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
| 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
| 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
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 oItem 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
TABLE OF CONTENTS
| EXPLANATORY NOTE | 4 |
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| COMMUNICATIONS WITH HOLDERS OF ADSs | 5 |
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| NOTE ON FOREIGN ISSUER EXEMPTIONS UNDER IM-4350-6 OF THE NASDAQ RULES | 5 |
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| INCORPORATION BY REFERENCE INTO PEVIOUSLY FILED REGISTRATON STATEMENTS | 6 |
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| WARNINGS REGARDING FORWARD-LOOKING STATEMENTS | 7 |
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| PART 1 | 8 |
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| ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 8 |
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| ITEM 8.A.7 FINANCIAL INFORMATION. | 17 |
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| PART II | 18 |
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| ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 18 |
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| ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. | 18 |
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| PART III | 19 |
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| ITEM 17 FINANCIAL STATEMENTS | 19 |
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| ITEM 18 FINANCIAL STATEMENTS | 19 |
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| ITEM 19 EXHIBITS | 20 |
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| SIGNATURES | 21 |
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| CERTIFICATIONS | Exhibits 12.1 - 13.2 |
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.
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).
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).
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.
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 AktivnaTM, hosting services, set up charges, integration and support services and content. For these contracts, the Company recognizes revenue over the period of the license.
Blended Learning Solution.
Blended Learning solutions are those which combine an element of e-Learning, together with physical classroom or workbook based training The revenues are managed through the Futuremedia Software Services, Futuremedia Courseware
Services and Futuremedia Service Delivery units, and reported in the e-Learning segment. It can include multiple solutions such as supply of e-Learning materials, workbooks and classroom-based instruction. The Learning Management System element is recognized over the period of the license agreement and the remaining element is recognized on the delivery of the service for classroom-based instruction and on the delivery of the product for the workbooks.
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.
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 | | | 1,266 | |
| | | | | | | | |
| Cost of sales | | | 1,451 | | | 804 | |
| | | | | | | | |
Gross profit | | | 834 | | | 462 | |
| | | | | | | | |
| Operating expenses | | | | | | | |
Sales and marketing | | | 25 | | | 14 | |
General and administrative | | | 650 | | | 360 | |
Facilities expenses | | | 56 | | | 31 | |
| | | | | | | | |
| | | | | | | | |
Total operating expenses | | | 731 | | | 405 | |
| | | | | | | | |
| Operating profit | | | 103 | | | 57 | |
| | | | | | | | |
Interest income | | | - | | | - | |
Interest expense | | | (20 | ) | | (11 | ) |
Foreign currency gains | | | 9 | | | 5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net profit | | | 92 | | | 51 | |
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.
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.
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.
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.
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).
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 AktivnaTM 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.
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 Period | |
| | | | | | | | | | | | |
| Contractual Obligations GBP000’s | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | |
| | | | | | | | | | | | |
| Long-Term Debt Obligations | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | |
| Capital (Finance) Lease Obligations | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | |
| Purchase Obligations | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | |
| Operating lease obligation | | | 654 | | | 394 | | | 126 | | | 89 | | | 45 | |
| | | | | | | | | | | | | | | | | |
| Other 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.
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.
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 | Page |
| | |
| Unaudited Financial Statements | |
| | |
| Consolidated Balance Sheets at June 30, 2006 and April 30, 2006 | F-1 |
| | |
| Consolidated Statements of Operations for the period May 1, 2006 to June 30, 2006 | F-3 |
| | |
| Consolidated 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-4 |
| | |
| Consolidated Statements of Cash Flows for the period May 1, 2006 to June 30, 2006 | F-6 |
| | |
| Notes 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.
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Transition Report on Form 20-F.
