April 30, 2004 are:

                               Equipment     Rental
                               ---------    --------
                               (GBP'000)    (GBP'000)
2005...................            1           153
2006...................            1           165
2007...................            -           165
2008...................            -            24
2009...................            -
2010...................            -

Rental expense was GBP112,000 ($199,000),  GBP11,000 and GBP71,000 for the years
ended April 30, 2004, 2003 and 2002.


                                      F-14
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.    PREPAID EXPENSES.

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

Prepaid  expenses for the year ended April 30, 2003 of  GBP376,000  includes the
forward purchase of learning materials in respect of existing customer contracts
of GBP323,000,  together with prepaid  expenses for hosting  services,  dues and
subscriptions, insurances and salary sacrifices of GBP53,000.


                                      F-15
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    SEGMENT INFORMATION, EXPORT SALES AND MAJOR CUSTOMERS.

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

                                            Year ended April 30
                            ---------------------------------------------------
                              2004          2004          2003           2002
                             $'000        GBP'000        GBP'000        GBP'000
Net Sales:
Learning For AllTM            30,806        17,366             -             -
e-Learning services            2,297         1,295         1,342           911
                             -------       -------       -------       -------
Total Net Sales               33,103        18,661         1,342           911

Cost of sales
Learning For AllTM            27,044        15,246             -             -
e-Learning services            2,282         1,286         1,114         1,536
                             -------       -------       -------       -------
Total Cost of sales           29,326        16,532         1,114         1,536

Gross profit/(loss):
Learning For AllTM             3,762         2,120             -             -
e-Learning services               15             9           228         (625)
                             -------       -------       -------       -------
Total Gross profit/(loss)      3,777         2,129           228         (625)

Operating expenses:
Learning For AllTM              2153         1,214             -             -
e-Learning services             2874         1,620         1,269         1,403
                             -------       -------       -------       -------
Total Operating expenses       5,027         2,834         1,269         1,403

Operating profit/(loss)
Learning For AllTM             1,609          906              -             -
e-Learning services          (2,859)       (1,611)       (1,041)       (2,028)
                             -------      -------       -------       -------
Total Operating loss         (1,250)         (705)       (1,041)       (2,028)
                             =======         =====       =======       =======


                                      F-16
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    SEGMENT INFORMATION, EXPORT SALES AND MAJOR CUSTOMERS - (CONTINUED).

                                                   At April 30,
                                     2004              2004               2003
                                     $'000           GBP'000             GBP'000

Assets:
Learning For AllTM                    6,918             3,900                -
e-Learning services                   1,948             1,098              942
                                    -------           -------          -------
Total segment assets                  8,866             4,998              942

Unallocated assets:
Cash                                  8,250             4,651              437
Prepaid expenses                        244               137               53
Other current assets                     43                24              252
Property and equipment                  170                96              529
Goodwill on Luvit                     1,133               639              739
Investment in Luvit                       -                 -              204
                                    -------           -------          -------
Total assets                         18,706            10,545            3,156
                                     ======            ======            =====

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,
                                         --------------------------------------
                                            2004            2003         2002
                                            ----            ----         ----
                                                       (GBP'000)
United Kingdom......................       18,661           1,340         849
Rest of Europe......................           --               2           3
Rest of the World...................           --              --          59
                                           ------          ------      ------
                                           18,661           1,342         911
                                           ======          ======      ======

During the year ended April 30, 2004,  Customer A accounted for 93% of sales and
Customer B for 4% of sales;  during the year ended  April 30,  2003,  Customer A
accounted for 59% of sales and Customer C for 10% of sales,  and during the year
ended April 30, 2002,  Customer A accounted  for 69% of sales and Customer D for
9% of sales.

At April 30, 2004 the major customers  identified above accounted for 66% of the
accounts receivable and 10% in 2003.


                                      F-17
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.    PENSION PLANS.

