UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

     [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ___________________  to  _____________

                        Commission file number 000-17053

                              ARTIFICIAL LIFE, INC.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                  04-3253298
      (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                   Identification No.)

                              Artificial Life, Inc.
                            4601 China Online Centre
                                333 Lockhart Road
                                     Wanchai
                                    Hong Kong
                    (Address of principal executive offices)

                                (+852) 3102 2800
                            Issuer's telephone number

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]

State the number of shares of each of the Issuer's classes of common equity, as
of the latest practicable date: As of November 4, 2005, there were 26,209,618
shares of Common Stock, $.01 par value per share, outstanding.

Transitional Small Business Disclosure Format (Check one):  Yes [_] No [X]
<PAGE>

                              ARTIFICIAL LIFE, INC.

              INDEX OF INFORMATION CONTAINED IN FORM 10-QSB FOR THE
                        QUARTER ENDED September 30, 2005

<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                               ----
                          PART I-FINANCIAL INFORMATION

<S>                                                                                             <C>
Item 1 - Financial Statements (Unaudited)
         Condensed Consolidated Balance Sheet at September 30, 2005.............................3
         Condensed Consolidated Statements of Operations for the
             Three Months and Nine Months Ended September 30, 2005 and September 30, 2004.......4
         Condensed Consolidated Statements of Cash Flows for the Nine Months
             Ended September 30, 2005 and September 30, 2004....................................5
              Notes to Condensed Consolidated Financial Statements..............................6

Item 2 - Management's Discussion and Analysis ..................................................10

Item 3 - Controls and Procedures................................................................15

                           PART II - OTHER INFORMATION

Item 1 - Legal Proceedings......................................................................16

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds............................16

Item 3 - Defaults Upon Senior Securities........................................................16

Item 4 - Submission of Matters to a Vote of Security Holders....................................16

Item 5 - Other Information......................................................................16

Item 6 - Exhibits...............................................................................17

Signatures......................................................................................17
</TABLE>

                                       2
<PAGE>

                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              ARTIFICIAL LIFE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                               September 30, 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                 ASSETS
<S>                                                                           <C>
Current assets:
Cash and cash equivalents                                                     $     40,851
Accounts receivable                                                                164,717
Prepaid expenses                                                                    15,000
                                                                              ------------
        Total current assets                                                       220,568
                                                                              ------------

Fixed assets:
Office equipment, net of accumulated depreciation of $6,578                          5,961
Computer equipment, net of accumulated depreciation of $43,770                      21,866
Leasehold improvements, net of accumulated depreciation of $45,390                  19,623
Office furniture, net of accumulated depreciation of $11,924                         6,849
                                                                              ------------
                                                                                    54,299
                                                                              ------------

Deposits and other assets                                                           47,146
                                                                              ------------

TOTAL ASSETS                                                                  $    322,013
                                                                              ============

        LIABILITIES & STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable                                                               $ 1,416,014
Note payable - officer/stockholder                                                 533,589
Short term loans payable to stockholders                                           156,000
Accrued expenses                                                                   355,523
                                                                              ------------
        Total current liabilities                                                2,461,126
                                                                              ------------

Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares authorized,
         no shares issued and outstanding
Common stock, $.01 par value; 30,000,000 shares authorized,
         24,973,681 shares issued and outstanding                                  249,737
Additional paid-in capital                                                      30,256,769
Notes receivable from stockholders                                                (19,577)
Accumulated deficit                                                           (32,626,042)
                                                                              ------------
        Total stockholders' deficit                                            (2,139,113)
                                                                              ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                   $    322,013
                                                                              ============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                        3
<PAGE>

                              ARTIFICIAL LIFE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                         Three-month Period Ended               Nine-month Period Ended
                                              September 30,                          September 30,
                                              -------------                          -------------

                                             2005           2004                  2005        2004
<S>                                    <C>             <C>                   <C>             <C>
Revenues:
Software license agreements            $     36,137    $     70,824          $    244,731    $    124,004
Application services and other                1,500            --                   1,500          16,150
                                       ------------    ------------          ------------    ------------
                                             37,637          70,824               246,231         140,154
                                       ------------    ------------          ------------    ------------
Operating expenses:
General and administrative                   95,782         124,847               311,834         294,957
Engineering and cost of sales               205,911         113,943               640,418         277,744
Research and development                     27,236          23,930                78,735          69,270
Sales and marketing                          40,511          76,730               171,851         177,536
                                       ------------    ------------          ------------    ------------
Total operating expenses                    369,440         339,450             1,202,838         819,507
                                       ------------    ------------          ------------    ------------
Loss from operations                       (331,803)       (268,626)             (956,607)       (679,353)
                                       ------------    ------------          ------------    ------------

