<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24936
7TH LEVEL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2480669
(State of incorporation) (I.R.S. Employer Identification No.)
1110 EAST COLLINS BOULEVARD
SUITE 122
RICHARDSON, TEXAS 75081
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 498-8100
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 and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK, $0.01 PAR VALUE 13,527,341
(Title of Each Class) (Number of Shares Outstanding at
August 6, 1996)
<PAGE>
7TH LEVEL, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 1996
Index
PART I FINANCIAL INFORMATION Page No.
--------
Item 1 Condensed Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Operations for the Three and Six Months
Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended June
30, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of
Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. Condensed Consolidated Financial Statements
7TH LEVEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 11,030,018 $ 29,940,217
Short-term investments 12,258,824 9,706,270
Accounts receivable, net 5,582,033 6,917,280
Inventories 485,379 385,470
Other current assets 1,656,922 1,210,085
------------ -------------
Total current assets 31,013,176 48,159,322
Property and equipment, net 9,887,145 5,156,058
Intangible assets, net 1,229,086 1,100,492
Other assets 1,801,885 145,808
------------ -------------
Total assets $ 43,931,292 $ 54,561,680
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,602,002 $ 1,263,392
Accrued expenses and other current
liabilities 4,234,066 4,074,934
------------ -------------
Total current liabilities 5,836,068 5,338,326
Notes payable 39,179 118,902
Notes payable to related parties 581,098 581,098
Other 405,344 257,883
------------ -------------
Total liabilities 6,861,689 6,296,209
Commitments and contingencies
Stockholders' equity:
Common Stock 135,117 130,785
Additional capital 70,075,466 69,168,061
Cumulative translation adjustment (14,950) (14,923)
Unrealized gain (loss) on investments (16,905) 21,791
Accumulated deficit (33,109,125) (21,040,243)
------------ --------------
Total stockholders' equity 37,069,603 48,265,471
------------ -------------
Total liabilities and
stockholders' equity $ 43,931,292 $ 54,561,680
============ =============
</TABLE>
See accompanying notes.
3
<PAGE>
7TH LEVEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30,1995
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 5,025,883 $ 1,200,591 $ 9,398,971 $ 2,735,615
Cost of revenues 2,290,874 307,307 3,327,636 678,023
------------ ----------- ------------- ------------
Gross profit 2,735,009 893,284 6,071,335 2,057,592
------------ ------------ ------------- ------------
Operating expenses:
Research and product development 5,054,251 2,516,528 9,996,382 4,174,240
Purchased in-process research and
development - - - 1,500,000
Sales and marketing 3,303,166 960,177 5,938,463 1,792,934
General and administrative 1,256,374 675,198 2,339,052 1,350,753
Amortization of intangible assets 26,031 565,316 55,708 1,130,512
----------- ----------- ------------- ------------
Total operating expenses 9,639,822 4,717,219 18,329,605 9,948,439
------------ ----------- ------------- ------------
Operating loss (6,904,813) (3,823,935) (12,258,270) (7,890,847)
Interest and other, net 340,821 157,248 772,310 384,797
------------ ----------- ------------- ------------
Net loss ($6,563,992) ($3,666,687) ($11,485,960) ($7,506,050)
============ =========== ============= ============
Loss per common share ($0.49) ($0.35) ($0.86) ($0.73)
============ ============ ============= ============
Weighted average common stock and
common equivalent shares 13,472,722 10,415,999 13,344,687 10,338,275
============ =========== ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
7TH LEVEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (11,485,960) $ (7,506,050)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,051,567 1,396,155
Purchased in-process research and development - 1,500,000
Change in operating assets and liabilities (536,313) 100,063
-------------- ---------------
Net cash used in operating activities (10,970,706) (4,509,832)
-------------- ---------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (paid) 6,323 (100,000)
Capital expenditures (5,443,136) (1,362,855)
Acquisition of intangible assets - (502,442)
Other investments (400,000) -
Purchase of short-term investments (2,591,250) (1,735,980)
-------------- ---------------
Net cash used in investing activities (8,428,063) (3,701,277)
-------------- ---------------
Cash flows from financing activities:
Issuance of Common Stock under stock option
and stock purchase plans 497,890 179,617
Repayment of long-term obligations - (1,248,750)
-------------- ---------------
Net cash provided by (used in ) financing
activities 497,890 (1,069,133)
-------------- ---------------
Effect of exchange rate changes on cash (9,320) -
-------------- ---------------
Net decrease in cash (18,910,199) (9,280,242)
Cash and cash equivalents, beginning of period 29,940,217 20,001,612
-------------- ---------------
Cash and cash equivalents, end of period $11,030,018 $10,721,370
============== ===============
</TABLE>
See accompanying notes.