The Company operates various defined contribution pension plans on behalf of the
directors  and other  staff.  Contributions  payable  are  charged  to Income as
incurred.  Contributions  by the Company are  determined in accordance  with the
rules of the pension  plans.  Contributions  aggregated  GBP41,000  ($73,000) in
fiscal 2004, GBP38,000 in fiscal 2003, and GBP43,000 in fiscal 2002. The Company
has no obligations in respect of post retirement benefits other than the pension
obligations described above.

9.    ACQUISITIONS.

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

The Company  acquired,  on March 1, 2002,  the assets and business of Palm Teach
Limited for a total  consideration of GBP54,000  ($85,000) The  consideration of
GBP54,000  represents  the  fair  value  of the  759,700  shares  issued  to the
shareholders.  The  net  assets  at the  time  of the  acquisition  amounted  to
approximately  GBP1,000. As of the year end, GBP53,000 was therefore recorded as
goodwill.

In May 2002,  the Company  acquired the assets and  business of C2W  Limited,  a
services  company  providing  resource and  management  consultancy to corporate
clients, for a total consideration of GBP29,000 ($46,000).  The consideration of
GBP29,000  represented  the  fair  value of the  454,400  shares  issued  to the
shareholders.  As at  April  30,  2003,  GBP29,000  ($32,000)  was  recorded  as
Goodwill. The acquisition was accounted for using the purchase method.

In April  2003,  the  Company  acquired  the assets of Activna  Objects  Limited
("Activna"), a non-trading UK company with ownership of a software tool that the
Company believes would substantially  reduce the development time and cost for a
new third generation  e-Learning  management  system. The net assets of Activna,
comprising the software  intangible of GBP62,500,  sundry creditors of GBP62,500
and sundry  debtors of GBP100,  amounted to GBP100  ($160),  were acquired for a
total  consideration of GBP224,000  ($350,000).  The consideration of GBP224,000
represented the fair value of the 3,500,000  shares issued to the  shareholders.
As at April 30, 2003,  GBP62,000  was  recorded as  intangible  assets,  and the
remaining GBP162,000 was recorded as Goodwill. The acquisition was accounted for
using the purchase method. The formal purchase price allocation was finalized in
fiscal 2004, and as a consequence, the whole of the purchase price of GBP224,000
has been  categorized as intangible  assets,  representing the fair value of the
software tool acquired.

Also in April 2003, the Company acquired a 29.8% shareholding in Luvit AB, which
has been accounted for under equity  accounting  rules. The total  consideration
paid for this  shareholding  amounted  to  GBP643,000  ($1,000,000)  in cash and
GBP300,000  ($480,000) in Futuremedia shares, and represented fair value for the
cash and 4,685,315 shares issued.


                                      F-18
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.    ACQUISITIONS - (CONTINUED).

At the time of the investment, the net assets of Luvit AB amounted to GBP686,000
($1,097,000),  therefore the investment  value arising from this transaction was
GBP204,000 ($326,000),  representing Futuremedia's 29.8% shareholding,  with the
remaining GBP739,000  ($1,182,000) appearing as goodwill.  During the year ended
April 30, 2004,  Luvit AB issued a further 6,233 shares,  and  Futuremedia  sold
96,069 of their holding,  resulting in Futuremedia's ownership reducing to 27.2%
at April 30,  2004.  Luvit AB traded at a loss  during  the year,  Futuremedia's
portion of these losses amounted to GBP187,000 ($332,000), reducing the value of
its  investment  to GBPNil  ($Nil) as at April 30, 2004. As at the year end, the
amount of goodwill held was subjected to an impairment test which resulted in an
impairment of GBP100,000 ($177,000) being charged.

In July 2003,  Futuremedia  acquired the entire share  capital of Temp  Limited,
into which had been  transferred  the business and assets of IQDos Limited,  for
the issue of 1.125  million  Futuremedia  shares,  valuing  the  acquisition  at
approximately GBP302,000 ($536,000).  The whole of the GBP302,000,  representing
the fair value of the assets acquired,  comprising a number of software products
and client list, has been treated as an  amortizable  intangible  asset,  and is
being  amortized  over three years.  There is not  considered to be any residual
value. IQDos Limited, a wholly-owned subsidiary of Excel Communications Limited,
specializes  in the production of bespoke  e-Learning  content and also provides
e-Learning  consultancy services,  and will substantially improve the capability
of Futuremedia to present itself to the  marketplace as a single point of supply
for total  e-Learning  solutions.  The  acquisition  was accounted for using the
purchase method.