Other income (expenses):
Foreign exchange loss                          (485)           (545)               (1,295)         (3,766)
Interest expense                             (9,223)         (8,420)              (22,206)        (33,161)
Other                                           190            --                     331          40,406
                                       ------------    ------------          ------------    ------------
                                             (9,518)         (8,965)              (23,170)          3,479
                                       ------------    ------------          ------------    ------------

Net loss                               $   (341,321)   $   (277,591)         $   (979,777)   $   (675,874)
                                       ============    ============          ============    ============

Basic and diluted net loss per share   $      (0.01)   $      (0.01)         $      (0.04)   $      (0.03)
                                       ============    ============          ============    ============
Weighted average basic and diluted
     shares outstanding                  24,973,681      21,791,454            24,101,293      19,783,818
                                       ============    ============          ============    ============
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements

                                       4
<PAGE>

                              ARTIFICIAL LIFE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     Nine-month Period Ended
                                                                                          September 30,
                                                                              ----------------------------------
                                                                                     2005                2004
<S>                                                                           <C>                    <C>
Cash flows from operating activities:
Net loss                                                                      $  (979,777)           $  (675,874)
Adjustments to reconcile net loss to net cash used by
        operating activities:
Depreciation and amortization                                                      57,501                 33,419
Bad debt expense                                                                    6,460                     --
Interest expense accrued on advances
        from officer/stockholder                                                   18,242                 33,161
Salary accrued to officer/stockholder                                              37,500                 25,000
Increase in accounts receivable, trade                                            (98,516)               (79,258)
(Increase) decrease in prepaid expenses and other assets                          (17,592)                 9,980
Increase (decrease) in accounts payable and accrued expenses                       28,146               (140,377)
                                                                              -----------            -----------
Net cash used in operating activities                                            (948,036)              (793,949)
                                                                              -----------            -----------
Cash flows from investing activities:
Purchase of fixed assets                                                          (38,450)               (65,469)
                                                                              -----------            -----------
Net cash used in investing activities                                             (38,450)               (65,469)
                                                                              -----------            -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net                                       649,861              1,073,799
Advances from officer/stockholder                                                  52,261                 36,438
Payments on note payable - officer/stockholder                                    (24,214)              (148,418)
Proceeds from short-term loan payable to stockholder                               81,000                     --
Repayment of short-term loan payable to stockholder                                    --                (15,000)
                                                                              -----------            -----------
Net cash provided by financing activities                                         758,908                946,819
                                                                              -----------            -----------

Net (decrease)  increase in cash and cash equivalents                            (227,578)                87,401
Cash and cash equivalents at beginning of period                                  268,429                  3,333
                                                                              -----------            -----------
Cash and cash equivalents at end of period                                    $    40,851            $    90,734
                                                                              ===========            ===========

Supplemental disclosure of cash flow information:

Interest paid                                                                 $        --            $    44,949
                                                                              ===========            ===========
Supplemental disclosure of non-cash investing and financing activities:

Common stock issuances applied as a reduction of accounts payable             $     5,174            $        --
                                                                              ===========            ===========

Debt converted to common stock                                                $        --            $ 1,034,270
                                                                              ===========            ===========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                       5
<PAGE>

                              ARTIFICIAL LIFE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Artificial Life, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles in the United States of America for
interim financial information and in accordance with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. The consolidated financial statements include
the accounts of the Company, and it's wholly owned subsidiaries: Artificial Life
Ventures, Inc. ("Artificial Life Ventures"), Artificial Life USA, Inc.
("Artificial Life USA"), Artificial Life Mobile Computing, Inc. ("Artificial
Life Mobile Computing") and Artificial Life Asia Limited ("Artificial Life
Asia"). All significant inter-company balances and transactions have been
eliminated in consolidation.

Operating results for the nine months ended September 30, 2005 are not
necessarily indicative of results that may be expected for the year ending
December 31, 2005. For further information, refer to the audited consolidated
financial statements and notes thereto included in the Company's annual Report
on Form 10-KSB for the year ended December 31, 2004.