| Exhibit Number | | Exhibit Description |
| 12.1 | | Chief Executive Officer Certification (SEC Rule 13a-14(a) / 15d-14(a)) (filed herewith). |
| | | |
| 12.2 | | Chief Accounting Officer Certification (SEC Rule 13a-14(a) / 15d-14(a)) (filed herewith). |
| | | |
| 13.1 | | Chief Executive Officer Certification (18 U.S.C. 1350) (filed herewith). |
| | | |
| 13.2 | | Chief Accounting Officer Certification (18 U.S.C. 1350) (filed herewith). |
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 Fertig |
| | Name: Leonard M Fertig |
| | Title: Chief Executive Officer and Authorized Signatory |
Date: November 16, 2006
FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | June 30, 2006 | | April 30, 2006 | |
| | | | | | | | |
| | | ($’000) | | (GBP’000) | | (GBP’000) | |
ASSETS | | | | | | | |
| | | | | | | | |
| Current assets | | | | | | | |
| Cash and cash equivalents | | | 2,355 | | | 1,305 | | | 1,155 | |
| Accounts receivable, less allowance of GBP73 for doubtful accounts June 30, 2006 and April 30, 2006 | | | 3,364 | | | 1,864 | | | 1,638 | |
| Amounts recoverable from vendors | | | 505 | | | 280 | | | 280 | |
| Other current assets | | | 976 | | | 541 | | | 1,032 | |
| Receivable from stock subscription | | | - | | | - | | | 2,366 | |
| Inventories - finished goods | | | 206 | | | 114 | | | 402 | |
| Prepaid expenses | | | 2090 | | | 1,158 | | | 608 | |
| Total current assets | | | 9,497 | | | 5,262 | | | 7,481 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Property and equipment | | | | | | | | | | |
| Audio visual and computer equipment | | | 2,588 | | | 1,434 | | | 937 | |
| Office equipment, fixtures and fittings | | | 516 | | | 286 | | | 286 | |
| Property improvements, plant and machinery | | | 260 | | | 144 | | | 144 | |
| Lease premium | | | 137 | | | 76 | | | 76 | |
| | | | 3,501 | | | 1,940 | | | 1,443 | |
| Less accumulated depreciation | | | (2,409 | ) | | (1,335 | ) | | (1,062 | ) |
| | | | 1,092 | | | 605 | | | 381 | |
| | | | | | | | | | | |
| Non current assets | | | 12,971 | | | 7,187 | | | - | |
| | | | | | | | | | | |
| Other assets | | | | | | | | | | |
| Goodwill | | | 9,233 | | | 5,116 | | | 5,089 | |
| Intangible assets | | | 1,079 | | | 598 | | | 645 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| TOTAL ASSETS | | | 33,872 | | | 18,768 | | | 13,596 | |
FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | June 30, 2006 Unaudited | | April 30, 2006 | |
| | | | | | | | |
| | | ($’000) | | (GBP’000) | | (GBP’000) | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | |
| | | | | | | | |
| Current liabilities | | | | | | | |
| Bank overdraft | | | 292 | | | 162 | | | - | |
| Fees received in advance | | | 6,293 | | | 3,487 | | | 4,277 | |
| Accounts payable | | | 7,082 | | | 3,924 | | | 2,297 | |
| Other taxes and social security costs | | | 1,711 | | | 948 | | | 706 | |
| Other accounts payable | | | 1,382 | | | 766 | | | 126 | |
| Accrual for National Insurance costs on stock options | | | 32 | | | 18 | | | 18 | |
| Accrual for sales commissions due | | | | | | | | | 268 | |
| Other accrued expenses | | | 3,245 | | | 1,798 | | | 1,538 | |
| Total current liabilities | | | 20,039 | | | 11,103 | | | 9,230 | |
| | | | | | | | | | | |
| Convertible debentures, debt and convertible term liability face value $14.0m | | | 10,313 | | | 5,714 | | | 5,465 | |
| Long term bank facility | | | 110 | | | 61 | | | - | |
| Other long term loans | | | 143 | | | 79 | | | - | |
| | | | | | | | | | | |
| Stockholders’ deficit | | | | | | | | | | |
| Ordinary shares of 1 1/9p each | | | | | | | | | | |
| Authorized - 350,000,000 | | | | | | | | | | |
| Issued and outstanding- 161,960,188 at June 30, 2006, 133,373,349 at April 30, 2006 | | | 3,247 | | | 1,799 | | | 1,482 | |
| Preference shares of 2p each | | | | | | | | | | |
| Authorized - 2,000,000 | | | | | | | | | | |
| None issued | | | - | | | - | | | - | |
| Additional paid-in capital | | | 52,452 | | | 29,063 | | | 26,018 | |
| Receivable from stock subscription | | | (32 | ) | | (18 | ) | | (18 | ) |
| Accumulated deficit | | | (52,193 | ) | | (28,919 | ) | | (28,481 | ) |
| | | | | | | | | | | |
| Other comprehensive loss- cumulative translation adjustment | | | (206 | ) | | (114 | ) | | (100 | ) |
| Total stockholders’ equity/(deficit) | | | 3,268 | | | 1,811 | | | (1,099 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | 33,872 | | | 18,768 | | | 13,596 | |
FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | Period May 1, 2006 to June 30, 2006 Unaudited | |
| | | | | | |
| | | ($’000) | | (GBP’000) | |
| | | | | | |
| Total Net sales | | | 6,243 | | | 3,459 | |
| | | | | | | | |
| Cost of sales | | | 4,061 | | | 2,250 | |
| | | | | | | | |
| Gross profit | | | 2,182 | | | 1,209 | |
| | | | | | | | |
| Operating expenses | | | | | | | |
| Sales and marketing | | | 285 | | | 158 | |
| General and administrative | | | 1,508 | | | 835 | |
| Facilities expenses | | | 209 | | | 116 | |
| | | | | | | | |
| | | | | | | | |
| Total operating expenses | | | 2,002 | | | 1,109 | |
| | | | | | | | |
| Operating profit | | | 180 | | | 100 | |
| | | | | | | | |
| Interest income | | | 10 | | | 6 | |
| Interest expense | | | (994 | ) | | (551 | ) |
| Foreign currency gains | | | 13 | | | 7 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net loss | | | (791 | ) | | (438 | ) |
| | | | | | | | |
| Loss per share basic and diluted. | | | (0.005 | )c | | (0.003 | )p |
| | | | | | | | |
| Weighted average shares outstanding | | | 149,563,053 | | | 149,563,053 | |
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 | ) | | 1,575 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exchange translation adjustments | | | - | | | - | | | - | | | - | | | - | | | (2 | ) | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | - | | | - | | | - | | | (1,662 | ) | | | | | (1,662 | ) |
| Comprehensive loss | | | - | | | - | | | - | | | - | | | - | | | - | | | (1,664 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Adjustment for Variable options | | | - | | | - | | | 686 | | | - | | | - | | | - | | | 686 | |
| Issuance of shares re exercise of warrants (net of issuance costs of GBP5,000) | | | 1,594,344 | | | 18 | | | 54 | | | - | | | - | | | - | | | 72 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of shares re acquisition (net of issuance costs of GBP20,000) | | | 1,125,000 | | | 12 | | | 270 | | | - | | | - | | | - | | | 282 | |
| Issuance of shares re investment (net of issuance costs of GBP50,000) | | | 5,173,958 | | | 57 | | | 649 | | | - | | | - | | | - | | | 706 | |
| Issuance of shares re exercise of options (net of issuance costs of GBP5,000) | | | 1,151,727 | | | 13 | | | 62 | | | - | | | - | | | - | | | 75 | |
| At April 30, 2004 | | | 87,239,486 | | | 969 | | | 18,642 | | | - | | | (17,773 | ) | | (106 | ) | | 1,732 | |
| Exchange translation adjustments | | | - | | | - | | | - | | | - | | | - | | | (1 | ) | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | - | | | - | | | - | | | (3,958 | ) | | - | | | (3,958 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive loss | | | - | | | - | | | - | | | - | | | - | | | - | | | (3,959 | ) |
| Receivable from subscription | | | - | | | - | | | - | | | (18 | ) | | - | | | - | | | (18 | ) |
| Adjustment for Variable options | | | - | | | - | | | (306 | ) | | - | | | - | | | - | | | (306 | ) |
| Issuance of shares re acquisition (net of issuance costs of GBP160,000) | | | 1,735,840 | | | 19 | | | 360 | | | - | | | - | | | - | | | 379 | |
| Issuance of shares re investment (net of issuance costs of GBP32,000) | | | 1,385,392 | | | 15 | | | 442 | | | - | | | - | | | - | | | 457 | |
| Issuance of shares re exercise of options (net of issuance costs of GBP6,000) | | | 1,408,758 | | | 16 | | | 119 | | | - | | | - | | | - | | | 135 | |
| Issuance 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 | | | 7 | |
| Net loss | | | - | | | - | | | - | | | - | | | (6,750 | ) | | - | | | (6,750 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive loss | | | - | | | - | | | - | | | - | | | - | | | - | | | (6,743 | ) |
| Adjustment for Variable options | | | - | | | - | | | 20 | | | - | | | - | | | - | | | 20 | |
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 | | | - | | | - | | | - | | | 676 | |
| Issuance of shares re acquisition (net of issuance costs of GBP37,000) | | | 20,867,473 | | | 233 | | | 2,070 | | | - | | | - | | | - | | | 2,303 | |
| Issuance of shares re acquisition costs (net of issuance costs of GBP13,000) | | | 2,539,848 | | | 28 | | | 303 | | | - | | | - | | | - | | | 331 | |
| Issuance of shares re exercise of options (net of issuance costs of GBP6,000) | | | 300,000 | | | 3 | | | 16 | | | - | | | - | | | - | | | 19 | |
| Issuance of shares re Loan conversion (net of issuance costs of GBP17,000) | | | 3,968,255 | | | 44 | | | 338 | | | - | | | - | | | - | | | 382 | |
