**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      20-F**





(Mark
      One)





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




OR





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





OR




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





For
      the
      transition period from May 1, 2006 to June 30, 2006





OR





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





Date
                of event requiring this shell company report








Commission
      File Number 0-21978


**FUTUREMEDIA
      PUBLIC LIMITED COMPANY**


(Exact
      name of registrant as specified in its charter)





England
      and Wales


(Jurisdiction
      of incorporation or organization)





**NILE
      HOUSE, NILE STREET, BRIGHTON, EAST SUSSEX BNI 1HW, ENGLAND**


(Address
      of principal executive offices)





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




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





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







1


Indicate
      the number of outstanding shares of each of the issuer's classes of capital
      or
      common stock as of the close of period covered by the Transition Report:
      161,960,188 Ordinary Shares of 1 1/9 p each.





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





Yes o No  x





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





Yes o No
x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports) and (2) has been subject to such filing requirements
      for
      the past 90 days:




Yes  x No
o





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





Large
      Accelerated Filer o Accelerated
      Filer o Non-Accelerated
      Filer x





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




Item
      17 o Item
      18
x





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





Yes o No
o





2


**TABLE
      OF CONTENTS**





EXPLANATORY
                NOTE
            4COMMUNICATIONS
                WITH HOLDERS OF ADSs
            5NOTE
                ON FOREIGN ISSUER EXEMPTIONS UNDER IM-4350-6 OF THE NASDAQ
                RULES
            5INCORPORATION
                BY REFERENCE INTO PEVIOUSLY FILED REGISTRATON STATEMENTS
            6WARNINGS
                REGARDING FORWARD-LOOKING STATEMENTS
            7PART
                1
            8ITEM
                5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
            8ITEM
                8.A.7 FINANCIAL INFORMATION.
            17PART
                II
            18ITEM
                13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
            18ITEM
                14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
                OF
                PROCEEDS.
            18PART
                III
            19ITEM
                17 FINANCIAL STATEMENTS
            19ITEM
                18 FINANCIAL STATEMENTS
            19ITEM
                19 EXHIBITS
            20SIGNATURES
            21CERTIFICATIONS
            Exhibits
                12.1 - 13.2


3


**EXPLANATORY
      NOTE**





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




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




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




The
      Company publishes its Consolidated Financial Statements expressed in United
      Kingdom ("UK") pounds sterling. Such financial statements are prepared in
      conformity with United States generally accepted accounting principles ("US
      GAAP"). In this document, references to "US dollars", "US$", "cents" or "$"
      are
      to United States ("US") currency and references to "pounds sterling",
      "sterling", "GBP", "pence" or "p" are to UK currency. Solely for convenience,
      this Transition 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 =
      $1.8048, 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 June 30, 2006. On November 13, 2006 the Noon
      Buying Rate was GBP 1=$1.9024.




References
      in this Transition 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 Transition Report and
      is
      not incorporated by reference herein.




4


**COMMUNICATIONS
      WITH HOLDERS OF ADSs**




In
      advance of the Company’s General Meeting held on June 8, 2006, the Company
      advised holders of ADSs that, to minimize expenses, it had decided not to
      distribute to holders of ADSs a hard copy of the Company’s annual report to
      shareholders. Instead, the Annual Report was made available on the Company’s
      website (www.futuremedia.co.uk) and, on request, in hard copy from the Company
      or from the Depositary. The Annual Report was also filed electronically with
      the
      United States Securities and Exchange Commission (“SEC”) on Form 6-K. The
      Company believes that this manner of making information available to holders
      of
      ADSs is consistent with its obligations under applicable law and the rules
      of
      the NASDAQ Stock Market and intends to make future information available in
      a
      similar manner.




