Artificial Life Announces Q3 2011 Results

Artificial Life, Inc. (Pink Sheets:ALIF) (http://www.artificial-life.com) today announced its third quarter 2011 results.

In the third quarter of 2011 the Company has continued to implement its new business model and actively pursued new investment targets.

Status of new business model and investment portfolio

Artificial Life Investments, Ltd.

In December 2010, the Company has launched a new 100% owned subsidiary and investment entity, Artificial Life Investments, Ltd. based in the Cayman Islands. The new entity is the key investment vehicle for the Artificial Life group and is intended to become the investment holding for all its future acquisitions.

Currently Artificial Life Investments has invested in and holds four investment companies:

ALife Studios, Inc. (68% ownership)

In the third quarter of 2011, Artificial Life Investments launched a new operational entity, ALife Studios, Inc. ("ALife Studios"). ALife Studios, Inc. is a content development studio based in Hong Kong which implements custom solutions for smartphones and tablet devices. ALife Studios has a strong focus on mobile and cross-platform applications and games. ALife Studios will take over the former operational business lines of Artificial Life, Inc and some of Artificial Life's contractual obligations with partners and shareholders. The Company is currently in talks with several investors about a Series A financing to fund its growth and expansion. In November 2011 Artificial Life Investments sold 32% of the equity of ALife Studios as an incentive to its new management. The ALife Studios is working already on several new contract assignments and on sub-contracts of Artificial Life and has started developing its own new products. ALife Studios is working on an outsourcing business model and works with outsourcing partners around the globe. For further details see: www.alife-studios.com

Green Cortex, Inc. (100% ownership)

In May 2010, Artificial Life founded Green Cortex Inc. to penetrate the booming green IT and green mobile apps market for smart-phones. Hong Kong based Green Cortex combines many years of research and experience in the artificial intelligence field with unique know-how in mobile technology, green technology, and sustainability practices to create smart mobile apps that work to protect our environment, to improve the safety of hazardous production facilities, and to help minimize carbon footprints. The Company focuses on modern, biology oriented smart software technologies (such as genetic algorithms) to innovate green technology and applications. The Company also is in the process of hiring a new CEO and to start operational activities still in Q4, 2011. The Company is currently also in its Series A funding round. For further details please see: www.green-cortex.com

Augmented Reality Europe (19.9% ownership)

In December 2010, Artificial Life Investments acquired a 19.9% stake in a Berlin based start up called ARE Augmented Reality Europe. The Company specializes in augmented reality related intellectual property and patents acquisitions and trading. The Company is currently in the process to acquire its first intellectual property assets from several companies. For further details, please see: www.arereality.com

M-Health Middle East, Ltd. (19.9% ownership)

In December 2010, Artificial Life Investments acquired a 19.9% equity stake in M-Health Middle East. The business focus of M-Health is to deploy mobile health services in the Middle East and Africa. The Company invested approximately 12 mio USD in form of accounts receivables to acquire the equity stake. At this point Artificial Life Investments is in negotiation with some partners to sell its stake in M-Health.

Further Activities

Further to the active pursuit of investments the Company is in the process to sell some of its valuable intellectual property developed over the past years as it has ceased licensing these assets under the former business model. The proceeds from these sales are intended to be used for further acquisitions.

Asset Sales Status and Activities

Since the second quarter of 2011 Artificial Life, Inc is in negotiations with several potential buyers around the globe to sell some of its product assets and/or use these assets in exchange for equity in further investment targets according to its new business strategy. Further announcements will follow.

Artificial Life is also in talks with some major Chinese game and non gaming companies to launch Joint Ventures based on the Company's valuable assets for the Greater China territory.

Financial Results — Quarter Ended September 30, 2011 compared to Quarter Ended September 30, 2010

Current financial results of Artificial Life, Inc. are considered not to be directly comparable with past and future expected results of the Company due to its recent shift in business focus and business model. The Company has ceased to actively sell its former products under the historic licensing business model and started implementing instead its new business model by evaluating and actively pursuing various investments and joint venture opportunities. Therefore, in the short term the Company does not expect substantial revenues as its old income stream is fading out while its new income will mostly come from future investments. The Company will engage in investment activities over the coming months and will only be able to generate income when selling equity stakes or assets. The first substantial asset sales and trades or sales of equity in its new investment companies are currently expected in early 2012.

