U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

             [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1997

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                                  EXCHANGE ACT
             For the transition period from __________ to __________

                         Commission file number: 0-20102

                            CAPITOL MULTIMEDIA, INC.
        (Exact name of small business issuer as specified in its charter)



        Delaware                                        52-1283993
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
      incorporation)

                           200 Baker Avenue, Suite 300
                                Concord, MA 01742
                     (Address of principal executive office)


                                 (508) 287-5888
                            Issuer's telephone number

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date:

                                                      Number Outstanding Shares
                 Title of Class                         as of August 9, 1997
                 --------------                         --------------------
         Common Stock, $.10 Par Value                         6,032,065

     Transitional Small Business Disclosure Format:   Yes [ ] No [X]

                                  Page 1 of 13

<PAGE>


                            CAPITOL MULTIMEDIA, INC.
                                  JUNE 30, 1997
                                   FORM 10-QSB
                                TABLE OF CONTENTS

                                                                           Page
PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements
        Condensed Consolidated Balance Sheets as of June 30, 1997
           and March 31,1997                                                 3
        Condensed Consolidated Income Statements for the
           three months ended June 30, 1997 and 1996                         4
        Condensed Consolidated Statements of Cash Flows for the
           three months ended June 30, 1997 and 1996                         5
        Notes to Condensed Consolidated Financial Statements                 6
ITEM 2. Management's Discussion and Analysis or Plan of
           Operation                                                         8



PART II OTHER INFORMATION



ITEM 1. Legal Proceedings                                                   12

ITEM 2. Changes in Securities                                               12

ITEM 3. Defaults Upon Senior Securities                                     12

ITEM 4. Submission of Matters to a Vote of Security Holders                 12

ITEM 5. Other Information                                                   12

ITEM 6. Exhibits and Reports on Form 8-K                                    12

        Signatures                                                          13




See accompanying notes.

                                  Page 2 of 13
<PAGE>




PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                            Capitol Multimedia, Inc.
                      Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                  June 30         March 31
                                                                    1997            1997
                                                               ----------------------------
Assets                                                           (Unaudited)           
<S>                                                            <C>             <C>         
Current assets:
   Cash and cash equivalents                                   $  3,365,877    $    760,065
   Short-term investments                                           598,415         997,036
   Accounts receivable, net of allowance for doubtful accts         912,555       1,027,307
   Notes and guaranteed royalties receivable                        250,000         250,000
   Prepaid expenses and other current assets                         65,083          76,602
                                                               ----------------------------
Total current assets                                              5,191,930       3,111,010

Property and equipment:                                             882,415       1,629,249
   Less: accumulated depreciation and amortization                 (522,347)       (970,874)
                                                               ----------------------------
                                                                    360,068         658,375

Notes and guaranteed royalties receivable                         1,092,356       1,073,600
Goodwill net of accumulated amortization                            806,503         827,182
Other long-term assets                                              187,904         240,872
                                                               ----------------------------
Total assets                                                   $  7,638,761    $  5,911,039
                                                               ============================

Liabilities and shareholders' equity Current liabilities:
   Accounts payable and accrued liabilities                    $    428,608    $    430,768
   Unearned revenue and other current liabilities                   455,000         395,382
                                                               ----------------------------
Total current liabilities                                           883,608         826,150

Notes payable to related parties                                  1,552,069       1,552,069
Deferred rent                                                        79,880          83,328
                                                               ----------------------------
Total liabilities                                                 2,515,557       2,461,547

Shareholders' equity:
   Common stock, $.10 par value                                     685,715         685,715
   Additional paid-in capital                                    16,747,202      16,747,202
   Accumulated deficit                                          (10,259,369)    (11,933,081)
                                                               ----------------------------
                                                                  7,173,548       5,499,836

Less treasury stock, at cost                                     (2,050,344)     (2,050,344)
                                                               ----------------------------
Total shareholders' equity                                        5,123,204       3,449,492
                                                               ----------------------------
Total liabilities and shareholders' equity                     $  7,638,761    $  5,911,039
                                                               ============================
</TABLE>

See accompanying notes

                                  Page 3 of 13
<PAGE>



                            Capitol Multimedia, Inc.
                    Condensed Consolidated Income Statements

                                                           Three Months Ended
                                                                June 30
                                                          1997           1996
                                                     ---------------------------
                                                     --------(Unaudited)--------
Revenue
   Services                                          $   796,248    $ 1,012,549
   Software license                                      122,721           --
                                                     --------------------------
Total revenue                                            918,969      1,012,549