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




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




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




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




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




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




5




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




Rule
      4350(i) requires issuers to obtain advance shareholder approval for certain
      issuances of designated securities. In particular, Rule 4350(i)(1)(A) requires
      shareholder approval of issuances of
      common stock or securities convertible into or exercisable for common stock
      by
      the company to its officers, directors, employees, or consultants, at a price
      less than the market value of the stock because such issuances are considered
      a
      form of "equity compensation". Due
      to
      the Company’s status as a foreign registrant, shareholder approval is not
      required under the Nasdaq rules as long as the Company complies with the rules
      and regulations of its country of incorporation. Without shareholder approval
      on
      May 4, 2006 the Company entered into a private placement of Ordinary Shares
      for
      subscriptions totaling $4,315,000. Certain subcribers included the following
      Company Directors: Jan Vandamme, Leonard M. Fertig, Mick Pilsworth and Michiel
      Steel, each of whom invested $50,000 in the Company’s Ordinary Shares.




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




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







**INCORPORATION
      BY REFERENCE INTO PEVIOUSLY FILED REGISTRATON
      STATEMENTS**




This
      Transition Report on Form 20-F is hereby filed and incorporated by reference
      into Futuremedia PLC’s Registration Statements on Form F-3 (File No.
      333-131314), Form F-3 (File No. 333-128173), Form S-8 (File No. 333-128875),
      Form S-8 (File No. 333-128873) and Form S-8 (File No.
      33-11828).


6


**WARNINGS
      REGARDING FORWARD-LOOKING STATEMENTS**







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




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




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




-
            the
                anticipated growth rate of the markets for outsourced employee benefit
                programs (and Internet-based learning technologies and products in
                general, and the Company's products and solutions in particular;




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




-
            the
                benefits anticipated from acquisitions by the Company; and




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




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




7


**PART
      I**




**ITEM
      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 the Company’s Form 20-F,
      filed with the Securities and Exchange Commission on November 14, 2006 (File
      No.
      000-21978).




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




On
      August 1, 2006 the Company changed its fiscal year
      end from April 30 to June 30. The Company has provided financial information
      for
      the transitional two month period ended June 30, 2006.




**Critical
      Accounting Policies.**




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




Since
      entering into various loan arrangements the Company has adopted the recognized
      and recommended accounting treatments regarding embedded derivatives
      arising.




**Revenue
      Recognition.**




Net
      sales
      represent the value of goods and services delivered, excluding value added
      tax,
      and for the two month period ended June 30, 2006 can be categorized by activity
      into one of six sources.




*Consultancy
      Service.*




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




*Custom
      Designed Content Products* .




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




*Learning
      Management Systems* . **




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




8


*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.




*Managed
      Benefit Programs*




Managed
      Benefit Programs are those that comprise a combination of hardware, software
      and
      services, installed at the homes of participating employees of clients that
      contract with Futuremedia for the provision of such services. Revenues are
      categorized as being either ‘delivered’ or ‘deferred’ depending on the nature of
      each element of the installed package. Typically, all hardware, operating
      software together with any software programs delivered on local media, either
      CD-rom or loaded on the hard disc, are treated as ‘delivered’ revenues, whilst
      the remaining services, which typically comprise telephone and e-mail support,
      the provision and hosting of a Learning Management System and various online
      software programs, are treated as ‘deferred’ revenues. For revenue recognition
      purposes, the package price is allocated by element in accordance with fair
      values of each element. ‘Delivered’ revenues are recognized on customer
      acceptance, ‘deferred’ revenues are recognized over the period of the agreement,
      typically three years. Certain of these programs were provided under the UK
      Government’s Home Computing Initiative scheme, also known as HCI, and previously
      known as Learning for All. Under HCI, participating employees could take
      advantage of tax incentives provided under HCI schemes, reducing the cost of
      purchase. HCI was terminated by the UK Government, effective as of April 6,
      2006.




*Design
      and Live Communications Revenues*




Design
      and Live Communications Revenues are those that are earned by the production
      of
      bespoke marketing media together with fees earned from the provision of
      marketing event services. Currently these all recorded within the books of
      Button Group plc, acquired by Futuremedia in May 2006. The revenues arising
      from
      both sources are recognized on a percentage cost to completion basis.




