7th Level Reports New Strategy and Second Quarter Results.

DALLAS--(BUSINESS WIRE)--Aug. 15, 1997--7th Level, Inc. (NASDAQ: SEVL) today announced results for the second quarter ended June 30, 1997. Net revenues were $1.0 million compared to $5.0 million in the quarter ended June 30, 1996. The net loss for the quarter was $7.1 million or ($0.52) per share compared with a net loss of $6.6 million or ($0.49) per share in the same quarter of 1996.

Along with the results of the last quarter, the Company also announced its new strategy which is focused on expanding the Company's solutions and technology business and capitalizing on its educational and entertainment assets. The Company intends to pursue its new strategy in collaboration with a variety of potential ventures and marketing partners, and confirms that it is in discussion with several companies concerning different aspects of its strategy. An immediate and near-term objective of these relationships will be to generate additional capital necessary for the Company to implement its new business strategy. According to CEO Bob Ezrin, "Expanding the Company's solutions and technology business will make the Company substantially less dependent on the volatile games market in the future. During the second quarter of 1996, the Company released one of its most successful titles, Monty Python & the Quest for the Holy Grail, while in this quarter the company had no releases and no substantial contributors in the channel, accounting for the dramatic difference in revenues. This second quarter result serves to underscore the need for a new strategy of leveraging our unique technology and production expertise."

The centerpiece of the Company's new strategy will be an offering of integrated, smart solutions for production and distribution of interactive digital content on a wide variety of platforms, with particular emphasis on the emerging market of online and convergent content creation. In this endeavor, the Company will be leveraging its skills in interactive and creative design as well as systems level integration combined with the award winning technology and production systems developed by the Company for the production of its own content.

"The elegance of our production methods and the technical quality and dependability of the titles produced using Studio 7, the Company's integrated production, authoring and playback environment, provide ample proof that 7th Level can be a leader in providing integrated solutions for an array of corporate and entertainment clients wishing to create, manage and deliver digital content."

"The Company has successfully provided production and/or technology solutions for several industry leaders including Microsoft, IBM, Bandai, Disney and others," Ezrin said, "and is in discussions with game developers and other software providers with respect to further licensing of our technologies; corporations, entertainment, and toy companies with respect to production and management of online content and channels; companies in the publishing and educational industries with respect to solutions for delivery of courseware and computer based instruction over the intranet, internet, and extranet. We intend to push ahead with this strategy aggressively, with the goal of carving out a leadership position in this emerging and highly specialized field."

The Company clarified that it would continue to participate in the game industry in collaboration with other publishers and producers. Ezrin explained the game collaborations under discussion would limit the risks inherent to independent producers and publishers of games, while still allowing the Company to benefit from the financial and technological opportunities presented by the game business.

Finally, the Company's strategy allows for the packaging of subsets of its technology into specific productivity and consumer products compatible with distribution through the retail channel as well as through VARs and licenses. Paul Bodnoff, vice president of marketing, expressed confidence in the opportunity represented by the packaging and distribution of tools and retail products. "Our sales and marketing organization has tremendous experience establishing channel programs for some of the most successful productivity application publishers," said Bodnoff, who launched and headed up the marketing effort on CorelDraw(R). He is teamed with Jeff Croson, senior vice president of sales who held senior channel sales management positions at both Lotus Development Corporation and Micrografix.

Forward-Looking Statements: This news release contains forward-looking statements which involve risks and uncertainties. Accordingly, no assurance can be given that the actual events and results will not be materially different than the anticipated results described in the forward looking statement. There are a number of important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by the company. These factors include the company's ability to generate cash income in the third quarter of 1997, the success of the Company's cost reduction strategy, the ability to attract and retain strategic partners, the ability to leverage intangible assets in its technology, the ability to complete new projects at planned costs and on planned schedules and the market acceptance of the Company's products. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the company with the Sec urities and Exchange Commission. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

7th Level, Inc.
Condensed Consolidated Statements of Operations

                          Three Months Ended          Six Months Ended
                          6/30/97      6/30/96       6/30/97       6/30/96
                        ---------   ----------    ----------    ----------
Net revenues             $963,736   $5,025,883    $5,161,572    $9,398,971
Cost of revenues        1,037,013    2,290,874     3,703,148     3,327,636
Gross profit              (73,277)   2,735,009     1,458,424     6,071,335

Operating expenses:
 Research & prod. dev.  4,033,503    5,054,251     8,621,283     9,996,382
 Sales & marketing      1,821,248    3,303,166     3,724,593     5,938,463
 General & admin.       1,365,651    1,256,374     2,939,426     2,339,052
 Amortization of
  intangible assets        27,160       26,031        54,319        55,708
Operating loss         (7,320,839)  (6,904,813)  (13,881,197)  (12,258,270)

Interest & other,net      181,681      340,821       280,793       772,310
Net loss              ($7,139,158) ($6,563,992) ($13,600,404) ($11,485,960)
Loss per common share      ($0.52)      ($0.49)       ($1.00)       ($0.86)
Weighted avg. common
  & common equiv.
  shares               13,628,742   13,472,722    13,612,820    13,344,687
-0-

7th Level, Inc.
Condensed Consolidated Balance Sheets

                                               6/30/97      12/31/96
ASSETS                                      ----------   -----------
Cash and short term investments             $6,983,115   $15,283,842
Accounts receivable, net                     1,295,546     6,130,903
Inventories                                    213,266       571,545
Office building for sale                            --     5,117,222
Other current assets                         1,759,933     1,776,446
Total current assets                        10,251,860    28,879,958

Fixed assets, net                            6,833,773     7,839,278
Intangible assets, net                         759,743     1,130,095
Other assets                                   803,520     1,083,603
Total assets                               $18,648,896   $38,932,934

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & accrued expenses         $6,211,717    $7,302,434
Notes payable, current portion                      --     5,633,675
Other current liabilities                      195,033       192,451
Total current liabilities                    6,406,750    13,128,560

Notes payable, long term                       540,506       675,724
Other                                          455,359       476,263
Total liabilities                            7,402,615    14,280,547

Total stockholders' equity                  11,246,281    24,652,387
Total liabilities & stockholders' equity   $18,648,896   $38,932,934

CONTACT: Investor Relations:

Gary Fishman or David Pasquale, 212-527-4808

Company Contact:

David Craig, CFO, 972-498-8100