5
<PAGE>
7TH LEVEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of 7th Level, Inc.
(the "Company") are unaudited and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995. The results of operations
for the three and six months ended June 30, 1996 are not necessarily indicative
of the results for the entire year ending December 31, 1996.
2. Loss per Share
Primary loss per share is computed by dividing the net loss by the
weighted average common stock and common stock equivalents outstanding. Warrants
and options to purchase common stock have been excluded from the loss per share
calculation because the effect would be anti-dilutive. Fully diluted loss per
share has not been presented because the result of the computation would be
anti-dilutive.
3. Acquisitions
On March 1, 1996, the Company acquired all of the outstanding stock of
PyroTechnix, Inc. ("PyroTechnix") for 300,000 shares of the Company's common
stock. The acquisition was accounted for as a pooling-of-interests. The
related acquisition costs were charged to expense during the quarter ended March
31, 1996. PyroTechnix is a software development company which specializes in
realtime 3D rendering technology. The operating results for PyroTechnix were
not material to the combined results of the two companies for all periods prior
to the acquisition and therefore results for those periods have not been
restated. The operating results of PyroTechnix have been included in the
condensed consolidated financial statements from the date of the acquisition.
During 1995, the Company acquired Distant Thunder Entertainment, Inc.
in February and Lanpro Corporation and Lanpro Localization Center, Inc. in
December. Pro forma results of operations have not been presented because the
effects of these acquisitions were not significant.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
financial statements and the notes thereto and in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995. This
analysis is provided pursuant to applicable Securities and Exchange Commission
regulations and is not intended to serve as a basis for projections of future
events.
OVERVIEW
The Company's business activities include the development and
acquisition of technological and production processes to create interactive
software titles for use on multimedia PCs. The Company's efforts to date have
resulted in the development and production of nine titles which include both
educational and entertainment content. The Company's most recent releases were
the strategy/comedy title, Monty Python and the Quest for the Holy Grail, and
Tracer, a cyberspace strategy game published by 7th Level. These two titles,
launched in June, are the first new releases in 1996 for the Company.
The Company will continue to make substantial expenditures to develop
its business in 1996 as the number of titles planned for release in 1996 is
targeted to increase over 50% from the six titles released in 1995 /1/. The
Company expects that its operating results will fluctuate as a result of a
variety of factors, including changes in the composition of the Company's
revenues, the timing of new title releases and the seasonal nature of the market
for consumer software with peak demand in the fourth calendar quarter or holiday
selling season.
RESULTS OF OPERATIONS
Three Month Periods Ended June 30, 1996 and June 30, 1995
Net revenues are derived from product sales, OEM licensing and product
development agreements. During the three months ended June 30, 1996, net
revenues totaled $5,025,883, which is 319% higher than the $1,200,591 revenue
achieved in the three months ended June 30, 1995. Revenues for the three months
ended June 30, 1996 were from initial sales of two new titles, primarily, Monty
Python and the Quest for the Holy Grail, plus development work for an OEM,
Disney Interactive ("Disney") and other third parties, and sales of existing
titles. Revenues for the three months ended June 30, 1995 were from sales of
three existing titles, primarily, Monty Python's Complete Waste of Time. More
than 20% of the revenues were from international sales in each of the three
months ended June 30, 1996 and 1995. Revenue for the three months ended June 30,
1996 was offset by a provision for returns that is $1 million larger than the
Company would normally have taken in order to provide for the return of
products, primarily Battle Beast, that are not selling strongly and which may
lose shelf space with the launch of the Company's new titles in the second half
of the year. Battle Beast, a traditionally animated fight game which has
received numerous awards, was launched almost one year ago and initial reaction
to the product was strong; however, the Company has concluded that there is a
high level of inventory in the channel and that sales are lower than originally
expected. Accordingly, the Company increased its estimate for anticipated
returns which resulted in a reserve balance for returns and other allowances of
approximately $1,400,000 as of June 30, 1996.