The financial information included in this report has been prepared in
conformity with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-KSB filed with the Securities
and Exchange Commission.

During the three months ended June 30, 2005 the Company entered into an
agreement with a major Asian mobile telecommunications provider. The agreement
provides for revenues consisting of an exclusivity fee which was recognized in
the second quarter. In addition, the Company is to receive minimum guaranteed
revenues over a six-month period, and this revenue will be recorded over the
period of the agreement. The telecommunications provider has also agreed to
incur a minimum of approximately $220,000 in directly marketing the Company's
products. In accordance with SEC Staff Accounting Bulletin 104, the Company has
not recorded the advertising benefit it is receiving from the telecom as either
revenue or expense.

In the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2004, the Report of the Independent Registered Public Accounting Firm
includes an explanatory paragraph that describes substantial doubt about the
Company's ability to continue as a going concern. The Company's financial
statements for the three and nine-months ended September 30, 2005 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. The Company reported a net loss of $341,321 for the three-month period
ended September 30, 2005, and has a stockholders' deficit and a working capital
deficiency of $2,139,113 and $2,240,558, respectively, at September 30, 2005.

These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not contain any adjustments
relating to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

Management continues to pursue short-term borrowings and direct share placement
opportunities to meet its anticipated liquidity needs. In addition, during the
three months ended September 30, 2005, the Company's CEO injected $52,261 to
fund the Company's operations and has agreed to postpone his claims for amounts
owed to him by the Company.

                                       6
<PAGE>

2.   STOCK BASED COMPENSATION AND EARNINGS PER SHARE

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock-based
employee compensation plans. Accordingly, no compensation expense has been
recognized for options granted to employees at fair market value. 50,000 options
granted in the three-month period ended September 30, 2001 expired on August 21,
2005. 117,833 and 235,294 options granted in the three-month periods ended
September 30, 2002 and 2003, respectively, expired in August 2005. 20,000
options granted in the three-month period ended September 30, 2004 and 60,000
options granted in the three-month period ended December 31, 2004 expired in the
three-month period ended September 30, 2005. There were no options or warrants
issued to employees during the three months ended September 30, 2005.

The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation to its stock-based employee plans.

<TABLE>
<CAPTION>
                                                     Three Months                       Nine Months
                                                  Ended September 30,              Ended September 30,
                                            ---------------------------------------------------------------
                                                 2005            2004               2005             2004
                                            -----------      -----------      -----------      -----------
<S>                                         <C>              <C>              <C>              <C>
Net loss, as reported                       $  (341,321)     $  (277,591)     $  (979,777)     $  (675,874)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method                      --           (333,440)        (305,500)        (333,440)
                                            -----------      -----------      -----------      -----------

Pro forma net loss                          $  (341,321)     $  (611,031)     $(1,285,277)     $(1,009,314)
                                            ===========      ===========      ===========      ===========
Loss per share:

       Basic - as reported                  $     (0.01)     $     (0.01)     $     (0.04)     $     (0.03)
                                            ===========      ===========      ===========      ===========

       Basic - pro forma                    $     (0.01)     $     (0.03)     $     (0.05)     $     (0.05)
                                            ===========      ===========      ===========      ===========
</TABLE>

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (R), "Share-Based Payment", which addresses the accounting for
share-based payment transactions. SFAS No. 123 (R) eliminates the ability to
account for share-based compensation transactions using APB 25, and generally
requires instead that such transactions be accounted for and recognized in the
statement of operations based on their fair value. SFAS No. 123 (R) will be
effective for public companies that file as small business issuers as of the
first interim period of the annual reporting period that begins after December
15, 2005. The Company is currently evaluating the provisions of this standard.
Depending upon the number of and terms of options that may be granted in future
periods, the implementation of this standard could have a significant impact on
the Company's financial position and results of operations in future periods.

                                       7
<PAGE>

3.   NET LOSS PER SHARE

Basic net loss per share is calculated based on the weighted average number of
common shares outstanding for the three month and nine month periods ended
September 30, 2005 and 2004. Diluted earnings per share reflects additional
common shares that would have been outstanding if dilutive potential common
shares had been issued, as well as any adjustment to income that would result
from the assumed issuance. Potential common shares that may be issued by the
Company relate to outstanding stock options and warrants, and are determined
using the treasury stock method. Basic and diluted net loss per share are the
same for the three and nine months ended September 30, 2005 and 2004 since the
effect of inclusion of all outstanding options and warrants would be
anti-dilutive.

