Capitol Multimedia, Inc. Capitol Multimedia, Inc. Production Capabilities CMI Titles CMI Corporate Register
By most any measure, this past year was a successful one for Capitol Multimedia.
The Company reported a profitable year for the first time in its history. In contrast to last year's $4.35 million loss, the Company posted a $3 million profit. Ignoring one time gains and losses, we earned nearly $500,000 or $0.10 per share compared to last year's loss of $1.3 million or ($0.23) per share. This year's performance reflects the Company's implementation of the product development strategy I set forth in last year's letter to you. Outlined below are the key achievements in each area of this strategy.
In August 1995, the Company successfully sold assets associated with its professional CD-i business to Philips, thereby completing the transition from a CD-i developer to a creator, developer, and owner of high-quality children's software. The sale netted a $2.5 million gain and we received $500,000 cash, minimum royalty guarantees of $750,000, and 825,000 shares of Company common stock owned by Philips. The acquisition of Philips' shares enhances the Company's ability to establish strategic relationships more closely aligned with its new focus as an original creator, developer, and owner of multimedia products.
The Company created, developed, and produced three award-winning animated CD-ROM storybooks based on folk tales from countries around the world. These stories, designed for children ages 3-9, come alive with colorful animation, sound effects, narration, and original music. On-screen narration by Grandpa Mouse enhances and reinforces early reading skills. The first three Grandpa Tales titles: Baba Yaga and The Magic Geese, Imo and the King, and The Little Samurai are interactive tales from Russia, Africa, and Japan. Three additional titles in the series, Liam Finds A Story, Sleeping Cub's Test of Courage, and The Princess and the Crab, based on folk tales from Ireland, Native America, and Italy, are scheduled for release in fall 1996.
In addition, the Company created, developed, and produced Gregory and the Hot Air Balloon and Darby the Dragon, the first two titles in our Kidventures series. The CD-ROM based interactive adventures feature friendly animal characters appealing to children ages 4-8. The titles are designed to promote creativity, discovery, and exploration and encourage learning through interactive problem solving.
The quality of the Company's products is reflected in the caliber of our distribution partners. The Company entered into favorable licensing agreements with Davidson & Associates, Inc. and Broderbund Software, Inc., two leading distributors of children's software products, to distribute our original title creations in their Magic Tales and StoryQuests series. Under these agreements, we create, develop, produce, and retain ownership of original interactive software titles while our licensing partners are responsible for sales, marketing, and distribution.
Our licensing strategy allows us to concentrate on what we do best - the timely creation and development of the highest quality interactive content at costs below others in our industry - while leaving the tremendously competitive and difficult task of obtaining shelf space to the biggest players in the industry. We take on the production risk and our licensing partners take on the distribution burdens. Although this strategy results in lower revenues than could potentially be derived from distribution of the products ourselves, we feel it carries relatively low risk, best positions our product to obtain brand name recognition and loyalty, and should be continued until a retail environment more hospitable to smaller and lesser known publishers exists.
We see this past year as a prelude to increasing success in the years ahead. This next year, we plan to increase our production and development capabilities, enabling us to develop a greater number of titles for both ourselves and others, explore the feasibility of expansion into creation and development of titles for the teenage and adult entertainment markets, and pursue additional relationships with strategic licensing partners in order to further advance the Company's objectives.
We know that future success will be hard earned and accomplished through a continued focus on our objectives, and we are working hard to build a highly profitable future. I thank you, our shareholders, for your support and look forward to reporting even better results next year at this time.
Sincerely,
Robert I. Bogin
Chairman, President, and Chief Executive Officer
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