ALIF Artificial Life Inc (CE)

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

As announced in prior communications, the Company has changed its business model and strategy in the second quarter of 2011. We are now transforming the Company into a new and innovative more investment driven entity. Our goal is to establish a strong network of leading wireless companies around the globe in which we play a key role as a strategic investor and business facilitator. We are looking for potential investments in new disruptive technologies and content. To benefit from economies of scale, we are currently focusing on investments in the BRICS nations.

"We are now entering a new and important phase for the Company. After many successful years of organic growth and expansion in the wireless business space, we have now changed our direction. As a first step, we are selling some of our valuable intellectual property (IP) which we have created and acquired over the past few years. We will use the proceeds from these sales as well as our remaining IP to assist the companies that we invest in and also to acquire stakes in companies that we consider promising and think will be valuable contributors to our future business. In the long run, we expect that our Company will grow stronger by following this new approach than it otherwise would have by continuing to grow organically as we have done in the past years. We are also expecting a major consolidation wave in the mobile and wireless content business in the coming months and years. Competition is fierce and there are just too many companies out there trying to scramble for a piece of the pie. At the same time returns on mobile content are diminishing with freemium models and free-to-play content popping up everywhere. There are literally hundreds of thousands of companies trying to survive and often many are barely able to stay afloat in the current environment. Though these companies may have good products and excellent staff, many of them, fact most of them, will not survive because they don't have access to growth in funding or worse, the necessary business network and connections to sell their products. This situation, however, presents an opportunity for us. From our experience, we know many good and thriving companies in our industry. We will be looking for the few promising candidates that have the potential to make it and we will invest and help them. We will give them some of our IP to enhance their business and to help them jump-start their activities into new markets. On the other side we also know the key players in the wireless world and we know what the small companies we invest in really need. It's not just the cash. Best of all, it's a good business network consisting of well established contacts to operators, distributors, and licensors, as well as access to leading edge technology and content; this is where we come in. We are excited about our new business direction and these opportunities," said Eberhard Schoneburg, CEO of Artificial Life, Inc.

In the second quarter of 2011, the Company mostly analyzed and carefully evaluated several investment opportunities. However, no new investments have been executed so far in 2011. The Company expects and plans to pursue some asset sales in the second half of 2011 as well as several investments.

Financial Results

Results of Operations — Quarter Ended June 30, 2011 compared to Quarter Ended June 30, 2010

Revenues:

Revenues for the quarter ended June 30, 2011 were $245,917 as compared to $9,043,463 for the quarter ended June 30, 2010. The decrease of revenues of $8,797,546 was mainly due to the stop of sales and related decrease in revenue recognized from global license deals for our m-commerce platform, OPUS-M™ and the implementation of the Company's new investment oriented business model and the related ceasing of the active sales of its current products.

Cost of Revenues:

Cost of revenues mainly consisted of amortization of intangible assets. Cost of revenues for the quarter ended June 30, 2011 was $1,847,550, relatively consistent as compared to $1,923,541 for the quarter ended June 30, 2010.

Gross Margin:

Gross margin for the quarter ended June 30, 2011 was $(1,601,633) as compared to $7,119,922 for the quarter ended June 30, 2010. The decrease of $8,721,555 was mainly due to significant decrease in revenue recognized from global license deals.

General and Administrative:

General and administrative expenses consisted of salary for administrative personnel, rent, professional fees, and costs associated with employee benefits, supplies, communications, and traveling. General and administrative expenses for the quarter ended June 30, 2011 were $967,503 as compared to $619,419 for the quarter ended June 30, 2010. The increase of $348,084 was mainly due to increase of professional legal and audit fees.

Research & Development:

Research and development expenses consisted of salary, training, consulting, subcontracting, and other expenses incurred to develop and fulfill the design specifications and productions of the products and services from which we derive our revenues. Research and development expenses for the quarter ended June 30, 2011 were $655,795, relatively consistent as compared to $656,222 for the quarter ended June 30, 2010.

Sales and Marketing:

Sales and marketing expenses consisted of salary expenses of sales and marketing personnel, costs relating to marketing materials, advertising, trade show related expenses, traveling and public relations activities. Sales and marketing expenses for the quarter ended June 30, 2011 were $471,547, relatively consistent as compared to $399,038 for the quarter ended June 30, 2010.

Depreciation of Fixed Assets:

Depreciation of fixed assets for the quarter ended June 30, 2011 was $15,629 as compared to $205,897 for the quarter ended June 30, 2010. The decrease of $190,268 was primarily due to write-off of certain fixed assets during the remaining period of 2010.

Bad and Doubtful Debt:

Bad and doubtful debt expenses consisted of management's best estimate of allowance for potential credit losses in existing trade receivables based upon detailed analysis of trade receivables. Bad and doubtful debt expenses for the quarter ended June 30, 2011 was $2,167,493 as compared to $3,713 for the quarter ended June 30, 2010. The increase of $2,163,780 was primarily due to the economic and market conditions in the Euro zone which had a substantial impact on the timeliness of receivable collections from our customers.

Other Income / Expenses:

Other income (expenses) for the quarter ended June 30, 2011 was $616,430 as compared to $(822,932) for the quarter ended June 30, 2010. Net other income of $616,430 was primarily due to foreign currency transaction gains of approximately $629,643 in this quarter compared to losses of approximately $806,931 in the second quarter of 2010. The increase in foreign currency transaction gain was mostly due to the significant effect of the strengthening 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 June 30, 2011 was $(5,879,600), as compared to income from operations of $5,235,633 for the quarter ended June 30, 2010. Net loss for the quarter ended June 30, 2011 was $(4,391,170), as compared to net income of $3,589,213 for the quarter ended June 30, 2010. The decrease in both income/loss from operations and net income/loss is primarily due to the shift in business model and the related significant decrease in license revenues and increase in bad and doubtful debt expenses. The basic and diluted net (loss) income per share for the second quarter of 2011 was $(0.07), as compared to $0.06 for the quarter ended June 30, 2010.

Cash and Liquidity:

During the six-month period ended June 30, 2011, we have sustained a net income of $511,419, as compared to $7,238,010 for the six-month period ended June 30, 2010. We experienced negative cash flows from operations in 2011, and have been dependent on financing by our chief executive officer to fund our operations and capital expenditures.

For the long-term, we intend to utilize principally existing cash and cash equivalents, as well as internally generated funds, which are anticipated to be derived primarily from the sale of our intellectual property. We may also seek additional capital to fund potential costs associated with new business strategy implementation, possible expansion and/or acquisitions through private offerings of equity securities, possible sources of debt and equity financings, including, if consummated, the investment. Stockholders should assume that any additional funding will likely be dilutive.

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 future results and future quarters of 2011 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) with a secondary listing on the Frankfurt Stock Exchange (Frankfurt:AIF) (Xetra:AIF). 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:
         Adeline Law
         Tel: (+852) 3102 2800
         ir@artificial-life.com