4.   INCOME TAXES

There is no provision for income taxes for the three and nine months ended
September 30, 2005. During the nine months ended September 30, 2005, the Company
reported a net loss of $979,777 and at December 31, 2004, the Company had
approximately $24,000,000 of federal and state net operating loss carry forwards
expiring through 2022 and 2006, for U.S. income tax purposes. The net operating
loss carry forwards may be subject to annual limitations based on ownership
changes in the Company's common stock as provided by in Section 382 of the
Internal Revenue Code. At December 31, 2004 approximately $1,500,000 of net
operating loss carryforwards were available for Hong Kong income tax purposes
that may be carried forward indefinitely.

5.   ADVANCES FROM SHAREHOLDERS

At September 30, 2005 the Company owed its chief executive officer $533,589
which reflected an increase of $56,376 during the three months then ended.
Advances of $52,261 were injected, interest of $6,585 and salary of $12,500 were
accrued and $14,970 was repaid during the three months ended September 30, 2005.
The remaining advances bear interest at a rate of 5% per year and are unsecured.

On April 1, 2005, the chief executive officer terminated his loan agreement and
$467,419 was to be repaid by October 1, 2005. On October 1, 2005, the chief
executive officer extended his loan until sufficient funds for repayment are
available.

On April 6, 2005, a shareholder and director of the Company advanced $25,000 to
the Company. This advance bears interest at a rate of 8% per year, is unsecured
and is due on Mach 31, 2006.

In April 2005, the Company entered into a short-term loan agreement with a
stockholder. The loan was for $18,000 and was originally due on June 30, 2005.
On June 30, 2005, advances of $106,000 representing this and 3 other loans from
the stockholder were extended through September 30, 2005 and on September 30,
2005, the stockholder agreed to extend all these loans (totalling $131,000)
through December 31, 2005. These loans bear interest at a rate of 5% per year
and are unsecured.

6.   SEGMENT INFORMATION

The Company markets and supports "intelligent software robots," software
programs and applications, mobile phone games and applications and related
intellectual property. The products target web applications as well as mobile
phone platforms. Products have the form of applications as well as enabling
technology for the Internet and mobile devices. The Company believes that it
currently operates in one main business segment: intelligent agents/smart bots
for Internet and mobile platforms.

                                       8
<PAGE>

7.   CONTINGENCY

In June 2001, Artificial Life Deutschland AG, a former subsidiary of the
Company, entered into bankruptcy and dissolution proceedings. The Company
believes that no further liabilities will be incurred by it in connection with
its German subsidiary bankruptcy. However the ultimate outcome of these filings
cannot be determined at this time. No provision has been made for any additional
liabilities, which may be incurred.

8.   RELATED PARTY TRANSACTIONS

The Company executed a license agreement in the third quarter of 2004 and
augmented in the second quarter of 2005 with Intelligent Property Ltd., U.K. The
agreed aggregate commercial transaction through the first quarter of 2005 was
$194,480. The aggregate transaction in the second quarter of 2005 was $42,500
and in the third quarter of 2005 was $15,000. A director and minority
stockholder (approximately 2% of equity) of the Company is also a minority
stockholder of Intelligent Property with a 3% equity interest.

9.   SUBSEQUENT EVENT

On October 12, 2005, the Company sold 1,235,937 shares of common stock in
connection with a private placement. The total proceeds to the Company were
$370,781.


                                       9
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

The following Management's Discussion and Analysis of our Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the related notes included elsewhere in this Quarterly Report on
Form 10-QSB. This discussion contains, in addition to historical statements,
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include the factors discussed in the section titled "Risk Factors"
as well as other factors described in our Annual Report on Form 10-KSB for the
year ended December 31, 2004. We do not intend to update any such
forward-looking statements.

INTRODUCTION

OVERVIEW

In the third quarter of 2005 the Company was mainly active with the preparation
and the execution of the international roll out of its 3G products with several
telecom operators in Asia and Europe. Due to the standard operating procedures
of some of these telecom operators, the launch of some of the products has been
delayed until the fourth quarter of 2005.