| Issuance of shares re Loan repayment (net of issuance costs of GBP44,000) | | | 8,811,911 | | | 98 | | | 1,186 | | | - | | | - | | | - | | | 1,284 | |
| Issuance of shares re settlement of outstanding accounts (net of issuance costs of GBP2,000) | | | 339,941 | | | 4 | | | 83 | | | - | | | - | | | - | | | 87 | |
| Fair value adjustment re convertible debt and warrants | | | - | | | - | | | 2,122 | | | - | | | - | | | - | | | 2,122 | |
| At 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 | | | | | | | | | | | | 2,896 | |
| Issuance of shares re acquisition costs (net of issuance costs of GBP3,000 | | | 773,575 | | | 9 | | | 72 | | | | | | | | | | | | 81 | |
| Issuance of shares re settlement of outstanding accounts (net of issuance costs of GBP6,000) | | | 1,288,404 | | | 14 | | | 139 | | | | | | | | | | | | 153 | |
| Issuance of shares re Loan repayment (net of issuance costs of GBP7,000) | | | 1,489,425 | | | 16 | | | 156 | | | | | | | | | | | | 172 | |
| Issuance of shares re equity investment (net of issuance costs of GBP2,000) | | | 575,000 | | | 6 | | | 54 | | | | | | | | | | | | 60 | |
| At June 30, 2006 Unaudited | | | 161,960,188 | | | 1,799 | | | 29,063 | | | (18 | ) | | (28,919 | ) | | (114 | ) | | 1,811 | |
FUTUREMEDIA PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Period May 1, 2006 to June 30, 2006 Unaudited | |
| | | ($’000) | | (GBP’000) | |
| | | | | | |
| Operating activities | | | | | |
| Net loss | | | (791 | ) | | (438 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | | | | | | | |
| Depreciation | | | 70 | | | 39 | |
| Shares issued for services | | | 285 | | | 158 | |
| Amortization of intangible assets.. | | | 85 | | | 47 | |
| Interest charge arising on Convertible loan | | | 785 | | | 435 | |
| Accounts receivable | | | 1,846 | | | 1,023 | |
| Other current assets | | | 1,130 | | | 626 | |
| Inventories | | | 908 | | | 503 | |
| Prepaid expenses | | | 430 | | | 238 | |
| Fees received in advance | | | (1,426 | ) | | (790 | ) |
| Accounts payable | | | 1,054 | | | 584 | |
| Other accounts payable | | | 594 | | | 329 | |
| Other taxes and social security costs | | | (159 | ) | | (88 | ) |
| Other accrued expenses | | | (2,698 | ) | | (1,495 | ) |
| Net cash provided by/(used in) operating activities | | | 2,113 | | | 1,171 | |
| | | | | | | | |
| Investing activities | | | | | | | |
| Acquisition 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 activities | | | | | | | |
| Proceeds of share issues | | | 4,384 | | | 2,429 | |
| Share issue costs | | | (32 | ) | | (18 | ) |
| Net cash provided by financing activities | | | 4,351 | | | 2,411 | |
| Effects of exchange rate changes | | | (34 | ) | | (19 | ) |
| Net (decrease)/increase in cash and cash equivalents | | | 271 | | | 150 | |
| Cash and cash equivalents at beginning of period | | | 2,085 | | | 1,155 | |
| Cash and cash equivalents at end of period | | | 2,355 | | | 1,305 | |
| Supplemental disclosure of cashflow information | | | | | | | |
| Interest paid during the period | | | 209 | | | 116 | |
| | | | | | | | |
| Supplemental disclosure of non-cash transactions | | | | | | | |
| Issuance of shares in acquisitions | | | 5,414 | | | 3,000 | |
| Issuance of shares for services | | | 285 | | | 158 | |
| Issuance of shares in investment | | | 114 | | | 63 | |
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’s | |
| | | | | | |
| Cash | | | 4,151 | | | 2,300 | |
| Shares issued | | | 5,414 | | | 3,000 | |
| Acquisition costs | | | 1,170 | | | 648 | |
| | | | | | | | |
| | | | 10,735 | | | 5,948 | |
| | | | | | | | |
| Net 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 | | GBP000 | |
| | | | | | |
| Property and equipment | | | 422 | | | 234 | |
| Intangible assets | | | - | | | - | |
| Current assets | | | 4,308 | | | 2,387 | |
| Current liabilities | | | 6,708 | | | (3,717 | ) |
| | | | | | | | |
| Net current liabilities | | | (2,236 | ) | | (1,239 | ) |
| | | | | | | | |
| Total Equity and reserves | | | 2,236 | | | 1,239 | |
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
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.
FUTUREMEDIA PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2 . SUBSEQUENT EVENTS (continued)
On October 2, 2006 we announced the live launch of e-life™, 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-life™ 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.