                                      F-19
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.   INTANGIBLE ASSETS AND GOODWILL.

INTANGIBLE ASSETS.

                                                            At April 30
                                                    --------------------------
                                                        2004              2003
                                                        ----              ----
       Cost                                                    (GBP'000)
       At May 1................................          326
                                                                          264
       Additions ..............................          302               62
       Amounts reclassified from goodwill......          162                -
                                                    --------           ------
       At April 30.............................          790              326
                                                         ---              ---

       Amortization
       At May 1................................          264              264
       Charge for year.........................          150                -

       At April 30.............................          414              264
                                                         ---              ---
       Net book amount at April 30.............          376               62
                                                         ===               ==

The  addition  in  2004  represents  the  intangible   asset  arising  from  the
acquisition  of Temp Limited.  The  reclassification  of  GBP162,000  ($287,000)
arises from the completion of the purchase price  allocation  with regard to the
acquisition of Activna Objects Limited made in April 2003,  whereby the whole of
the purchase  price of  GBP224,000  has been  attributed  to the  software  tool
acquired.  GBP162,000 has been  transferred  from  Goodwill.  GBP326,000 in 2003
represents internally developed software of GBP264,000,  together with GBP62,000
representing the original  provisional purchase price allocation of the software
tool owned by Activna Objects Limited, acquired by Futuremedia in April 2003.

The table below shows  expected  amortization  expense for  acquired  intangible
assets recorded as of April 30, 2004.

                                         2005    2006    2007     2008     2009
                                         ----    ----    ----     ----     ----
Amortization expense (GBPthousands)      176     176      25       --       --

 Intangible assets are being written off over a period of three years. 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-20
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.   INTANGIBLE ASSETS AND GOODWILL - (CONTINUED).

Goodwill

                                                     At April 30,
                                             ---------------------------
                                                2004             2003
                                                ----             ----
           Cost                                        (GBP'000)
           At May 1.....................         984               53
           Additions ...................          --              931
           Amounts reclassified                 (162)              --
           Impairment loss                      (100)              --
                                                ----            -----
           At April 30..................         722              984
                                                ====            =====

The reclassification of GBP162,000  ($287,000) arises from the completion of the
purchase price  allocation  with regard to the  acquisition  of Activna  Objects
Limited  made in  April  2003,  whereby  the  whole  of the  purchase  price  of
GBP224,000 has been attributed to the software tool acquired. The GBP162,000 has
been transferred to Intangible assets.
Of the GBP722,000  goodwill at April 30, 2004,  GBP83,000 is attributable to the
e-Learning business segment and the remaining GBP639,000 being the investment in
Luvit AB after making an impairment charge in the current year of GBP100,000, is
not allocable to business  segment  because the  investment is held as a central
asset.

11.   PROPERTY PLANT AND EQUIPMENT.

<TABLE>
<CAPTION>
                                                                         At April 30,
                                             --------------------------------------------------------------------
                                                              2004                                2003
                                                              ----                                ----
                                             Cost      Accumulated      Net        Cost     Accumulated     Net
                                                       depreciation     book               depreciation     book
                                                                        value                               value
                                             ----      ------------     -----    ------    ------------     -----
                                                                           (GBP'000)
<S>                                            <C>           <C>        <C>          <C>          <C>        <C>
Audiovisual and computer equipment
    Mid-term.............................      78            78          --          78           78          --
    Short-term...........................     434           338          96         349          283          66
Office Equipment.........................      71            71          --          71           58          13
                                             ----          ----        ----       -----         ----        ----
                                              583           487          96         498          419          79
                                             ====          ====        ====       =====         ====        ====
</TABLE>

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

Freehold land and buildings at a carrying value of GBP450,000,  ($720,000)  were
held for sale at the lower of cost less  depreciation  and fair value less costs
to sell at April 30, 2003, and represented the second and final part outstanding
on the  agreement  for sale  reached in January  2003  whereby the  property was
divided into two separate parts. The sale of the remaining part was concluded in
May 2003. The whole of the loss on sale  amounting to GBP118,000  ($188,000) was
taken to the income statement in the fiscal year ended April 30, 2003.