The Company is currently developing new 3G products, such as massive multi
player mobile games. Detailed announcements of these activities will be released
during the fourth quarter of 2005.

The Company is also in talks with several global media and game companies to
license and cross-license intellectual properties.

Even though several of the new products and services have already successfully
been launched, there can be no guarantee that these new products and services
will contribute substantially to future revenues of the Company.

In the second quarter these activities continued and expanded as the Company
signed an agreement with a major Asian mobile telecommunications provider to
roll out its 3G products in Taiwan. In accordance with this agreement, the
Company received an exclusivity fee which was recognized in the second quarter.
In addition, the Company is to receive minimum guaranteed revenues over a
six-month period, and this revenue will be recorded over the period of the
agreement. The telecommunications provider has also agreed to incur a minimum of
approximately $220,000 in directly marketing the Company's products.

For the quarter ended September 30, 2005 we reported a net loss of $341,321 as
compared to $277,591 for the third quarter of 2004. The increase of $63,730 or
23% is mainly due to new hires and other costs incurred by the general business
expansion.

As of September 30, 2005, we had total assets of $322,013 and total liabilities
of $2,461,126. As of September 30, 2005, current assets were $220,568 as
compared to $531,598 at June 30, 2005, and current liabilities were $2,461,126
as compared to $2,443,357 at June 30, 2005.

There were 33 full time employees as of September 30, 2005. The Company also
hires temporary staff and interns to support its operations.

                                       10
<PAGE>

In light of our restructuring towards mobile applications and technology and the
resumption of R&D and new engineering efforts, results of operations to date are
not indicative of our future results of operations. Moreover, we expect to
experience significant fluctuations in our future operating results due to a
variety of factors. Factors that may affect our operating results include the
recovery of the global internet and mobile markets, the general market
acceptance of our products, our ability to sell and license our intellectual
property, the amount of software consulting we undertake in the future, success
in creating and entering into strategic alliances, our mix of product and
service sales, our response to competitive pressure, our ability to attract and
retain qualified personnel, and our ability to execute business in the Asian and
European markets. Gross profit margins will vary from product to product and
between products and services and the countries in which we launch our products.
Our sales mix may vary from period to period and our gross margins will
fluctuate accordingly.

Our accumulated losses have severely impacted our liquidity and cash position
which, in turn, have significantly impeded our ability to fund our operations in
the past. Consequently, in connection with our Annual Reports on Form 10-KSB
(QSB) for the fiscal years ended December 31, 2003 and 2004, the opinion of our
independent registered public accountants stated that there was substantial
doubt about our ability to continue as a going concern. The aggregated losses
since 1998 amount to $32,626,042 through the end of the third quarter of 2005.

To further improve the generation of revenues from the roll out of our mobile
technology, we are seeking additional financing to increase liquidity and
capital resources. If we are unable to obtain additional financing, this will
have a material adverse effect on our business.


                                       11
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004

REVENUES: Revenues for the quarter ended September 30, 2005 were $37,637 as
compared to $70,824 for the quarter ended September 30, 2004. The decrease of
revenues of $33,187 or 47% was mainly due to the delays of product launch due to
operating procedures of telecom operators.

GENERAL AND ADMINISTRATIVE: General and administrative expenses consist of
salary and administrative personnel, rent, professional fees and costs
associated with employee benefits, supplies, communications and travel. General
and administrative expenses for the quarter ended September 30, 2005 were
$95,782 as compared to $124,847 for the quarter ended September 30, 2004. The
decrease of $29,065 was primarily due to savings in traveling and general
administrative costs.

ENGINEERING AND COST OF SALES: These costs generally consist of salary,
training, consulting, subcontracting and other expenses incurred to develop and
fulfill the engineering (design specifications) of the products and services
from which we derive our revenues. Engineering expenses for the quarter ended
September 30, 2005 were $205,911as compared to $113,943 for the quarter ended
September 30, 2004. The increase of $91,968 was primarily due to an increase in
personnel.

RESEARCH & DEVELOPMENT: Research and development expenses are similar in nature
to engineering expenses, but they relate to products in their initial stage and
are anticipated to generate revenue at a later date. Research and development
expenses for the quarter ended September 30, 2005 were $27,236 as compared to
$23,930 for the quarter ended September 30, 2004. The increase of $3,306 was
mainly due to extended testing.

