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 June 30, 2004

        [_]  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 August 2, 2004, there were 21,790,095
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 JUNE 30, 2004
<TABLE>
<CAPTION>

                                                                                                                   PAGE
                          PART I-FINANCIAL INFORMATION

<S>                                                                                                              <C>
Item 1 - Financial Statements (Unaudited)
         Condensed Consolidated Balance Sheet at June 30, 2004.......................................................3
         Condensed Consolidated Statements of Operations for the
                  Three Months and Six Months Ended June 30, 2004 and June 30, 2003..................................4
         Condensed Consolidated Statements of Cash Flows for the Six Months Ended
                  June 30, 2004 and June 30, 2003....................................................................5
         Notes to Condensed Consolidated Financial Statements........................................................6

Item 2 - Management's Discussion and Analysis of Financial Condition
                  and Results of Operations..........................................................................8
Item 3 - Controls and Procedures....................................................................................10

                           PART II - OTHER INFORMATION

Item 1 - Legal Proceedings..........................................................................................11

Item 2 - Changes in Securities......................................................................................11

Item 3 - Defaults Upon Senior Securities............................................................................12

Item 4 - Submission of Matters to a Vote of Security Holders........................................................12

Item 5 - Other Information..........................................................................................12

Item 6 - Exhibits and Reports on Form 8-K...........................................................................12

Signatures..........................................................................................................13
</TABLE>


                                       2

<PAGE>


                          PART I FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                              ARTIFICIAL LIFE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                         ASSETS
<S>                                                                             <C>
Current assets:
Cash and cash equivalents                                                       $    318,303
Accounts receivable                                                                   59,640
                                                                                ------------
        Total current assets                                                         377,943
                                                                                ------------

Deposits and other assets                                                             21,345
                                                                                ------------
        Total other assets                                                            21,345
                                                                                ------------
Fixed assets:
Office equipment, net of accumulated depreciation of $924                              1,289
Computer equipment, net of accumulated depreciation of $10,691                        27,155
Leasehold improvements, net of accumulated depreciation of $10,424                    32,273
Office furniture, net of accumulated depreciation of $2,415                            7,246
                                                                                ------------
                                                                                      67,963
                                                                                ------------

TOTAL ASSETS                                                                    $    467,251
                                                                                ============

           LIABILITIES & STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable, as adjusted (Note 3)                                          $  1,437,979
Note payable - officer/stockholder                                                   494,112
Short term loan payable to stockholder                                                25,000
Accrued expenses                                                                     320,006
                                                                                ------------
        Total current liabilities                                                  2,277,097
                                                                                ------------

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,
         21,790,095 shares issued and outstanding                                    217,901
Additional paid-in capital                                                        29,090,568
Notes receivable from stockholders                                                   (19,577)
Accumulated deficit, as adjusted (Note 3)                                        (31,098,738)
                                                                                -------------
        Total stockholders' deficit                                               (1,809,846)
                                                                                -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                     $    467,251
                                                                                =============
</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                Six-month Period Ended
                                                             June 30,                                June 30,
                                                             --------                                --------
<S>                                             <C>             <C>                         <C>          <C>

                                                      2004           2003                         2004        2003
Revenues:
Software license agreements                     $     53,180    $        --                 $    53,180  $       --
Application services and other                         6,460             --                      16,150       3,400
                                                ------------    ------------                -----------  ----------
                                                      59,640             --                      69,330       3,400
                                                ------------    ------------                -----------  ----------
Operating expenses:
General and administrative                            90,085         29,971                     170,110     108,645
Engineering and cost of sales                        115,956             --                     163,801          --
Research and development                              23,437         48,313                      45,340      73,057
Sales and marketing                                   76,017            500                     100,806       1,400
                                                ------------    ------------                -----------  ----------
Total operating expenses                             305,495         78,784                     480,057     183,102
                                                ------------    ------------                -----------  ----------
Loss from operations                               (245,855)       (78,784)                   (410,727)   (179,702)
                                                ------------    ------------                -----------  ----------

Other income (expenses):
Foreign exchange loss                                (2,877)             --                     (3,221)          --
Interest expense                                     (6,098)       (20,204)                    (24,735)    (40,460)
Other                                                 40,400          2,112                      40,400      2,110
                                                ------------    ------------                -----------  ----------
                                                      31,425       (18,092)                      12,444    (38,350)
                                                ------------    ------------                -----------  ----------


Net loss                                        $  (214,430)  $    (96,876)               $   (398,283)  $(218,052)
                                                ============  =============               =============  ==========

Basic and diluted net loss per share            $     (0.01)  $      (0.01)                $     (0.02)  $   (0.02)
                                                ============  =============               =============  ==========
Weighted average basic and diluted
     shares outstanding                           20,684,658     12,372,890                  18,768,969  12,231,112
                                                ============  =============               =============  ==========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements


                                       4

<PAGE>


                              ARTIFICIAL LIFE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>


                                                                                     Six-month Period Ended
                                                                                            June 30,
                                                                                            --------
<S>                                                                             <C>                 <C>
                                                                                     2004                 2003

Cash flows from operating activities:
Net loss                                                                        $  (398,283)       $  (218,052)
Adjustments to reconcile net loss to net cash used by
        operating activities:
Depreciation and amortization                                                        21,017                  --
Interest expense accrued on advances from officer/stockholder                        19,786              40,460
Salary accrued to officer/stockholder                                                12,500              25,000
Decrease in accounts receivable, other                                                   --              22,000
(Increase) in accounts receivable, trade                                            (59,640)                 --
Decrease in prepaid expenses and other assets                                        12,337               2,308
Decrease (Increase) in accounts payable and accrued expenses                       (108,187)             10,278
                                                                                ------------       ------------
Net cash used in operating activities                                              (500,470)           (118,006)
                                                                                ------------       ------------
Cash flows from investing activities:
Purchase of equipment                                                               (58,677)                 --
                                                                                ------------       ------------
Net cash used in investing activities                                               (58,677)                 --
                                                                                ------------       ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net                                         973,799              65,000
Advances from officer/stockholder                                                    14,992              75,378
Payments on advance from officer/stockholder                                        (99,674)            (22,400)
Repayment of short-term loan payable to stockholder                                 (15,000)                 --
                                                                                ------------       ------------
Net cash provided by financing activities                                           874,117             117,978
                                                                                ------------       ------------

Net increase (decrease) in cash and cash equivalents                                314,970                 (28)
Cash and cash equivalents at beginning of period                                      3,333                  28
                                                                                ------------       ------------
Cash and cash equivalents at end of period                                    $     318,303      $           --
                                                                                ============       ============
Supplemental disclosure of cash flow information:

Interest paid                                                                 $       4,949                  --
                                                                                ===========        ============
Supplemental disclosure of non-cash financing activities:

Debt converted to common stock                                                $   1,034,270                  --
                                                                                ===========        ============



See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>


                                       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 Regulations 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.

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.

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.

100,000 options granted in the three-month period ended June 20, 2001 expired on
June 19, 2004. There were no options granted to employees during the three
months ended June 30, 2004.

3.   ACCOUNTS PAYABLE ADJUSTMENT

In 2001 the Company recorded revenues from a German customer in connection with
its sale of ALIFE Messenger and ALIFE Webguide software. Also in 2001, the
Company purchase software programming services from the same customer. At
December 31, 2001 accounts payable to the customer were offset against accounts
receivable. During the year ended December 31, 2002, documentation in connection
with the offset was misplaced in conjunction with the Company's relocation to
Hong Kong, and the payable of $250,000 was reinstated resulting in an
overstatement in accounts payable and accumulated deficit as of December 31,
2002. The error was discovered during the three months ended June 30, 2004, when
the Company retrieved the misplaced documentation. Accordingly, the financial
statements have been restated, resulting in a decrease to accounts payable and
accumulated deficit as of January 1, 2003 of $250,000. The restatement did not
affect net loss or basic and diluted net loss per share for the three and six
months ended June 30, 2004 and 2003.

4.   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 period ended June 30, 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 six months ended
June 30, 2004 and 2003 since the effect of inclusion of all outstanding options
and warrants would be anti-dilutive.

5.   INCOME TAXES

There is no provision for income taxes for the three months ended June 30, 2004
and June 30, 2003. During the six months ended June 30, 2004, the Company
reported a net loss of $398,283 and at December 31, 2003, the Company had
approximately $24,500,000 of federal and state net operating loss carry forwards
expiring through 2023 and 2006, respectively. 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.


                                       6

<PAGE>


6.   ADVANCES FROM SHAREHOLDER

At June 30, 2004 the Company owed its Chief Executive Officer $494,112 which
reflected a decrease of $1,015,650 during the three months then ended. Interest
of $1,149 was accrued; new advances of $6,980 were received; $23,778 was repaid;
and $1,000,000 was converted into 2,272,727 shares of the Company's common stock
during the three months ended June 30, 2004. The conversion rate was $0.44 per
share, which approximated the net price per share received at that date for
issuances of common stock for cash. The remaining advances bear interest at a
rate of 5% per year, are unsecured and are due on demand.

7.   SEGMENT INFORMATION

The Company markets and supports "intelligent software robots," software
programs 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.   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.

9.       SALES OF COMMON STOCK

In April 2004, the Company sold 370,000 shares of common stock for $185,000 to
five individual investors. In connection with these sales of shares, the Company
issued 62,500 shares of common stock and paid $4,700 cash to an individual as
commission for raising capital.

On April 19 2004, advances of $1,000,000 due to the Company's Chief Executive
Officer were converted into 2,272,727 shares of the Company's common stock.