Cost of services:                                        524,897           --
                                                     --------------------------
Gross margin                                             394,072      1,012,549

Operating expenses:
   Research and development                              222,797        549,152
   General and administrative                            323,788        427,260
   Sales and marketing                                   124,344           --
   Amortization of goodwill and developed software        30,680
                                                     --------------------------
Total operating expenses                                 701,609        976,412

Operating income (loss)                                 (307,537)        36,137

Other income (expense):
   Interest and other income, net                         68,797         60,003
   Interest expense                                      (47,652)
   Gain on sale of assets                              2,037,104           --
                                                     --------------------------

Income before income taxes                             1,750,712         96,140
Provision for income taxes                                77,000         14,400
                                                     --------------------------

Net income                                           $ 1,673,712    $    81,740
                                                     ==========================
Net income per share                                 $       .26    $       .02
                                                     ==========================

Weighted average number of shares outstanding          6,914,348      4,832,065
                                                     ==========================


See accompanying notes.

                                  Page 4 of 13
<PAGE>


                            Capitol Multimedia, Inc.
                 Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                    June 30
                                                                              1997            1996
                                                                           --------------------------
                                                                           ------- (Unaudited) ------
<S>                                                                        <C>            <C>        
Operating Activities
Net income                                                                 $ 1,673,712    $    81,740
Adjustments to reconcile net income to net cash used in operating
     activities:
     Depreciation of property and equipment                                     47,228         43,626
     Amortization of goodwill and developed software                            30,680
     Gain on sale of assets                                                 (2,037,104)
     Changes in assets and liabilities (net of effect from disposition):
         Accounts receivable                                                   (52,749)      (241,622)
         Prepaid expenses and other current assets                               2,581          4,182
         Long-term notes, royalties, and other assets                           15,821        (18,756)
         Accounts payable and accrued liabilities                              (39,579)       132,161
         Unearned revenue and deferred rent                                     93,588        (48,264)
                                                                           --------------------------
Net cash used in operating activities                                         (265,822)       (46,933)

Investing Activities
Purchases of short-term investments                                                          (399,628)
Proceeds from sales of short-term investments                                  398,621        326,210
Proceeds from sale of assets                                                 2,509,758
Capital expenditures                                                           (36,745)       (67,930)
                                                                           --------------------------
Net cash provided by (used in) investing activities                          2,871,634       (141,348)

Financing Activities
Proceeds from sale of common stock                                                  --             --
                                                                           --------------------------
Net cash provided by financing activities                                           --             --
                                                                           --------------------------

Net increase (decrease) in cash and cash equivalents                         2,605,812       (188,281)
Cash and cash equivalents at beginning of period                               760,065      1,961,393
                                                                           --------------------------
Cash and cash equivalents at end of period                                 $ 3,365,877    $ 1,773,112
                                                                           ==========================
</TABLE>




See accompanying notes.

                                  Page 5 of 13
<PAGE>



                            CAPITOL MULTIMEDIA, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


1.   Statement of Information Provided

The accompanying unaudited condensed  consolidated  financial statements,  which
are for  interim  periods,  have been  prepared in  accordance  with Form 10-QSB
instructions  and  do  not  include  all  disclosures  provided  in  the  annual
consolidated  financial  statements.   These  unaudited  condensed  consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended March 31, 1997 of Capitol  Multimedia,  Inc. (the
"Company"), as filed with the Securities and Exchange Commission.  These results
have been determined on the basis of generally  accepted  accounting  principles
and practices  applied  consistently  with those used in the  preparation of the
Company's  March 31,  1997  Annual  Report on Form  10-KSB.  The March 31,  1997
balance sheet was derived from audited consolidated  financial  statements,  but
does not  include all  disclosures  required by  generally  accepted  accounting
principles.


2.   Reclassifications

Certain  amounts in the June 30, 1996  Statement of Operations  and Statement of
Cash Flows have been reclassified to conform to the June 30, 1997 presentation.