Cost of revenues during the three months ended June 30, 1996 was
$2,290,874 or 46% of net revenue, including product development, manufacturing,
and royalty and licensing costs of $871,016, $634,304, and $785,554,
respectively. For the three months ended June 30, 1995, cost of revenues was
$307,307 or 26% of sales, including manufacturing, and royalty and licensing
costs of $81,970 and $225,337, respectively. The 20% increase in cost of
revenues as a percentage of net revenue is due to several factors, including the
special returns provision, the lower margins associated with development revenue
and a write down of certain inventories. The Company expects fluctuations in
gross margin in the future as changes occur in the composition of the revenue
and the associated cost of revenues.
7
<PAGE>
Research and product development expenses were $5,054,251 and
$2,516,528 for the three months ended June 30, 1996 and 1995, respectively.
Research and product development costs have increased significantly as the
Company has more than doubled its capacity from the same period in the prior
year. Research and product development expenses for the three months ended June
30, 1996 included $2,903,164 of production expenses, $1,205,784 for software
research and development and $945,303 for expenses of the companies acquired in
1995 and 1996 (as described in Note 3) to provide expertise in the development
of 3D technology and graphics design and to provide the capabilities needed to
expand into the Asia Pacific market. During the three months ended June 30,
1995, research and product development expenses included $1,795,232 of
production expenses and $721,296 for software research and development costs.
Sales and marketing expenses were $3,303,166 and $960,177 for the
three months ended June 30, 1996 and 1995, respectively. Sales and marketing
expenses for the three months ended June 30, 1996 included $2,131,140 of
expenses for advertising, marketing and public relations and $1,172,026 of
expenses related to internal staffing. For the three months ended June 30, 1995
expenses of $343,141 for advertising, marketing and public relations and
$617,036 related to internal staffing were incurred. The quarterly increase of
$2,342,989 over 1995 includes costs to support more comprehensive marketing
campaigns for an expanded product offering in 1996 and increased staffing, as
well as costs related to the centralization of the Company's European business.
As a percentage of net revenues, sales and marketing expenses related to
internal staffing decreased to 23% from 51%, for the three months ended June 30,
1996 and 1995, respectively; however, the advertising, marketing and public
relations expenses increased to 42% from 29% as a percentage of net revenues in
the three months ended June 30, 1996 compared to the same period in 1995, most
of which is attributable to sales and marketing activities related to a greater
number of titles.
General and administrative expenses for the three months ended June
30, 1996 were $1,256,374 compared with $675,198 in the three months ended June
30, 1995. The increase of $581,176 is associated with the expansion of the
Company's operational and administrative support infrastructure. As a percentage
of net revenues, in the three months ended June 30, 1996, general and
administrative expenses decreased to 25% from 56% in the three months ended June
30, 1995.
Amortization of intangible expenses was $26,031 for the three months
ended June 30, 1996, and primarily represents amortization of intangible assets
acquired in the Lanpro Acquisition. These assets were acquired on December 29,
1995 and are being amortized over periods up to seven years. Amortization of
intangible expenses during the three months ended June 30, 1995 was $565,316 and
primarily related to intangible assets acquired in the MetroCel asset
acquisition in March of 1994 which were fully amortized by December 31, 1995.
Net interest income was $340,821 for the three months ended June 30,
1996 compared with $157,248 in the three months ended June 30, 1995. This change
was due to higher average cash balances which were generated by a public stock
offering in late 1995.