                                      F-21
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.    CHANGES IN SHAREHOLDER EQUITY.

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

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

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

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

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

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

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

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

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

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


                                      F-22
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.    CHANGES IN SHAREHOLDER EQUITY - (CONTINUED).

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

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

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

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

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

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

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

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

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

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

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


                                      F-23
<PAGE>

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 "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.

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

Under the Approved  Executive  Share Option  Scheme,  759 options at an exercise
price of $4.25,  947 options at an exercise  price of $2.55 and 1,500 options at
an exercise price of $1.594 lapsed  without being  exercised on August 19, 2003.
At April 30, 2004,  20,500  options  were  outstanding  at an exercise  price of
$0.90625 and may be  exercised  until  January 16, 2008 and 13,500  options were
outstanding at an exercise price of $1.5938 and may be exercised  until July 25,
2010.


                                      F-24
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS - (CONTINUED).

A summary of the option  outstanding under the Company's  "Approved Share Option
Scheme" as at April 30, 2004 is as follows:

                                     Number of Shares           Weighted
                                        Under Option         Average Option
                                                             Price Per Share
                                     -----------------       ---------------
Outstanding April 30, 2001........           78,388              $1.5090
Options forfeited.................          (37,865)             $1.4767
                                       -------------
Outstanding April 30, 2002........           40,523              $1.5096
                                        ===========
Options forfeited.................           (4,817)             $3.2053
                                        ------------
Outstanding April 30, 2003........           35,706              $1.2809
                                        ===========
Options forfeited.................           (3,206)             $2.505
                                            -------
Outstanding April 30, 2004........           32,500              $1.160
                                        ===========


                                      F-25
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS - (CONTINUED).

The following options have been issued under the Company's "Unapproved Executive
Share Option Scheme", and were outstanding as at April 30, 2004.