3.   Sale  of  select   multimedia  assets  and  acquisition  of  Client  Server
     Technologies, Inc. (CSTI)

On April 16, 1997,  the Company sold  selected  multimedia  assets to Davidson &
Associates  (Davidson) for $2,509,759 in cash. The assets that were sold include
machinery and capital equipment  utilized in art, animation and audio production
in St.  Petersburg,  Russia,  and Concord,  Mass.  The net asset value of assets
transferred was $472,655.  As part of the  transaction,  the Company amended its
software development contract with Blizzard  Entertainment (the Company was paid
all  related  receivables  from the  contract)  , entered  into a  work-for-hire
agreement with Davidson related to software engineering  services,  and assigned
and transferred its present Concord, Massachusetts office lease to Davidson. The
Gain on Sale resulting from this transaction is $2,037,104.

On March 31, 1997, the Company acquired all of the outstanding stock of CSTI for
$3,853,060.  The purchase price is composed of 1,200,000  unregistered shares of
the  Company's  common stock  discounted to a value of  $1,050,000,  issuance of
non-interest bearing convertible  long-term notes totaling $1,945,000 to sellers
and discounted to a value of $1,552,069,  and cash payments totaling $1,250,991.
Debt  holders  have the  right to  convert  $945,000  out of the  $1,945,000  in
interest  and  principal  under the notes into shares of common stock at a $3.00
per share  conversion  price in December 1998. The transaction was accounted for
under  the  purchase  method  of  business  combinations.  As a  result  of  the
acquisition,  $827,182 of goodwill  was  recorded  which will be  amortized on a
straight line basis over 10 years,  and  $2,200,000 of  "In-Process  Technology"
which was written off at March 31, 1997.



                                  Page 6 of 13
<PAGE>


                            CAPITOL MULTIMEDIA, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


Supplemental  pro forma  results  of  operations,  assuming  the above  sale and
acquisition were consummated prior to April 1, 1996, are presented below.

                                                           Three Months Ended
                                                               June 30
                                                        1997            1996
                                                     --------------------------
                                                     -------- (Unaudited) ------

Total revenue                                        $   918,969    $ 1,303,642
Cost of services:                                        442,349        398,629
                                                     --------------------------
Gross  margin                                            476,620        905,013

Operating expenses:
   Research and development                              222,797        220,217
   General and administrative                            323,788        437,267
   Sales and marketing                                   124,344        106,567
   Amortization of goodwill and developed software        30,680         30,680
                                                     --------------------------
Total operating expenses                                 701,609        794,731

Operating income (loss)                                 (224,989)       110,282

Other income (expense):
   Interest and other income, net                         68,797         85,514
   Interest expense                                      (47,652)       (45,000)
                                                     --------------------------
Income (loss) before income taxes                       (203,844)       150,796
Provision for income taxes                                    --         14,628
                                                     --------------------------
Net income (loss)                                    $  (203,844)   $   136,168
                                                     ==========================

Net income (loss) per share                          $      (.03)   $       .02
                                                     ==========================

Weighted average number of shares outstanding          6,032,065      6,032,065
                                                     ==========================

4.   Subsequent Event

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings  per Share,  which is required  to be adopted for periods  ending
after December 17, 1997  including  interim  periods.  At that time, the Company
will be required to change the method  currently  used to compute  earnings  per
share  and to  restate  all  prior  periods.  Under  the  new  requirements  for
calculating  primary  earnings per share,  the dilutive  effect of stock options
will be excluded.  The impact of this new  pronouncement  has not been presented
since the Company has not computed the effect at this time.



                                  Page 7 of 13
<PAGE>



                            CAPITOL MULTIMEDIA, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


Business Developments

     During the  quarter  ended  June  1997,  the  Company  sold  certain of its
multimedia assets to Davidson, a division of CUC International, Inc. The Company
retained all rights to its fourteen (14) multimedia CD-ROM products currently on
the market,  three (3) new CD-ROM titles , all software  tools and engines,  and
software development capabilities in the United States and Russia. The Company's
current CD-ROM products are targeted  primarily at children ranging from 3 to 14
years of age and are  distributed  by  Davidson  and  Broderbund  Software  Inc.
(Broderbund).

     The  quarter  ended June 30, 1997 is the first  quarter to include  results
from CSTI which the Company acquired on March 31,1997. This acquisition provided
the Company an entry into the supply  chain  management  sector of the  business
software market, encompassing the planning and control of material and resources
from order entry through warehousing and logistics to customer delivery.  During
the  quarter,  CSTI  signed  license  and  service  arrangements  with  Teleport
Communications  Group  Inc.(TCG) and Nortel  Communications  (Nortel)  valued in
excess  of nine  hundred  thousand  dollars  (  $900,000).  Revenue  from  these
agreements should be recognized over the balance of fiscal 1998.