Six Month Periods Ended June 30, 1996 and June 30, 1995
For the six months ended June 30, 1996, net revenues totaled
$9,398,971 compared to $2,735,615 for the six months ended June 30, 1995. The
revenues for the six months ended June 30, 1996 more than tripled the revenues
for the six months ended June 30, 1995 because of the increase in the number of
titles offered by the Company as well as higher OEM, license and development
revenues in the six months ended June 30, 1996.
Cost of revenues during the six months ended June 30, 1996 was
$3,327,636 or 35% of revenue. For the six months ended June 30, 1995 cost of
revenues was $678,023 or 25% of sales. The gross margin
8
<PAGE>
was negatively impacted by changes in the revenue mix for the six months ended
June 30, 1996, through the inclusion of development revenue, which has a higher
cost of revenue than product sales or OEM licensing revenue. For the six months
ended June 30, 1995, revenues were derived from product sales and OEM licensing.
Research and product development expenses were $9,996,382 for the six
months ended June 30, 1996 compared to $5,674,240 for the six months ended June
30, 1995, which included a $1,500,000 write-off related to the acquisition of
in-process research and development costs in the purchase of Distant Thunder.
Excluding the write-off, research and product development expenses increased
139% over the same period of the prior year. Research and product development
expenses have increased significantly in 1996 from 1995 as the Company has
expanded development and production activity by having numerous 2D and 3D titles
in simultaneous production, multimedia and internet authoring and production
tools under development and various language translation capabilities in studio
offices in Los Angeles, San Francisco, Dallas, Cincinnati and Munich. While the
Company has aggressively invested to increase its capacity to produce new titles
for release, the Company has experienced higher costs than expected on several
titles. The Company has introduced a number of technological efficiencies in the
traditional animation production processes, is planning additional improvements,
and is currently focusing on ways to reduce costs, to improve the financial
performance and to increase the competitive strength of the Company in this
area/1/.
Sales and marketing expenses were $5,938,463, or 63% of revenues, for
the six months ended June 30, 1996, compared to $1,792,934, or 66% of revenues,
for the six months ended June 30, 1995. The Company's expansion into global
distribution channels, the increased advertising, marketing and public relations
expenses to support revenue growth and growth of the Company's sales and
marketing organization all contributed to the 231% increase in spending in sales
and marketing.
General and administrative expenses were $2,339,052 for the six months
ended June 30, 1996, compared with $1,350,753 in the six months ended June 30,
1995. These increases were associated with the expansion of the Company's
operational and administrative support infrastructure. As a percentage of
revenues, general and administrative expenses declined to 25% from 49% for the
six months ended June 30, 1996 and 1995, respectively.
Amortization of intangibles expense was $55,708 for the six months
ended June 30, 1996 and included the amortization of intangible assets acquired
in the Lanpro acquisition. Amortization expense was $1,130,512 for the six
months ended June 30, 1995, which represents amortization of intangible assets
acquired in the MetroCel asset acquisition which were fully amortized in
December 1995.
Net interest income was $772,310 for the six months ended June 30,
1996, which is twice the amount of $384,797 recognized in the six months ended
June 30, 1995. This improvement is attributable to higher average cash balances
and repayment of certain outstanding debt from the proceeds generated from a
public stock offering in late 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short term investments decreased $16,357,645 to $23,288,842
at June 30, 1996, from $39,646,487 at December 31, 1995. The decrease is
primarily the result of the net loss of $11,485,960 incurred in the first half
of 1996 and $5,443,137 in asset additions for expanded computer and network
capacity and land purchased for the future site of the Dallas operations. The
Company expects to continue to fund the development of new titles and
technologies and sales and marketing activities to launch new products/1/. The
Company plans to spend approximately $5 million for the construction of the
corporate offices for Dallas operations/1/. The Company also anticipates making
additional capital expenditures for expansion of its computer network to include
connectivity between all offices/1/. Outside funding
9
<PAGE>
alternatives are being examined to finance the Dallas building costs and the
Company is in negotiations with a lender for equipment-based financing as an
additional source of funds.