<TABLE>
<CAPTION>
     NO OF     SUBSCRIPTION      DATE                           EXERCISABLE WHEN THE MARKET
     SHARES       PRICE      EXERCISABLE       EXPIRY DATE      PRICE AT LEAST EQUALS
  ---------    ------------  -----------       -----------      ---------------------------
<S>               <C>          <C>              <C>             <C>
    428,333       $0.64        05/01/04         Nov 2013        No Restriction
      5,000       $0.59        Current          Sep 2010        No Restriction
    165,000       $0.28        10/31/04         Oct 2013        No Restriction
    165,000       $0.28        10/31/05         Oct 2013        No Restriction
    165,000       $0.28        10/31/06         Oct 2013        No Restriction
      5,000       $0.19        Current          Sep 2010        No Restriction
    100,000       $1.00        Current          Sept 2010       No Restriction
     57,250       $0.35        Current          May 2011        No Restriction
     57,250       $0.35        Current          May 2011        No Restriction
     57,250       $0.35        05/01/04         May 2011        No Restriction
     57,250       $0.35        11/01/04         May 2011        No Restriction
    100,000       $0.25        Current          Oct 2006        $1.00
  1,225,851       $0.15        Current          Feb 2012        No Restriction
  1,178,892       $0.10        Current          Feb 2012        No Restriction
     50,000       $0.09        10/16/04         Oct 2012        No Restriction
     50,000       $0.09        10/16/05         Oct 2012        No Restriction
    125,000       $0.09        11/01/04         Nov 2012        No Restriction
    125,000       $0.09        11/01/05         Nov 2012        No Restriction
     60,000       $0.385       07/29/04         Jul 2013        No Restriction
     60,000       $0.385       07/29/05         Jul 2013        No Restriction
     60,000       $0.385       07/29/06         Jul 2013        No Restriction
     75,000       $0.376        Current         Nov 2013        No Restriction
     50,000       $0.332       10/10/04         Oct 2013        No Restriction
     50,000       $0.332       10/10/05         Oct 2013        No Restriction
     50,000       $0.332       10/10/06         Oct 2013        No Restriction
     25,000       $0.338       10/02/04         Oct 2013        No Restriction
     25,000       $0.338       10/02/05         Oct 2013        No Restriction
     25,000       $0.338       10/02/06         Oct 2013        No Restriction
    100,000       $0.338       10/02/04         Oct 2013        See Note (1)
    100,000       $0.338       10/02/05         Oct 2013        See Note (1)
     25,000       $0.286       11/03/04         Nov 2013        No Restriction
     25,000       $0.286       11/03/05         Nov 2013        No Restriction
     25,000       $0.286       11/03/06         Nov 2013        No Restriction
    100,000       $0.286       11/03/04         Nov 2013        See Note (1)
    100,000       $0.286       11/03/05         Nov 2013        See Note (1)
     75,000       $0.638       01/05/04         Jan 2014        No Restriction
     75,000       $0.638       01/05/06         Jan 2014        No Restriction
     75,000       $0.638       01/05/07         Jan 2014        No Restriction
     20,000       $0.63        01/14/05         Jan 2014        No Restriction
     20,000       $0.63        01/14/06         Jan 2014        No Restriction
     20,000       $0.63        01/14/07         Jan 2014        No Restriction
     33,332       $0.63        01/14/05         Jan 2014        See Note (1)
     33,334       $0.63        01/14/06         Jan 2014        See Note (1)
     33,334       $0.63        01/14/07         Jan 2014        See Note (1)
     15,000       $1.207       03/15/05         Mar 2014        No Restriction
     15,000       $1.207       03/15/06         Mar 2014        No Restriction
     15,000       $1.207       03/15/07         Mar 2014        No Restriction
     15,000       $1.622       04/05/05         Apr 2014        No Restriction
     15,000       $1.622       04/05/06         Apr 2014        No Restriction
     15,000       $1.622       04/05/07         Apr 2014        No Restriction
  5,547,076
  =========
</TABLE>


                                      F-26
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.   EMPLOYEE PROFIT-SHARING AND OPTION PLANS - (CONTINUED).

(1)  Exercisable  only on achievement of the option holders  achieving an agreed
level of customer orders within an agreed period.  Failure to meet these targets
will  result in the lapse of the  options.  The  Company  accounts  for  options
granted  under  these plans in  accordance  with the  provisions  of APB No. 25.
Variable  options  are  required to be marked to market at each period end until
they are  forfeited,  exercised,  or expire  unexercised.  Those  options  whose
vesting is dependent on  performance  will be accounted for as variable  options
until the performance criteria is met.

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

A summary of the  options  outstanding  under the  Company's  "Unapproved  Share
Option Scheme" as at April 30, 2004 is as follows:

<TABLE>
<CAPTION>
                                               Number of Shares   Weighted Average
                                               Under Option       Option Price Per Share
                                               ----------------   ----------------------
<S>                                               <C>                   <C>
Outstanding at April,30, 2001.......              2,513,334             $0.99
Options granted.....................              4,742,251             $0.165
Options lapsed and cancelled........             (2,796,834)            $0.9056
                                                -----------
Outstanding at April 30, 2002.......              4,458,751             $0.1605
                                                 ==========
Options granted.....................              1,365,000             $0.0883
                                                 ==========
Options lapsed and cancelled........               (427,506)            $0.1267
                                                  =========
Outstanding at April 30, 2003.......              5,396,245             $0.095
                                                  =========
Options granted.....................              2,353,333             $0.469
                                                  =========
Options lapsed, cancelled and exercised ....     (2,202,502)            $0.2276
                                                  =========
Outstanding at April 30, 2004.......              5,547,076             $0.2864
                                                  =========
</TABLE>

The weighted  average fair value of the 428,333 share options  granted at market
price in the year ended April 30, 2004 was GBP0.028  ($0.049).  No share options
were granted at market price in the years to April 30, 2003 and 2002.