9


**Overview
      of Operating Results.**




Following
      the acquisition of Button Group plc on May 26, 2006, the results of that
      business for the period May 27, 2006 to June 30, 2006 have been consolidated
      into the results of the Futuremedia group for the two-month period ended June
      30, 2006 as follows:




Period
                May 1, 2006 to June 30, 2006 Unaudited($’000)
            
            (GBP’000)Total
                Net sales
            
            
            2,285
            
            
            1,266Cost
                of sales
            
            
            1,451
            
            
            804Gross
                profit
            
            
            834
            
            
            462Operating
                expensesSales
                and marketing
            
            
            25
            
            
            14General
                and administrative
            
            
            650
            
            
            360Facilities
                expenses
            
            
            56
            
            
            31Total
                operating expenses
            
            
            731
            
            
            405Operating
                profit
            
            
            103
            
            
            57Interest
                income
            
            
            -
            
            
            -Interest
                expense
            
            
            (20
            )
            
            (11
            )Foreign
                currency gains
            
            
            9
            
            
            5Net
                profit
            
            
            92
            
            
            51






10





**RECENT
      ACCOUNTING PRONOUNCEMENTS**




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




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




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




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




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




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





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





11


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





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





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







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




**Internal
      and External Sources of Liquidity.**







On
      May 4,
      2006, the Company announced a private placement of ADSs for subscriptions
      totaling $4,315,000. The Company used the proceeds of this placement to finance
      the acquisition of Button Group plc, which the Company completed on May 26,
      2006, and for additional working capital. Of the $4,315,000 private placement,
      $3,500,000 was invested by Le Shark Limited, a UK-based investor, at the price
      of $0.20 per share for a total of 17,750,000 ADSs. The Company’s Directors Jan
      Vandamme, Leonard M. Fertig, Mick Pilsworth and Michiel Steel also each invested
      $50,000 in the Company’s ADSs, at a price calculated by reference to the average
      closing price of the Company’s ADSs for the 20 business days prior to April 21,
      2006, representing approximately $0.255 per share, for a total of 783,700 ADSs.
      In addition, $565,000 was invested by Spintop Venture Holdings Limited, a
      British Virgin Islands based investment group, and $50,000 was invested by
      Marc
      Renson, a private European investor, both at a price of $0.20 per share,
      representing 3,075,000 ADSs. A finders fee has been paid on this transaction,
      in
      ADSs, at price of $0.20 per share, representing 773,575 ADSs.





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





12


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





On
      September 19, 2006 the Company announced that the Company unconditionally
      reduced the $0.61 per share exercise price of the Company’s 6,175,104 warrants
      issued to M.A.G. Capital, LLC through its designated funds including the Monarch
      Pointe Fund, Ltd., Mercator Momentum Fund, LP and Mercator Momentum Fund III,
      LP, collectively known as M.A.G. , in connection with the Company’s July 21,
      2005 $4 million financing with M.A.G. The exercise price of the warrants were
      unconditionally reduced to $0.11 beginning on September 19, 2006. The Company
      will receive net proceeds of approximately $679,261 assuming all of the warrants
      are exercised.





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




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





13


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





On
      October 25, 2006 the Company announced that it concluded a separate and
      unrelated offshore equity private placement of up to $5,000,000 with a corporate
      investor to provide funding for the Company’s continued operations until the
      Company reaches cash positive operations by the first calendar quarter of 2007.
      The $5,000,000 private placement was conducted in accordance with Rule 903
      of
      Regulation S, promulgated under the United States Securities Act of 1933, as
      amended. The investment comprises an initial payment to the Company of
      $3,000,000 in exchange for 20,000,000 ADSs at a price of $0.15 per share and
      warrants giving the investor the right to purchase a further 80,000,000 ADSs
      at
      $0.025 per share for an additional $2,000,000. The warrants are exercisable
      for
      one year. The use of the proceeds will be to fund remaining HCI obligations
      due
      to the UK Government’s decision to terminate the program in April 2006,
      remaining expenses connected to the acquisitions of EBC and Button, and to
      pay
      down a portion of the convertible debt owed to Cornell Capital Partners, LP.
      Pursuant to the Company’s agreements with Cornell Capital Partners, LP, Cornell
      Capital Partners, LP consented to the Company’s issuance of all the ADSs and the
      warrants issued pursuant to the $5,000,000 private placement. In connection
      with
      Cornell Capital Partners, LP’s consent, the Company repaid $553,514 of
      outstanding principal and accrued interest to Cornell Capital Partners, LP
      on
      October 24, 2006, thereby fully paying off the $550,000 Financing.