Presentation

     Since the  Company's  April 1997 sale of select  multimedia  assets and the
March 1997  acquisition  of CSTI,  the Company  has focused on the supply  chain
management  segment of the  business  software  market , but  continues  to sell
existing   multimedia   software  titles  through  its  distribution   channels.
Accordingly,  the discussion and analysis of the Company's results of operations
compares pro forma results for the three months ended June 30, 1997 to pro forma
results for the three months ended June 30, 1996.  This pro forma  presentation,
which is included in the notes to condensed  consolidated  financial statements,
assumes  that the sale and  acquisition  had  occurred  on March 31,  1996.  The
Company believes such comparison  provides a more meaningful analysis of current
and prior fiscal year results.

Net Sales

     The  composition  of net sales for the three months ended June 30, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>
                                        June 30      June 30            %         $
                                         1997         1996           Change     Change
                                     ---------------------------------------------------
<S>                                  <C>          <C>                 <C>     <C>        
Business software                    $  886,619   $  914,593           (3%)   $  (27,974)

Multimedia consumer software sales
   and royalties                         32,350      389,049          (92%)     (356,699)
                                     ---------------------------------------------------

 Total net sales                     $  918,969   $1,303,642          (30%)   $ (384,673)
                                     ===================================================
</TABLE>

     Revenues from business software decreased 27,974 or 3% on a pro forma basis
for the quarter ended June 30, 1997 versus the comparable  period in 1996.  This
decrease is  attributable to a decrease in software  license  revenue  partially
offset by increases  in  consulting  and support  



                                  Page 8 of 13
<PAGE>

                            CAPITOL MULTIMEDIA, INC.

maintenance  revenue.  License  revenue  recognition  fluctuates  with  customer
acceptance  of the  delivered  product  and  product  sales to new and  existing
customers.  The Company is expanding  all phases of sales and  marketing and has
recently hired a Vice President of Sales and Marketing. The Company is committed
to a substantial investment in and expansion of marketing efforts and alliances.
The Company  expects that business  software  revenue will increase above fiscal
1997 levels during fiscal 1998.

     Consumer software sales and royalties  decreased  $356,699 or 92% primarily
due to the continued  competitive  conditions of the edutainment  CD-ROM market,
oversupply of juvenile edutainment CD-ROM products,  intensified competition and
limited  retail  shelf  space.  There was also a $17,222  decrease in  royalties
relating  to the  Company's  CD-i  titles.  The  Company  will not  develop  new
multimedia  products  in the  foreseeable  future,  but has three (3)  completed
action  adventure  titles  to  sell  or  license.  The  Company  entered  into a
distribution  agreement in April,  1997 with  Davidson to  distribute  its Magic
Tales series under the Fisher Price label. The Company's outlook on revenue from
consumer software sales and royalties is dependent on the sale or license of the
three new multimedia products.

     The  level  of  net  sales  realized  by the  Company  in  any  quarter  is
principally  dependent on the portion of projects  completed,  the number of new
software  licenses sold and the number of titles shipped for published  consumer
software titles.  The purchase of supply chain management  solutions  requires a
significant commitment of capital and resources on the part of the customer, the
sales cycles are long and average from six to nine months. As a result,  revenue
recognition  is subject to many risks such as budgetary  cycles,  changes in the
business of a customer and overall  economic trends that are not controllable by
the Company.  Quarterly  results have varied  significantly  in the past and are
likely to  fluctuate  in the  future as a result of new orders  timing,  product
development expenditures,  the number and timing of new product completions, and
multimedia product shipments and returns. A significant portion of the Company's
operating  expenses are fixed and planned  expenditures in any given quarter are
based on sales and revenue forecasts.  Accordingly, if net sales do not meet the
Company's  expectations  in any given quarter,  operating  results and financial
condition  could  be  adversely  and   disproportionately   affected  because  a
significant  portion of the Company's  expenses do not vary with revenues.  As a
result of these and other  factors,  the  Company's  results of  operations  and
financial  condition  for any period are  inherently  difficult to predict.  Any
significant  change from levels expected by securities  analysts or shareholders
could result in  substantial  volatility  in the trading  price of the Company's
common stock.

Net sales derived from the Company's published multimedia products are typically
highest in the  Company's  second and third  quarters  ending in  September  and
December each year due  primarily to the  increased  demand for products for the
calendar  year-end holiday selling season.  There can be no assurance,  however,
that any quarterly fluctuations based on seasonality will continue.