SALES AND MARKETING: Sales and marketing expenses consist of salary expenses of
sales and marketing personnel, costs relating to marketing materials,
advertising, trade show related expense, traveling and public relations
activities. Sales and marketing expenses for the quarter ended September 30,
2005 were $40,511 as compared to $76,730 for the quarter ended September 30,
2004. The decrease of $36,219 was primarily due to eliminating of
sub-contracting fee to a director and decrease of marketing expenses during the
quarter.

OTHER INCOME (EXPENSES): Other income (expenses) are income and expenses that
were not generated from normal business activities. Other income (expense) for
the quarter ended September 30, 2005 was ($9,518) as compared to ($8,965) for
the quarter ended September 30, 2004. The variance of ($553) was mainly due to
increased loan interest.

NET LOSS: As a result of the foregoing, the net loss for the quarter ended
September 30, 2005 was $341,321 as compared to a loss of $277,591 for the
quarter ended September 30, 2004. The increase in the net loss is mainly due to
the decrease of product license fees for our mobile services due to telecom
operator delays and an increase in personnel. The basic and diluted net loss per
share for the third quarter of 2005 was $0.01 as compared to $0.01 for the
quarter ended September 30, 2004.

                                       12
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004

REVENUES: Revenues for the nine month period ended September 30, 2005 were
$246,231 as compared to $140,154 for the nine month period ended September 30,
2004. The increase of $106,077 was primarily due to revenue generated from
product licenses for our mobile services and service fees.

GENERAL AND ADMINISTRATIVE: General and administrative expenses consist of
salary expenses of administrative personnel, rent, professional fees and costs
associated with employee benefits, supplies, communications and travel. General
and administrative expenses for the nine month period ended September 30, 2005
were $311,834 as compared to $294,957 for the nine month period ended September
30, 2004. The increase of $16,877 was due primarily to an increase in general
administrative costs.

ENGINEERING AND COST OF SALES: These costs generally consist of salary,
training, consulting, subcontracting and other expenses incurred to develop and
fulfill the engineering (design specifications) of the products and services
from which we derive our revenues. Engineering expenses for the nine month
period ended September 30, 2005 were $640,418 as compared to $277,744 for the
nine month period ended September 30, 2004. The increase of $362,674 was
primarily due to new personnel and the reallocation of human resources from
research and development to engineering.

RESEARCH & DEVELOPMENT: Research and development expenses are similar in nature
to engineering expenses, but they relate to products in their initial stage and
are anticipated to generate revenue at a later date. Research and development
expenses for the nine month period ended September 30, 2005 were $78,735 as
compared to $69,270 for the nine month period ended September 30, 2004. The
increase of $9,465 was primarily due to games testing expense in the third
quarter.

SALES AND MARKETING: Sales and marketing expenses consist of salary and expenses
of sales and marketing personnel, costs relating to marketing materials,
advertising, trade show related expense, traveling and public relations
activities. Sales and marketing expenses for the nine month period ended
September 30, 2005 were $171,851 as compared to $177,536 for the nine month
period ended September 30, 2004. The decrease of $5,685 was primarily due to
decreased travel and marketing expenses in the third quarter 2005.

OTHER INCOME (EXPENSES): Other income (expenses) are income and expenses that
were not generated from normal business activities. Other income (expense) for
the nine month period ended September 30, 2005 was ($23,170) as compared to
($3,479) for the nine months ended September 30, 2004, and consisted primarily
of interest expense in 2005 and the extinguishment of accounts payable pursuant
to a settlement agreement with the vendor in 2004.

NET LOSS: The net loss for the nine month period ended September 30, 2005 was
$979,777 as compared to a loss of $675,874 for the nine month period ended
September 30, 2004. The generation of losses is mainly due to the resumption and
extension of engineering and sales and marketing activities. The basic and
diluted net loss per share for the period ended September 30, 2005 was $0.04 as
compared to $0.03 per share for the nine months ended September 30, 2004.

                                       13
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

As of September, 2005, we had a working capital deficit of $2,240,558 and a
stockholders' deficit of $2,139,113.