On
      November 8, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of $800,000 with Le Shark Limited provide
      funding for our continued operations. The $800,000 private placement was
      conducted in accordance with Rule 903 of Regulation S, promulgated under the
      United States Securities Act of 1933, as amended. The investment comprises
      a
      payment to us of $800,000 in exchange for 16,000,000 ADSs at a price of $0.05
      per share. The use of the proceeds will be to fund remaining HCI obligations
      due
      to the UK Government’s decision to terminate the program in April 2006,
      remaining expenses connected to the acquisitions of EBC and Button, and to
      pay
      down a portion of the convertible debt owed to Cornell Capital Partners,
      LP.





14


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




**Sources
      and Amounts of Cash Flows.**




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




On
      June
      30, 2006, the total amount of cash and cash equivalents on hand was GBP1,143,000
      ($2,063,000) as compared to cash and cash equivalents of GBP1,155,000 as at
      April 30, 2006. The decrease is net of losses incurred in the period, costs
      and
      expenses associated with the acquisition of Button Group plc, offset by the
      proceeds of the various investment activities in the period, together with
      the
      collection of cash outstanding at April 2006 in respect of monies due from
      investment activities contracted prior to the close of the prior fiscal year.




The
      Company's ratio of current assets to current liabilities stood at 0.5 at June
      30, 2006. As at August 31, 2006 (the latest date at which the Company had
      information before filing), this ratio was 0.39.




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




**Commitments.**




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




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




15


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




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




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




**Company
      Sponsored Research and Development.**




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




**Strategic
      Relationships.**




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




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




The
      Company’s forward order book reflects orders for products or services for which
      the Company has accepted purchase orders or contracts with assigned delivery
      dates within 34 months. The level of orders in the Company’s forward order book
      at any particular time is not necessarily indicative of the Company’s future
      operation performance. Delivery schedules may be extended and purchase order
      or
      contracts may be canceled at any time for reasons beyond the Company’s
      control.




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




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




16


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




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





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







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






**ITEM
      8. FINANCIAL INFORMATION.** ****




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




**7.
      Legal Proceedings**




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


17




**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.




18




**PART
      III**




**ITEM
      17. FINANCIAL STATEMENTS**




Not
      applicable.




**ITEM
      18. FINANCIAL STATEMENTS**




The
      following unaudited consolidated financial statements are filed as part of
      this
      Transition Report on Form 20-F.




**Financial
                Statements**
            PageUnaudited
                Financial StatementsConsolidated
                Balance Sheets at June 30, 2006 and April 30, 2006
            F-1Consolidated
                Statements of Operations for the period May 1, 2006 to June 30,
                2006
            F-3Consolidated
                Statements of Changes in Stockholders’ (Deficit)/Equity for the fiscal
                years ended April 30, 2006, 2005, 2004 and 2003 and for the period
                May 1,
                2006 to June 30, 2006
            F-4Consolidated
                Statements of Cash Flows for the period May 1, 2006 to June 30,
                2006
            F-6Notes
                to Consolidated Financial Statements
            F-7







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




19


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




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




Exhibit
                Number
            
            Exhibit
                Description12.1
            
            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).





20





**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 Transition Report on its behalf.




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








Date:
      November 16, 2006


21


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**




June
                30, 2006
            
            April
                30, 2006($’000)
            
            (GBP’000)
            
            (GBP’000)**ASSETS**Current
                assetsCash
                and cash equivalents
            
            
            2,355
            
            
            1,305
            
            
            1,155Accounts
                receivable, less allowance of GBP73 for doubtful accounts June 30,
                2006
                and April 30, 2006
            
