Artificial Life (ALIF) announces Q2 2010 results

Business Highlights:
The Company reports strong growth in its mobile gaming and non-gaming sectors.

Revenue growth in Q2 2010 was 19%, profit growth 30%.

Company delivers the best financial quarter in its history.

The release of the powerful and carrier grade m-commerce platform, OPUS-M(TM), in the first quarter of 2010 was an instant and remarkable global success. The demand for OPUS-M(TM) was very strong. In the second quarter of 2010, we continued focusing our sales efforts on the sales of OPUS-MTM, and were very successful with our efforts as the majority of our new revenues were related to or derived from this product since its commercial launch. OPUS-MTM, with its broad appeal, flexible module selection concept, competitive pricing, hosting support and comprehensive feature set is our current key product and the basis for our future expansion.

The demand for the Company's iPhone and iPad games was also significant. The Company released 6 new games in 2010. In total the Company has now produced 30 iPhone/iPad games; offers 14 of them for free and 16 as paid games. The total number of iPhone/iPad game downloads generated in 2010 through July 31, 2010 was approximately 8 million in total compared to approximately 8 million for the whole fiscal year of 2009.

Financial Results

Revenues:
Revenues for the quarter ended June 30, 2010 were $9,043,463 as compared to $7,577,969 for the quarter ended June 30, 2009. The increase of revenues of $1,465,494 or 19% was mainly due to global licensing deals for the sale of our m-commerce platform, OPUS-M(TM).

Cost of Revenues:
Cost of revenues mainly consist of amortization of intangible assets. Cost of revenues for the quarter ended June 30, 2010 was $1,923,541 as compared to $1,097,607 for the quarter ended June 30, 2009. The increase of $825,934 or 75% was primarily due to the increased amortization of additional license rights acquired.

Gross Margin:
Gross margin for the quarter ended June 30, 2010 was $7,119,922 as compared to $6,480,362 for the quarter ended June 30, 2009. The increase of $639,560 or 10% was mainly due to global license deals for the sale of our m-commerce platform, OPUS-M(TM), offset by the decreased product license revenue generated from mobile games and amortization of license rights acquired.

General and Administrative:
General and administrative expenses consisted of salary for administrative personnel, rent, professional fees, and costs associated with employee benefits, supplies, communications, travel, and provision for doubtful accounts. General and administrative expenses for the quarter ended June 30, 2010 were $623,132 as compared to $1,988,105 for the quarter ended June 30, 2009. The decrease of $1,364,973 or 69% was mainly due to significant decrease in bad debt expense of approximately $1.5 million, offset by the increase in professional fees. The significant decrease in bad debt expense was due to a one-time write-off of trade receivables in 2009 which were determined to be irrecoverable after management's detailed analysis.

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, 2010 were $399,038 as compared to $472,515 for the quarter ended June 30, 2009. The decrease of $73,477 or 16% was mostly due to decrease in consulting expenses.

Research and 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, 2010 were $656,222 as compared to $842,437 for the quarter ended June 30, 2009. The decrease of $186,215 or 22% was primarily due to decrease in staff and consulting expenses, offset by increase in data hosting and web service costs.

Other Expense/Income:
Other (expense)/income for the quarter ended June 30, 2010 was ($822,932) as compared to ($209,899) for the quarter ended June 30, 2009. Net expense of $822,932 was primarily due to foreign currency transaction losses of approximately $807,000 in this quarter compared to approximately $283,000 in the second quarter of 2009. The increase in foreign currency transaction losses was mostly due to the adverse effect of the weakening of the Euro relative to the United States Dollar on the trade receivables denominated in Euro.

Income from Operations and Net Income:
Income from operations for the quarter ended June 30, 2010 was $5,235,633 as compared to income from operations of $3,124,103 for the quarter ended June 30, 2009. The income from operations is primarily due to revenue of $9,043,463 generated from global licensing deals for the sale of our m-commerce platform, OPUS-M(TM), offset by the cost of revenue of $1,923,541 and the operational cost of $1,884,289. Net income for the quarter ended June 30, 2010 was $3,589,213 as compared to net income of $2,771,204 for the quarter ended June 30, 2009, an increase of 30%. The basic and diluted net income per share for the second quarter of 2010 was $0.06, as compared to $0.06 for the quarter ended June 30, 2009.

Cash and Liquidity:
During the quarter ended June 30, 2010, the Company closed private placement offerings with two institutional investors and one accredited investor for 2,668,152 shares of common stock and warrants to purchase an additional 918,152 shares of common stock. The shares of common stock and warrants were sold for an aggregate purchase price of $3,250,979.

As of August 5, 2010, cash receipt of approximately $8.3 million of the total trade accounts and installment receivables as at June 30, 2010 has been collected, which has significantly increased as compared to the cash payment of approximately $4.6 million collected during the full year of 2009.

"Our business is doing well and we keep expanding especially in the m-commerce arena with our flagship product OPUS-M(TM)," said Eberhard Schoneburg, CEO of Artificial Life, Inc.

Results look promosing but I will give an update later.

POSITION: LONG