"We are satisfied with the careful step-by-step implementation of our new business model and the evaluation of several promising investment opportunities. Everything is starting to take shape. Our first investments are taking off and are becoming active operational entities. Especially our ALife Studios are doing very well already, just weeks after their launch. Hence we are confident in our new strategy and our new business approach and expect to show strong growth and more promising and substantial results to our shareholders already in the near future," said Eberhard Schoneburg, CEO of Artificial Life, Inc.

Revenues:

Revenues for the quarter ended September 30, 2011 were $146,155 as compared to $10,560,747 for the quarter ended September 30, 2010. The decrease of revenues of $10,414,592 was mainly due to the discontinuation of sales and licensing of our historic products and the related decrease in revenue recognized from global license deals for our m-commerce platform, OPUS-M™. The Company's new investment oriented business model does not generate ongoing license income.

Other Income / Expenses:

Other income (expenses) for the quarter ended September 30, 2011 was $(1,620,658) as compared to $1,612,389 for the quarter ended September 30, 2010. Net other expenses of $1,620,658 was primarily due to foreign currency transaction losses of approximately $1,610,000 in this quarter compared to gains of approximately $1,624,000 in the third quarter of 2010. The increase in foreign currency transaction losses was mostly due to the significant adverse effect of the weakening of the Euro relative to the United States Dollar on the trade receivables denominated in Euro.

Income / Loss from Operations and Net Income / Loss:

Loss from operations for the quarter ended September 30, 2011 was $(3,789,975), as compared to income from operations of $4,280,746 for the quarter ended September 30, 2010. Net loss for the quarter ended September 30, 2011 was $(2,646,503), as compared to net income of $5,055,651 for the quarter ended September 30, 2010. The decrease in both (loss) income from operations and net (loss) income is primarily due to the decrease in license revenues related to the shift in business model. The basic and diluted net (loss) income per share for the third quarter of 2011 was $(0.04), as compared to $0.08 for the quarter ended September 30, 2010.

ARTIFICIAL LIFE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
	Three-Month Periods Ended September 30,		Nine-Month Periods Ended September 30,
	2011	2010	2011	2010
Revenues:
Software license agreements	$ 146,155	$ 10,560,747	$ 10,717,459	$ 27,772,531
Application services and other	--	--	--	15,854
	146,155	10,560,747	10,717,459	27,788,385
Cost of revenues:
Cost of software license agreements	2,063,791	3,456,832	5,659,996	6,718,185
Others	14,632	6,358	125,943	158,325
	2,078,423	3,463,190	5,785,939	6,876,510
Gross (loss) profit	(1,932,268)	7,097,557	4,931,520	20,911,875
Operating expenses:
General and administrative	956,811	623,260	2,775,052	1,944,816
Research and development	579,363	651,886	1,858,021	1,894,147
Sales and marketing	304,323	442,475	1,181,933	1,337,812
Depreciation	13,390	1,095,313	46,268	1,522,814
Bad and doubtful debt	3,820	3,877	3,855,001	7,588
Total operating expenses	1,857,707	2,816,811	9,716,275	6,707,177
(Loss) income from operations	(3,789,975)	4,280,746	(4,784,755)	14,204,698
Other (expenses) income:
Interest income and other income (expenses)	11,071	(118)	20,564	5,302
Interest expense	(21,594)	(11,412)	(68,098)	(53,171)
Foreign currency transaction (losses) gains	(1,610,135)	1,623,919	36,075	101,561
	(1,620,658)	1,612,389	(11,459)	53,692
(Loss) income before income taxes	(5,410,633)	5,893,135	(4,796,214)	14,258,390
Income tax benefit (expense)	2,764,130	(837,484)	2,661,130	(1,964,729)
Net (loss) income	(2,646,503)	5,055,651	(2,135,084)	12,293,661
Foreign currency translation adjustment	(222,439)	2,016	22,587	(150,970)
Comprehensive (loss) income	$ (2,868,942)	$ 5,057,667	$ (2,112,497)	$ 12,142,691
Net (loss) income per share:
Basic	$ (0.04)	$ 0.08	$ (0.03)	$  0.21
Diluted	$ (0.04)	$ 0.08	$ (0.03)	$  0.20
Weighted average shares outstanding:
Basic (Note 8)	70,945,478	61,575,272	67,852,571	59,869,484
Diluted (Note 8)	71,019,949	61,927,535	68,972,851	61,363,512