            
            3,364
            
            
            1,864
            
            
            1,638Amounts
                recoverable from vendors
            
            
            505
            
            
            280
            
            
            280Other
                current assets
            
            
            976
            
            
            541
            
            
            1,032Receivable
                from stock subscription
            
            
            -
            
            
            -
            
            
            2,366Inventories
                - finished goods
            
            
            206
            
            
            114
            
            
            402Prepaid
                expenses
            
            
            2090
            
            
            1,158
            
            
            608Total
                current assets
            
            
            9,497
            
            
            5,262
            
            
            7,481Property
                and equipmentAudio
                visual and computer equipment
            
            
            2,588
            
            
            1,434
            
            
            937Office
                equipment, fixtures and fittings
            
            
            516
            
            
            286
            
            
            286Property
                improvements, plant and machinery
            
            
            260
            
            
            144
            
            
            144Lease
                premium
            
            
            137
            
            
            76
            
            
            763,501
            
            
            1,940
            
            
            1,443Less
                accumulated depreciation
            
            
            (2,409
            )
            
            (1,335
            )
            
            (1,062
            )1,092
            
            
            605
            
            
            381Non
                current assets
            
            
            12,971
            
            
            7,187
            
            
            -Other
                assetsGoodwill
            
            
            9,233
            
            
            5,116
            
            
            5,089Intangible
                assets
            
            
            1,079
            
            
            598
            
            
            645TOTAL
                ASSETS
            
            
            33,872
            
            
            18,768
            
            
            13,596





F-1


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





June
                30, 2006 Unaudited
            
            April
                30, 2006($’000)
            
            (GBP’000)
            
            (GBP’000)**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Current
                liabilitiesBank
                overdraft
            
            
            292
            
            
            162
            
            
            -Fees
                received in advance
            
            
            6,293
            
            
            3,487
            
            
            4,277Accounts
                payable
            
            
            7,082
            
            
            3,924
            
            
            2,297Other
                taxes and social security costs
            
            
            1,711
            
            
            948
            
            
            706Other
                accounts payable
            
            
            1,382
            
            
            766
            
            
            126Accrual
                for National Insurance costs on stock options
            
            
            32
            
            
            18
            
            
            18Accrual
                for sales commissions due
            
            
            
            
            
            
            
            
            268Other
                accrued expenses
            
            
            3,245
            
            
            1,798
            
            
            1,538Total
                current liabilities
            
            
            20,039
            
            
            11,103
            
            
            9,230Convertible
                debentures, debt and convertible term liability face value
                $14.0m
            
            
            10,313
            
            
            5,714
            
            
            5,465Long
                term bank facility
            
            
            110
            
            
            61
            
            
            -Other
                long term loans
            
            
            143
            
            
            79
            
            
            -Stockholders’
                deficitOrdinary
                shares of 1 1/9p eachAuthorized
                - 350,000,000Issued
                and outstanding- 161,960,188 at June 30, 2006, 133,373,349 at April
                30,
                2006
            
            
            3,247
            
            
            1,799
            
            
            1,482Preference
                shares of 2p eachAuthorized
                - 2,000,000None
                issued
            
            
            -
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            52,452
            
            
            29,063
            
            
            26,018Receivable
                from stock subscription
            
            
            (32
            )
            
            (18
            )
            
            (18
            )Accumulated
                deficit
            
            
            (52,193
            )
            
            (28,919
            )
            
            (28,481
            )Other
                comprehensive loss- cumulative translation adjustment
            
            
            (206
            )
            
            (114
            )
            
            (100
            )Total
                stockholders’ equity/(deficit)
            
            
            3,268
            
            
            1,811
            
            
            (1,099
            )TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            
            33,872
            
            
            18,768
            
            
            13,596




F-2


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




Period
                May 1, 2006 to June 30, 2006 Unaudited($’000)
            
            (GBP’000)Total
                Net sales
            
            
            6,243
            
            
            3,459Cost
                of sales
            
            
            4,061
            
            
            2,250Gross
                profit
            
            
            2,182
            
            
            1,209Operating
                expensesSales
                and marketing
            
            
            285
            
            
            158General
                and administrative
            
            
            1,508
            
            
            835Facilities
                expenses
            
            
            209
            
            
            116Total
                operating expenses
            
            
            2,002
            
            
            1,109Operating
                profit
            
            
            180
            
            
            100Interest
                income
            
            
            10
            
            
            6Interest
                expense
            
            
            (994
            )
            
            (551
            )Foreign
                currency gains
            
            
            13
            
            
            7Net
                loss
            
            
            (791
            )
            
            (438
            )Loss
                per share basic and diluted.
            