The weighted  average fair value of the 430,000  options granted at below market
price in the year ended April 30, 2004 was  GBP0.118  ($0.210),  2003  GBP0.030.
There were no options granted at below market price in 2002.

The weighted  average fair value of the 1,495,000  options  granted above market
price in the year ended April 30, 2004 was GBP0.023 ($0.040),  2003 GBP0.023 and
2002 GBP0.04.  The  determination of the fair value of all stock options granted
in 2004,  2003 and 2002 was  calculated  using the Black Scholes method based on
(i)  risk-free  interest  rates of 2.38%  (2003:  4.00% and 2002:  3.84%),  (ii)
expected  option  lives of 3 to 5 years  (weighted  average  3.3  years),  (iii)
dividend  yield of 0% and iv) a  volatility  of 0.267  (2003:  0.190  and  2002:
0.318).


                                      F-27
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.   NEW ACCOUNTING PRONOUNCEMENTS.

There  are no  accounting  pronouncements  issued  before  April 30,  2004,  but
effective after April 30, 2004,  which are expected to have a material impact on
our financial reporting.

15.   COMMITMENTS.

The Company has secured the  provision of its Internet  Service  Provider  (ISP)
service requirements with Siemens UK Ltd. for a period of three years commencing
September  2001.  The terms of the contract  allow  termination  on three months
notice  after the  completion  of the first  year.  In April  2001,  the Company
contracted  with  Consignia  Plc (UK) (now Royal  Mail) for the  provision  of a
learning  management  system  comprising a hosted service together with learning
content for a period of 22 months commencing June 1, 2001.The total value of the
contract was approximately GBP1,000,000 ($1,600,000).  This contract was renewed
for a further  twelve months from April 1, 2003.  In October  2003,  the Company
launched its Learning For AllTM  product.  It is expected  that the Company will
have to make significant  commitment to third party suppliers in the delivery of
these products and services.  Following the Company's  move to Brighton,  it 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,  including  service charges,  is
approximately GBP138,000 ($245,000)

16.   RELATED PARTY TRANSACTIONS.

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

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

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

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


                                      F-28
<PAGE>

FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.   RELATED PARTY TRANSACTIONS - (CONTINUED).

by the  original  source.  Alternative  investors  were sought and found for the
remaining GBP260,000 ($380,000) during October 2002.

Also in April 2002,  the Company  contracted  for the issue of 803,046  Ordinary
Shares  at a  price  of  $0.07  per  Ordinary  Share  under a  Salary  sacrifice
arrangement,  representing an aggregate purchase price of $56,000. The following
individual  purchased the number of Ordinary Shares indicated in connection with
this transaction: Mr. Mats Johansson (648,183 shares). At the same time, Mr. Jan
Vandamme  agreed  to  accept  102,000  Ordinary  Shares  at a price of $0.07 per
Ordinary Share in settlement of outstanding  invoiced  charges for work done for
the Company.

In October  2002,  the Company  completed a new  investment  round from existing
investors and affiliates,  raising a further GBP150,000 ($230,000),  represented
by the issuance of a further 2.7 million  (approximately)  ordinary  shares at a
price of $0.085 per share,  at market rate.  The following  individuals/entities
purchased the number of shares  indicated in connection  with this  transaction:
Rennes Foundation (1,177,647 shares), Mr. Mats Johannson (181,176 shares).

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

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

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

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

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

During the year ended  April 30,  2004,  the  following  directors  and  spouses
received payment for consultancy  services provided through  independent service
companies:  Mrs.  M. Blake  (wife of Mr.  Johansson)  GBP53,000  ($94,000),  Mr.
J.Vandamme GBP90,000 ($160,000), Mr. C.Kleman GBP40,000 ($71,000).



                                      F-29