In order to fund our cash needs we have borrowed funds from time to time from
our chief executive officer, Eberhard Schoeneburg. As of September 30, 2005 we
owed our CEO an aggregate amount of $533,589, as compared to $477,213 at June
30, 2005. The advanced funds bear interest at a rate of 5% per year, are
unsecured and are due with 6 months notice. On April 1, 2005, the chief
executive officer terminated his loan agreement. The amount of $467,419 is to be
repaid by October 1, 2005, unless the chief executive officer agrees to a
renewal of the loan on or before this date. On October 1, 2005, the chief
executive officer extended his loan until sufficient new funding for pay back is
available.

As of the date of this report, management is evaluating the effect the revenue
and marketing agreement signed with the Asian mobile telecommunications provider
during the three months ended June 30, 2005 will have on future liquidity and
capital resources.

Contractual obligations at September 30, 2005 are as follows:

<TABLE>
<CAPTION>
                                                         Total        Less than 1 year      1 - 3 years
                                                      ----------      ----------------      -----------
<S>                                                   <C>               <C>                  <C>
    Operating leases                                  $   58,810        $   53,196           $    5,614
    Note payable, officer/stockholder                    533,589           533,589                   --
    Short term loans payable to stockholders             156,000           156,000                   --
                                                      ----------        ----------           ----------
                                                      $  748,399        $  742,785           $    5,614
                                                      ==========        ==========           ==========
</TABLE>

                                       14
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this report ("Evaluation Date"), the
Company's management concluded its evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. As of the
Evaluation Date, the Company's Chief Executive Officer and Principal Financial
Officer concluded that the Company maintains disclosure controls and procedures
that are effective in providing reasonable assurance that information required
to be disclosed in the Company's reports under the Securities Act of 1934
(Exchange Act) is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Principal Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. The Company's management
necessarily applied its judgment in assessing the costs and benefits of such
controls and procedures, which, by their nature, can provide only reasonable
assurance regarding management's control objectives. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the Evaluation Date.

                                       15
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On June 8, 2001, we filed for bankruptcy protection for Artificial Life
Deutschland in the Insolvenzgericht Frankfurt. As of the date of the bankruptcy
filing, Artificial Life Deutschland owed $543,010 including funds owed to
Dresdner Bank pursuant to a bank overdraft line and funds owed to other
creditors. These proceedings are currently still pending.

On September 5, 2001 Copley Place Associates filed suit against the Company
alleging that the Company breached its commercial lease by vacating its former
Boston, Massachusetts corporate headquarters prior to the expiration of the
lease term. Copley Place Associates has alleged damages of approximately
$585,000 and the court granted their motion for summary judgment on March 4,
2002. Damages assessed by the court in July 2002 have confirmed the summary
judgment. The Company has offered Copley Place Associates a complete settlement
of the matter for $50,000 and Copley Place Associates counter-offered $100,000.
No final settlement has been achieved. The Company has accrued $100,000 in
connection with this matter.

In connection with the claims of $115,000 for certain unpaid wages and vacation
pay made by former employees of its former U.S. operations in 2002, the Company
received a summary judgment from the Commonwealth of Massachussetts and has
accrued $108,000 representing the potential liability for these asserted claims.
In January 2005 the Company received a court claim and a default judgment from
the pending cases against some of these former US employees. The Company has
filed a counter claim and a motion to void the default judgment. The company
currently has not increased its liabilities as it believes it can defend its
claims and support its counterclaim. The issue is still pending.

It is possible that we may become a party to legal proceedings arising from the
settlement of our outstanding liabilities.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

On June 8, 2001, our subsidiary Artificial Life Deutschland AG filed for
bankruptcy protection in the Insolvenzgericht Frankfurt, Germany. As of the date
of the bankruptcy filing, Artificial Life Deutschland AG owed $543,010 including
funds owed to Dresdner Bank pursuant to a bank overdraft line and funds owed to
other creditors. These proceedings are currently still pending.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

                                       16
<PAGE>

ITEM 6 - EXHIBITS

      (a) Exhibits:

     31.1 Certification by Chief Executive Officer and Principal Financial
          Officer pursuant to Rule 13A-15E or 15D-15E of the Securities exchange
          Act of 1934

     32.1 Certification by Chief Executive Officer and Principal Financial
          Officer pursuant to 18 U.S.C 1350


                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                              ARTIFICIAL LIFE, INC.

                                                   /s/ Eberhard Schoeneburg
Date: November 14, 2005                       By:______________________________
                                              Name:  Eberhard Schoeneburg
                                              Title: Chief Executive Officer and
                                                     Principal Financial Officer

                                       17