            
            (0.005
            )c
            
            (0.003
            )pWeighted
                average shares outstanding
            
            
            149,563,053
            
            
            149,563,053





F-3


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


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




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





F-4


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


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




Issuance
                of shares re acquisition of EBC Limited (net of issuance costs of
                GBP24,000)
            
            
            4,776,442
            
            
            53
            
            
            623
            
            
            -
            
            
            -
            
            
            -
            
            
            676Issuance
                of shares re acquisition (net of issuance costs of
                GBP37,000)
            
            
            20,867,473
            
            
            233
            
            
            2,070
            
            
            -
            
            
            -
            
            
            -
            
            
            2,303Issuance
                of shares re acquisition costs (net of issuance costs of
                GBP13,000)
            
            
            2,539,848
            
            
            28
            
            
            303
            
            
            -
            
            
            -
            
            
            -
            
            
            331Issuance
                of shares re exercise of options (net of issuance costs of
                GBP6,000)
            
            
            300,000
            
            
            3
            
            
            16
            
            
            -
            
            
            -
            
            
            -
            
            
            19Issuance
                of shares re Loan conversion (net of issuance costs of
                GBP17,000)
            
            
            3,968,255
            
            
            44
            
            
            338
            
            
            -
            
            
            -
            
            
            -
            
            
            382Issuance
                of shares re Loan repayment (net of issuance costs of
                GBP44,000)
            
            
            8,811,911
            
            
            98
            
            
            1,186
            
            
            -
            
            
            -
            
            
            -
            
            
            1,284Issuance
                of shares re settlement of outstanding accounts (net of issuance
                costs of
                GBP2,000)
            
            
            339,941
            
            
            4
            
            
            83
            
            
            -
            
            
            -
            
            
            -
            
            
            87Fair
                value adjustment re convertible debt and warrants
            
            
            -
            
            
            -
            
            
            2,122
            
            
            -
            
            
            -
            
            
            -
            
            
            2,122At
                April 30, 2006
            
            
            133,373,349
            
            
            1,482
            
            
            26,018
            
            
            (18
            )
            
            (28,481
            )
            
            (100
            )
            
            (1,099
            )Exchange
                translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (14
            )
            
            (14
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (438
            )
            
            
            
            
            (438
            )Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (452
            )Issuance
                of shares re acquisition (net of issuance costs of
                GBP104,000)
            
            
            24,460,435
            
            
            272
            
            
            2,624
            
            
            
            
            
            
            
            
            
            
            
            2,896Issuance
                of shares re acquisition costs (net of issuance costs of
                GBP3,000
            
            
            773,575
            
            
            9
            
            
            72
            
            
            
            
            
            
            
            
            
            
            
            81Issuance
                of shares re settlement of outstanding accounts (net of issuance
                costs of
                GBP6,000)
            
            
            1,288,404
            
            
            14
            
            
            139
            
            
            
            
            
            
            
            
            
            
            
            153Issuance
                of shares re Loan repayment (net of issuance costs of
                GBP7,000)
            
            
            1,489,425
            
            
            16
            
            
            156
            
            
            
            
            
            
            
            
            
            
            
            172Issuance
                of shares re equity investment (net of issuance costs of
                GBP2,000)
            
            
            575,000
            
            
            6
            
            
            54
            
            
            
            
            
            
            
            
            
            
            
            60At
                June 30, 2006 Unaudited
            
            
            161,960,188
            
            
            1,799
            
            
            29,063
            
            
            (18
            )
            
            (28,919
            )
            
            (114
            )
            
            1,811


F-5


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




Period
                May 1, 2006 to June 30, 2006 Unaudited($’000)
            
            (GBP’000)Operating
                activitiesNet
                loss
            
            
            (791
            )
            
            (438
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activitiesDepreciation
            
            
            70
            
            
            39Shares
                issued for services
            
            
            285
            
            
            158Amortization
                of intangible assets..
            