Cost of Services

     Cost of services are incurred in  connection  with the sale of supply chain
management  software.  It  consists  of costs  associated  with  consulting  and
implementation services that are sold as part of a total supply chain management
solution,  and costs associated with providing support to customers.  These cost
increased  $43,720 or 11% during the three  months  ended June 30,  1997  versus
1996.  The Company  expects to increase the number of consulting  staff,  and to
utilize its research and development  staff as well as its software  engineering
capabilities  at  the  St.  Petersburg,  Russia  facility  as a  means  to  grow
consulting revenue. To the extent that the Company's revenues do not increase at
anticipated  rates, the hiring of additional  consultants could adversely affect
the Company's  gross  margins.  The Company  expects this expense to increase in
absolute dollars, but not as a percentage of sales during fiscal 1998.

                                  Page 9 of 13
<PAGE>
                            CAPITOL MULTIMEDIA, INC.

Research and Development

     Research and  development  expense  increased  $2,580 or only 2% during the
three  months  ended June 30, 1997  versus the  comparable  period in 1996.  The
Company expects  research and development to increase during fiscal year 1998 as
a result of an expansion of product  development for its supply chain management
software. There can be no assurance that the Company will be able to anticipate,
evaluate, and adapt to changes in platforms and evolving technologies,  or to do
so in a timely or cost  effective  manner.  The Company  expects that the fiscal
year 1998 expense will be below the level of 1997 as a result of the sale of its
art,  animation and audio  production  capabilities  to Davidson.  The Company's
research and development  resources in St. Petersburg,  Russia are significantly
reduced from prior years,  and as a result is less  vulnerable to changes in the
political and economic uncertainties associated with Russia.

Depreciation and Amortization

     Depreciation  and  amortization  only slightly changed on a pro form basis.
The Company  expects  depreciation  during fiscal year 1998 to  approximate  the
fiscal 1997 level, but the acquisition of CSTI will increase the amortization of
goodwill and developed  software.  The total  amortization costs for fiscal 1998
are expected to be approximately $120,000.

General and Administrative

     General and  administrative  expenses  decreased $113,479 or 26% during the
three  months  ended June 30,  1997  versus the  comparable  period in 1996 as a
result  of the  consolidation  of the  Bethesda  office  into  Concord  and  the
resulting  decrease  in  administrative  staff.  A  significant  portion  of the
Company's  operating  expenses are fixed, and planned  expenditures in any given
quarter are based on sales and revenue forecasts.  Accordingly,  if products are
not completed and/or shipped on schedule and net sales do not meet the Company's
expectations  in any given quarter,  operating  results and financial  condition
could be adversely affected.  Given the Company's recent acquisition and sale of
certain assets, as well as, the consolidation of operations in November of 1996,
the Company expects general and administrative  expenses on a pro forma basis to
decrease in absolute dollars and as a percent of sales in fiscal 1998.

Sales and Marketing

     Sales and marketing  expense  increased $17,777 or 17% on a pro forma basis
during the three  months  ended June 30,  1997 versus the  comparable  period in
1996.  This item  includes  personnel  related  costs,  as well as,  those costs
related to facilities,  travel,  trade shows,  advertising and promotions.  Past
CSTI  expenditures  on sales and marketing  were  substantially  below  industry
averages and the Company is committed to an  investment  in sales and  marketing
efforts and  alliances.  This  investment is expected to generate an increase in
future revenue.  However,  the benefits of such expenditures are not expected to
be realized during fiscal 1998.  There can be no assurance that the Company will
be able to realize the benefits from this investment.  The Company expects sales
and  marketing  expenses to increase in absolute  dollars and as a percentage of
sales during fiscal 1998.



                                 Page 10 of 13
<PAGE>


                            CAPITOL MULTIMEDIA, INC.


Gain on Sale of Assets

The gain of  $2,037,104  resulted from the sale of select  multimedia  assets to
Davidson for $2,509,759 in cash. The assets that were sold include machinery and
capital  equipment  utilized  in art,  animation  and  audio  production  in St.
Petersburg,  Russia, and Concord, Mass. This gain is excluded from the pro forma
income statement.