The Company anticipates that its capital resources, including the
anticipated borrowings for the Dallas building and the equipment-based
financing, will be sufficient to satisfy its capital requirements for the
foreseeable future/1/. To date, however, the Company continues to operate at a
loss. The Company's ability to achieve positive cash flow depends upon a
variety of factors, including the timeliness and success of its products, the
costs of developing, producing and marketing such products and various other
factors, some of which may be beyond the Company's control. In the future, the
Company's capital requirements will be affected by each of these factors as well
as its investments in technological and production process research/1/. If the
Company requires additional capital, it would seek such funding through
additional public or private financing, although there can be no assurance that
the Company will be able to obtain such financing/1/.
STRATEGIC RELATIONSHIP STATUS
In June 1996, the Company signed an agreement with Future Endeavors
Incorporated ("Future Endeavors") to publish on a worldwide basis all
entertainment products that are developed by the Canadian company for an initial
three-year period. The Company made a $400,000 investment in Future Endeavors
and expects to make royalty advances from time to time to fund title
development/1/. Additionally, the Company has provided its development tools to
Future Endeavors for use in producing titles. Future Endeavors will receive
royalty payments on revenues of each title published by 7th Level, including
Tracer, the first title which was released in June 1996.
In April 1996, the Company entered into an agreement with Disney to
co-develop a new PC game featuring the characters from Disney's animated film
The Hunchback of Notre Dame. The agreement calls for Disney to fund the
development expenses for the Hunchback title and for the Company to receive
royalties based on revenues generated by the game. The Hunchback title includes
five single and multiplayer games. In July 1996, the Company's development work
was completed as scheduled and the title was released to Disney for publishing.
This is the second in Disney's GameBreak! series and the second collaboration
between Disney and the Company.
In August 1995, the Company entered into an agreement with Morgan
Creek Interactive, Inc. ("Morgan Creek") for formation of a joint venture to
develop at least two computer software titles based on Morgan Creek's character,
"Ace Ventura." The first title, a graphic adventure game is scheduled for
release in 1996. The Company has made and will continue to make capital
contributions to the venture to fund the costs of development of the titles and
will fund all marketing expenses and duplication costs for the titles. All
revenues of the venture are to be shared equally by the parties after repayment
of the Company's capital contributions to fund development expenses,
reimbursement of all amounts advanced by the Company to fund marketing expenses
and duplication costs and payment to the Company of a distribution fee. Morgan
Creek has been granted warrants to purchase 75,000 shares of the Company's
common stock at $20 per share and 100,000 shares of the Company's common stock
at $24 per share, which warrants expire in 1998.
The Company anticipates forming a joint venture (the "QD7 Joint
Venture") for the development, production and distribution of multimedia
products with Quincy Jones-David Salzman Entertainment ("QDE") pursuant to the
terms of a letter agreement/1/. This letter agreement provides that the Company
and QDE shall initially contribute $750,000 and $250,000, respectively, to the
QD7 Joint Venture and contemplates that additional capital contributions shall
be made only with the unanimous consent of both parties. The first title to be
developed by the QD7 Joint Venture, scheduled for release after 1996, is in the
design phase, and to date, no material expenditures or commitments have been
incurred/1/. All development, manufacturing, testing, marketing and distribution
costs will be advanced by the Company and then recouped prior to any
distribution of net receipts. Pursuant to the letter agreement, net receipts,
after the payment or reimbursement of all costs, will be applied to the
repayment to the
10
<PAGE>
Company and QDE of their capital contributions, with all remaining net receipts
to be shared equally by such parties.
In the normal course of business, the Company evaluates potential
acquisitions and joint ventures that may complement the Company's business.
While the Company has no present plans, commitments or agreements with respect
to any material potential acquisitions or joint ventures other than as disclosed
herein, the Company may in the future consummate acquisitions or enter into
joint ventures which may require the Company to make additional capital
expenditures, and such expenditures may be significant/1/.
