Capitol Multimedia, Inc. announces profitable First Quarter; Declares Turnaround complete.

BETHESDA, Md--(BUSINESS WIRE)--August 16, 1995--After reporting a net loss of $4.35 million for its fiscal year ended March 31, 1995, Capitol Multimedia, Inc. (Nasdaq: CDIM, CDIMW), a creator of CD-based software for children, today announced earnings of $30,499 or one cent per share for the first quarter ended June 30, 1995 compared to net income of $94,646 or two cents per share during the first quarter of the previous year. Revenues during the quarter increased to $1,513,151 from $1,316,502 in the same 1994 quarter. Weighted average number of shares outstanding at June 30, 1995 and 1994 were 5,640,042 and 5,634,902, respectively.

According to Robert I. Bogin, President and CEO of Capitol Multimedia, Inc. "These 1st quarter results and other recent announcements herald a dramatic turnaround from being a developer of CD-i consumer and professional titles to a company focusing its strengths on the childrens edutainment market. With the recently announced sale of CD-i professional assets to Philips, the acquisition of Animation Magic and the recently announced 6 title CD-ROM licensing and distribution deal with Davidson & Associates, the Company's ability to maintain and grow its net income for the remainder of the fiscal year has increased substantially."

In July 1995, the Company announced an agreement with Davidson & Associates, Inc. (Nasdaq: DAVD), a leading developer and distributor of multimedia educational and entertainment software for both the home and school markets, whereby Davidson will license and distribute six of Capitol's childrens edutainment titles for the Windows and Macintosh CD-ROM platforms on a worldwide basis. The first three of these titles Baba Yaga and the Magic Geese, a Russian folk tale, Imo and the King, an East African folk tale, and The Little Samurai, a Japanese folk tale are all scheduled for release for the 1995 holiday season. Customers will be able to purchase the combined Windows and Macintosh CD-ROM at most major computer retail stores, mass merchants and toy stores for approximately $40.

On August 15, 1995, the Company announced that it has sold certain assets of its CD-i professional business to Philips Media, Inc., a Philips Electronics company (NYSE:PHG), on August 11, 1995 in consideration for all of Philips' 825,088 shares of Capitol Multimedia, Inc. common stock, cash at closing in the amount of $500,000, and the payment of certain royalties to Capitol Multimedia over the next four years including minimum royalty guarantees of $500,000 in year one and $250,000 in year two (with total royalties not to exceed $2,000,000 over the next four years). -0-

                      Capitol Multimedia, Inc.
                       Financial Highlights

                                       Three Months Ended
                                           June 30
                                      1995            1994

                                    --------        ---------

Net Sales                           1,513,151       1,316,502

Net Income                             30,499          94,646

Earnings Per Share                        .01             .02

Weighted Average Number
   of Shares Outstanding            5,640,042       5,634,902
-0-

                                              As of
                                     June 30        March 31
                                       1995           1995

                                    ----------      ---------

Current Assets                      4,390,623       4,719,552

Total Assets                        6,598,445       7,088,368

Current & Total Liabilities           720,075       1,263,711
-0-

CONTACT: John Donovan, Investor Relations

[phone] Ext. 852

Email: [e-mail]