ARTIFICIAL LIFE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	September 30, 2011	December 31, 2010
ASSETS
Current assets:
Cash	$ 96,166	$ 2,240,509
Pledged deposit (Note 3)	25,641	25,641
Trade accounts receivables, net of allowance for discount interest and doubtful accounts of $7,780,960 and $8,298,470, respectively	19,710,304	14,599,571
Prepaid expenses and other	700,413	872,208
Deferred income taxes, net	4,261,804	1,497,000
Total current assets	24,794,328	19,234,929
Fixed assets, net of accumulated depreciation of $455,491 and $579,016, respectively	44,339	90,247
Investments (Note 7)	11,998,753	11,989,243
License rights, net of accumulated amortization of $17,286,666 and $12,339,664, respectively	25,830,664	35,599,878
Prepaid expenses, deposits and other assets	1,541,064	2,027,999
Deferred income taxes	1,507,000	1,507,000
	40,877,481	51,124,120
TOTAL ASSETS	$ 65,716,148	$ 70,449,296
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 1,234,296	$ 707,324
Accrued expenses and other	1,396,329	6,077,897
Income taxes payable	1,282,745	1,192,941
Note payable – officer/stockholder	631,742	2,144,167
Total liabilities (all current)	4,545,112	10,122,329
Stockholders' Equity
Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding	--	--
Common stock, $0.01 par value; 130,000,000 shares authorized, 74,915,174 shares issued and outstanding as of September 30, 2011 and 65,457,282 shares issued and outstanding as of December 31, 2010	749,151	654,572
Additional paid-in capital	74,299,053	71,437,066
Notes receivable from stockholders	(19,577)	(19,577)
Accumulated deficit	(13,757,481)	(11,622,397)
Accumulated other comprehensive loss	(100,110)	(122,697)
Total stockholders' equity	61,171,036	60,326,967
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 65,716,148	$ 70,449,296

Non Solicitation Disclaimer:

This press release is for information purposes only. No information in this press release is intended to constitute, and should not be constituted as an offer to sell, or a solicitation of an offer to buy, any securities of Artificial Life, Inc. When making any investment decisions, investors should review securities reports, filed or submitted by the Company with the relevant regulatory authorities, and should exercise their own judgment in making their investment decisions.

The published financial results in this press release may differ substantially from past and future results and future quarters as the Company has changed its business model and strategy in the second quarter of 2011. 

This press release shall be considered as a forward-looking statement.

About Artificial Life, Inc.

Artificial Life is a new kind of investor. We act as a global incubator and business network provider and facilitator for our holding companies, assisting them in their sales, production, and general business development activities. We invest mainly in the BRICS (Brazil, Russia, India, China and South Africa) markets with a focus on smartphone content and wireless technology such as: near field communication, mobile business apps and games, mobile health services, social networking apps and games, and mobile commerce.

Artificial Life, Inc. is a Delaware registered corporation founded in 1994 in Boston. We are a public US entity (Pink Sheets:ALIF) .Our global headquarters is in Hong Kong and our EMEA headquarters is in Berlin, Germany. We have won many industry awards for outstanding technology and products in prior years.

The Artificial Life logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=1669

Forward-Looking Statements:

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding our future results of operations, financial condition and business prospects. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "intend", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties, and actual market trends or our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied in these forward looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to: the general economic conditions in the markets in which we operate; the success of our newly adopted business model and strategy; our ability to find investment targets for reasonable conditions; the economic conditions in the BRICS nations; our ability to sell equity or assets and intellectual property; our ability to obtain additional funding to operate and grow our business and to do investments; changing consumer preferences and uncertainty of market acceptance of our products; timely adoption and availability of broadband mobile technology; market acceptance for use of mobile handheld devices; our reliance on a relatively small number of clients and brands; our ability to license brands from others; our dependence upon resellers and telecommunication carriers and operators to distribute our products; our ability to successfully develop, introduce, and sell new or enhanced products in a timely manner; and the timing of new product announcements or introductions by us or by our competitors. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-KSB filed on August 2nd, 2011. We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release.  

CONTACT: Artificial Life IR and PR Contact:
         Frank Namyslik, CFO
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