            
            85
            
            
            47Interest
                charge arising on Convertible loan
            
            
            785
            
            
            435Accounts
                receivable
            
            
            1,846
            
            
            1,023Other
                current assets
            
            
            1,130
            
            
            626Inventories
            
            
            908
            
            
            503Prepaid
                expenses
            
            
            430
            
            
            238Fees
                received in advance
            
            
            (1,426
            )
            
            (790
            )Accounts
                payable
            
            
            1,054
            
            
            584Other
                accounts payable
            
            
            594
            
            
            329Other
                taxes and social security costs
            
            
            (159
            )
            
            (88
            )Other
                accrued expenses
            
            
            (2,698
            )
            
            (1,495
            )Net
                cash provided by/(used in) operating activities
            
            
            2,113
            
            
            1,171Investing
                activitiesAcquisition
                of Button Group plc
            
            
            (5,920
            )
            
            (3,280
            )Acquisition
                costs
            
            
            (188
            )
            
            (104
            )Capital
                expenditures
            
            
            (52
            )
            
            (29
            )Net
                cash provided by/(used in) investing activities
            
            
            (6,160
            )
            
            (3,413
            )Financing
                activitiesProceeds
                of share issues
            
            
            4,384
            
            
            2,429Share
                issue costs
            
            
            (32
            )
            
            (18
            )Net
                cash provided by financing activities
            
            
            4,351
            
            
            2,411Effects
                of exchange rate changes
            
            
            (34
            )
            
            (19
            )Net
                (decrease)/increase in cash and cash equivalents
            
            
            271
            
            
            150Cash
                and cash equivalents at beginning of period
            
            
            2,085
            
            
            1,155Cash
                and cash equivalents at end of period
            
            
            2,355
            
            
            1,305Supplemental
                disclosure of cashflow informationInterest
                paid during the period
            
            
            209
            
            
            116Supplemental
                disclosure of non-cash transactionsIssuance
                of shares in acquisitions
            
            
            5,414
            
            
            3,000Issuance
                of shares for services
            
            
            285
            
            
            158Issuance
                of shares in investment
            
            
            114
            
            
            63





F-6





**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**  **ACQUISITIONS**




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




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







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





Consideration
                satisfied by :
            
            $000’s
            
            GBP000’sCash
            
            
            4,151
            
            
            2,300Shares
                issued
            
            
            5,414
            
            
            3,000Acquisition
                costs
            
            
            1,170
            
            
            64810,735
            
            
            5,948Net
                liabilities acquired
            
            
            (2,236
            )
            
            (1,239
            )Non
                current assets
            
            
            12,971
            
            
            7,187





At
      the
      time of acquisition, the condensed balance sheet of Button Group plc was as
      follows:





As
                at May 26, 2006$000
            
            GBP000Property
                and equipment
            
            
            422
            
            
            234Intangible
                assets
            
            
            -
            
            
            -Current
                assets
            
            
            4,308
            
            
            2,387Current
                liabilities
            
            
            6,708
            
            
            (3,717
            )Net
                current liabilities
            
            
            (2,236
            )
            
            (1,239
            )Total
                Equity and reserves
            
            
            2,236
            
            
            1,239





F-7


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**  **ACQUISITIONS
      (continued)**





Management
      has not yet completed the purchase price allocation with respect to this
      acquisition in accordance with SFAS 141, as a consequence the excess of purchase
      price over assets acquired appears as a non current asset amounting to
      GBP7,187,000 ($12,971,000).