Provision for Income Taxes

     The  provision  for  income  taxes  represents   alternative   minimum  tax
liabilities  and state income  taxes on income  earned.  The Company  expects an
effective tax rate of  approximately  4% for fiscal year 1998. This rate differs
from the statutory rate due to anticipated  partial recognition of $4,888,000 in
deferred tax assets which were fully reserved at March 1996.

Liquidity and Capital Resources

     The Company's  primary sources of liquidity are its cash, cash equivalents,
and  short-term  investments.  During the quarter  ended June 1997,  cash,  cash
equivalents,  and investments  increased $2,207,191 or 126% to $3,964,292.  This
increase  relates to $2,510,000  in proceeds from the sale of select  multimedia
assets,  less $  37,000  in  capital  expenditures  and  $266,000  used  to fund
operating  activities.  The  Company  will use its  working  capital  to finance
ongoing  operations and fund the continued  expansion of its sales and marketing
resources.  Management expects its existing cash and short-term investments, and
cash generated from operations will be sufficient to meet the Company's expected
liquidity and capital needs for fiscal 1998.

     At June 30, 1997, the Company had outstanding Series A Warrants to purchase
492,700 shares of Common Stock at $4.37 per share.  These warrants  expire March
31,  1998,  subject to  extension  by the  Company.  Pursuant to the  redemption
provision in the Warrant Agreement,  the Company has the option of redeeming the
warrants on an "all or nothing basis," and, given favorable  market  conditions,
may do so. Exercise of these warrants would generate approximately $2,153,000 in
cash.

     The  Company  continues  to  consider  investments  in or  acquisitions  of
compatible businesses.  However, there can be no assurance that the Company will
make investments in or enter into business  combinations with other entities. In
the  event  that  the  Company  engages  in such  transactions,  it may  require
additional financial resources.

Forward Looking Information

     Except for the historical  information  contained in this Form 10-QSB,  the
information  set forth  herein  includes  forward  looking  statements  that are
dependent on certain risks and uncertainties. Important factors that could cause
the actual results to differ  materially from the anticipated  results  include,
but are not limited to, the anticipated  growth of certain market segments;  the
positioning,   release  dates,   and  acceptance  of  Company  products  in  the
marketplace;  quarterly  fluctuations  and  seasonality;  political,  social and
economic  stability in Russia;  the competitive  environment  and  technological
change in the software industry; and dependence on distribution channels and key
personnel,  all of which are  difficult  to predict and many of which are beyond
the control of the Company.  Additional  information  on these and other factors
which  could  affect  the  Company's   financial  condition  and/or  results  of
operations  are  included  in the  Company's  March  31,  1997 Form  10-KSB  and
Registration  Statements on Form S-3 (Registration Nos. 33-45725-A and 333-2476)
filed with the Securities and Exchange Commission.



                                 Page 11 of 13
<PAGE>



PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable.

ITEM 2. CHANGES IN SECURITIES

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

       10.52  Severance Agreement with Igor Razboff

       10.53  Severance Agreement with Dale DeSharone

       10.54  Licensing and  Distribution  Agreement with Davidson & Associates,
              Inc.

       10.55  Software   Publishing  and  Licensing  Agreement  with  Broderbund
              Software, Inc.

       11.1   Computation of Earnings Per Share

       21.1   List of Capitol Multimedia, Inc. Subsidiaries

       27.1   Financial Data Schedule

(b)  Reports on Form 8-K:

     On June 26, 1997,  the Company  filed a Form 8-K/A  amending the  unaudited
financial  statements  dated  December 31, 1996 for Client Server  Technologies,
Inc.(CSTI)  previously  incorporated  as  Schedule  3.3(a) of Exhibit 2.6 to the
Company's Form 8-K filed on April 11, 1997. The amended financial statements are
included in Schedule  3.3(b)-Client Server Technologies,  Inc. Audited Financial
Statements  as of December 31, 1996. A pro forma  balance  sheet as of March 31,
1997 and pro forma  statement  of  operations  for the year ended March 31, 1997
were included.


                                 Page 12 of 13
<PAGE>


                                    SIGNATURE

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                             CAPITOL MULTIMEDIA, INC.
                                                  (Registrant)


Date:  August 13, 1997                       /s/James P. Dore
                                             ---------------------------
                                             James P. Dore
                                             Controller (Principal Accounting
                                             Officer)

Date:  August 13, 1997                       /s/Edward Terino
                                             ---------------------------
                                             Edward Terino
                                             Chief Financial Officer &
                                             Secretary / Treasurer




                                 Page 13 of 13