- --------------------
/1/ This statement is a forward looking statement that involves risks
and uncertainties. Accordingly, no assurances can be given that the
actual events and results will not be materially different than the
anticipated results described in the forward looking statement. See
the discussion of the Company's business and a description of the
various factors that could materially affect the ability of the
Company to achieve the anticipated results described in the forward
looking statement which is included in Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
11
<PAGE>
7TH LEVEL, INC.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 29, 1996.
The results of voting were as follows:
Proposal 1: Election of Directors of the Company
Votes
Nominee Votes For Against Abstain
------- --------- ------- -------
George D. Grayson 9,558,931 8,149 26,273
Robert Alan Ezrin 9,560,931 6,149 26,273
W. Scott Page 9,558,628 8,452 26,273
David R. Henkel 9,561,628 5,452 26,273
Merv Adelson 9,561,280 5,800 26,273
Steven Fink 9,560,480 6,600 26,273
Lewis C. Solmon 9,557,580 9,500 26,273
Proposal 2: Ratification of KPMG Peat Marwick LLP as the Company's
Independent Auditors
Votes For: 9,549,808
Votes Against: 24,735
Votes Abstaining: 18,860
Proposal 3: Approval of an amendment to the 7th Level, Inc. Amended
and Restated Incentive Stock Option Plan to increase the
number of shares of Common Stock available to be issued
thereunder from 2,000,000 shares to 3,200,000 shares
Votes For: 6,798,380
Votes Against: 352,097
Votes Abstaining: 33,289
Proposal 4: Approval of an amendment to the 7th Level, Inc.
Employee Stock Purchase Plan to increase the number of
shares of Common Stock available to be issued thereunder
from 100,000 to 300,000 shares
Votes For: 7,020,672
Votes Against: 155,723
Votes Abstaining: 24,413
Proposal 5: Approval of an amendment to the 7th Level, Inc. Amended
and Restated 1994 Non-Employee Directors' Stock Option
Plan to (i) increase the number of shares of Common Stock
available to be issued thereunder from 50,000 shares to
125,000 shares, (ii) increase the number of shares
issuable upon the exercise of the options granted to non-
employee directors upon first becoming a director from
10,000 shares to 20,000 shares, (iii) provide for the
grant to each of the Company's current non-employee
directors of an option to purchase 10,000 shares of
Common Stock at an exercise price of $16.75 per share,
and (iv) provide for the annual grant to each non-
employee director of an option to purchase 5,000 shares
of Common Stock on
12
<PAGE>
the date of each annual meeting of the stockholders of
the Company at its then current fair market value.
Votes For: 6,901,724
Votes Against: 181,856
Votes Abstaining: 37,907
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
13
<PAGE>
7TH LEVEL, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
7TH LEVEL, INC.
Date: August 13, 1996 By /s/ David W. Craig
------------------
David W. Craig
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 11,030,018 0
<SECURITIES> 12,258,824 0
<RECEIVABLES> 6,966,869 0
<ALLOWANCES> 1,384,836 0
<INVENTORY> 485,379 0
<CURRENT-ASSETS> 31,013,176 0
<PP&E> 11,982,392 0
<DEPRECIATION> 2,095,247 0
<TOTAL-ASSETS> 43,931,292 0
<CURRENT-LIABILITIES> 5,836,068 0
<BONDS> 0 0
0 0
0 0
<COMMON> 135,117 0
<OTHER-SE> 36,934,486 0
<TOTAL-LIABILITY-AND-EQUITY> 43,931,292 0
<SALES> 0 0
<TOTAL-REVENUES> 5,025,883 9,398,971
<CGS> 2,290,874 3,327,636
<TOTAL-COSTS> 9,639,822 18,329,605
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (340,821) (772,310)
<INCOME-PRETAX> (6,563,992) (11,485,960)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,563,992) (11,485,960)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,563,992) (11,485,960)
<EPS-PRIMARY> (0.49) (0.86)
<EPS-DILUTED> 0 0
</TABLE>