**2.**  **SUBSEQUENT
      EVENTS**




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





On
      August
      7, 2006, the Company also announced that Cornell Capital Partners, LP, has
      agreed to provide it with an additional $1,500,000 of capital, also known as
      the
      Additional $1,500,000 Financing. The proceeds of the transaction will be used
      for payments on the remaining debt to M.A.G. Capital, LLC, as well as to provide
      working capital for growth in the Company’s new businesses. The Company has
      repaid $3,330,000 of the $4,000,000 convertible loan to MAG in the past 10
      months including a cash payment for the month of July, 2006. Cornell Capital
      Partners, LP’s $1,500,000 investment was made as an extension of the existing
      $7,500,000 financing loan from April 2006 (which was provided by Cornell Capital
      Partners, LP, Certain Wealth, Ltd. and TAIB Bank, B.S.C. and is convertible
      (subject to certain restrictions and limitations) into the Company’s ADSs. The
      amended loan, totaling an aggregate of $9,000,000,





may
      be
      converted from time to time at the investor’s option (subject to certain
      restrictions and


limitations)
      and is secured by the Company’s assets. In connection with the further
      investment, Futuremedia also issued to Cornell Capital Partners, LP 165,000
      ADSs
      at nominal value. Cornell Capital Partners, LP also received a commitment and
      structuring fee totaling $150,000. The Company also obtained limited waivers
      from Cornell Capital Partners, LP regarding certain of its obligations related
      to filing audited financial statements for the year ended April 30, 2006 with
      the SEC and with MAG Capital LLC related to maintaining effective registration
      statements with the SEC in connection with its financing
      arrangements.





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





F-8


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.**  **SUBSEQUENT
      EVENTS (continued)**





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





On
      September 19, 2006 we announced that we unconditionally reduced the $0.61 per
      share exercise price of our 6,175,104 warrants issued to M.A.G. Capital, LLC
      through its designated funds including the Monarch Pointe Fund, Ltd., Mercator
      Momentum Fund, LP and Mercator Momentum Fund III, LP, collectively known as
      M.A.G. , in connection with our July 21, 2005 $4 million financing with M.A.G.
      The exercise price of the warrants were unconditionally reduced to $0.11
      beginning on September 19, 2006. We will receive net proceeds of approximately
      $679,261 assuming all of the warrants are exercised.





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




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


F-9


**FUTUREMEDIA
      PLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2
      .**  **SUBSEQUENT
      EVENTS (continued)**





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





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





On
      October 25, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of up to $5,000,000 with a corporate investor
      to provide funding for our continued operations until we reach cash positive
      operations by the first calendar quarter of 2007. The $5,000,000 private
      placement was conducted in accordance with Rule 903 of Regulation S, promulgated
      under the United States Securities Act of 1933, as amended. The investment
      comprises an initial payment to us of $3,000,000 in exchange for 20,000,000
      ADSs
      at a price of $0.15 per share and warrants giving the investor the right to
      purchase a further 80,000,000 ADSs at $0.025 per share for an additional
      $2,000,000. The warrants are exercisable for one year. The use of the proceeds
      will be to fund legacy HCI obligations following the UK Government’s decision to
      terminate the program in April 2006, remaining expenses connected to the
      acquisitions of EBC and Button, and to pay down a portion of the convertible
      debt owed to Cornell Capital Partners, LP. Pursuant to our agreements with
      Cornell Capital Partners, LP, Cornell Capital Partners, LP consented to our
      issuance of all the ADSs and the warrants issued pursuant to the $5,000,000
      private placement. In connection with Cornell Capital Partners, LP’s consent, we
      repaid $553,514 of outstanding principal and accrued interest to Cornell on
      October 24, 2006, thereby fully paying off the $550,000 Financing.





On
      November 8, 2006 we announced that we concluded a separate and unrelated
      offshore equity private placement of $800,000 with Le Shark Limited to provide
      funding for our continued operations. The $800,000 private placement was
      conducted in accordance with Rule 903 of Regulation S, promulgated under the
      United States Securities Act of 1933, as amended. The investment comprises
      a
      payment to us of $800,000 in exchange for 16,000,000 ADSs at a price of $0.05
      per share. The use of the proceeds will be to fund remaining HCI obligations
      due
      to the UK Government’s decision to terminate the program in April 2006,
      remaining expenses connected to the acquisitions of EBC and Button, and to
      pay
      down a portion of the convertible debt owed to Cornell Capital Partners,
      LP.







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