In May 2004, the Company sold 833,332 shares of common stock for $500,000 to two
investors and paid $50,000 to an individual as commission for raising capital.

 On May 6 2004, the Company granted to an individual an option to purchase
500,000 shares of common stock with an exercise price of $0.40 per share which
vested immediately and expires in May 2006.

On May 10 2004, the Company issued 18,540 shares of common stock for $9,270 to
settle an account payable.

On May 14 2004, the Company sold 200,000 shares of common stock for $30,000 upon
the exercise of options granted in March 2004.

On June 19 2004, a short-term convertible loan of $25,000 due to a stockholder
was converted into 147,059 shares of the Company's common stock.

All shares were issued under Rule 144 and are not eligible for public trading
for 12 months.

10.  SUBSEQUENT EVENTS

On July 6 2004, the Company granted its employees options to purchase a total of
440,000 shares of common stock; granted two directors options to purchase
200,000 shares of common stock and granted one individual an option to purchase
50,000 shares of common stock, all with an exercise price of $0.70 per share.
These options vested immediately and expire in July 2006.


                                       7

<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, 2003. We do not intend to update any such
forward-looking statements.

INTRODUCTION

OVERVIEW

In the first quarter of 2004 the Company has prepared the launch of its new
mobile technology platform SEMP (TM) (Smart Engine Mobile Platform) and several
new mobile products and services and has successfully launched them at the end
of the first quarter with several operators in Hong Kong. In the second quarter
of 2004 we have successfully launched with four operators in Hong Kong and an
operator in Macau and have prepared the launch in several European countries and
further Asian countries.

We are currently developing more new mobile products as well as WAP and Java
games. Even though the first of these new products and services have been
launched successfully in the first and second quarter of 2004, there can be no
guarantee that these new products and services will contribute substantially to
future revenues of the Company.

For the quarter ended June 30, 2004 we reported a net loss of $214,430 and
operational revenues of $59,640, mostly from license sales for our mobile and
web products.

As of June 30, 2004, we had total assets of $467,251 and total liabilities of
$2,277,097. As of June 30, 2004, current assets were $377,943 as compared to
$49,686 for the first quarter of 2004, and current liabilities were $2,277,097
as compared to $3,673,509 for the first quarter of 2004.

Net funds raised in the second quarter of 2004 were $660,300.

To support the current efforts of developing new products, the Company's
contract consultants were increased to 14 and employees were increased to 11
during the second quarter of 2004 as compared to 13 contract consultants and 5
employees in the first quarter of 2004.

In light of our restructuring towards mobile applications and technology and the
resumption of R&D and 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-K (Q)
and 10-KSB (QSB) for the fiscal years ended December 31, 2000, 2001, 2002 and
2003 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 $31,098,738 through the end of the
second quarter of 2004.


                                       8

<PAGE>


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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003

REVENUES: Revenues for the quarter ended June 30, 2004 were $59,640 as compared
to $0 for the quarter ended June 30, 2003. The increase of revenues of $59,640
was mainly due to product license fees, first license fees for our mobile
services and products and service fees.

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 June 30, 2004 were $90,085 as
compared to $29,971 for the quarter ended June 30, 2003. The increase of $60,114
was due primarily to an increase in personnel, travel 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
June 30, 2004 were $115,956 as compared to $0 for the quarter ended June 30,
2003. The increase of $115,956 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 quarter ended June 30, 2004 were $23,437 as compared to $48,313
for the quarter ended June 30, 2003. The decrease of $24,876 was mainly due to
the reallocation of human resources to engineering and cost of sales.

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 June 30, 2004
were $76,017 as compared to $500 for the quarter ended June 30, 2003. The
increase of $75,517 was primarily due to increased staff cost, travel and sales
and marketing activities in Europe and Asia 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 June 30, 2004 was $31,425 as compared to ($18,092) for the
quarter ended June 30, 2003, and consisted primarily of the extinguishment of
accounts payable pursuant to a settlement agreement with the vendor.

NET LOSS: As a result of the foregoing, the net loss for the quarter
ended June 30, 2004 was $214,430 as compared to a loss of $96,876 for the
quarter ended June 30, 2003. The basic and diluted net loss per share
for the second quarter of 2004 was $0.01 as compared to $0.01 for the
quarter ended June 30, 2003.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

REVENUES: Revenues for the six month period ended June 30, 2004 were $69,330 as
compared to $3,400 for the six month period ended June 30, 2003. The increase of
$65,930 was primarily due to revenue generated from a service contract and
software license revenues in the second quarter.

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 six month period ended June 30, 2004 were
$170,110 as compared to $108,645 for the six month period ended June 30, 2003.
The increase of $61,465 was due primarily to an increase in personnel, travel
and general administrative costs.


                                       9

<PAGE>


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 six month period
ended June 30, 2004 were $163,801 as compared to $0 for the six month period
ended June 30, 2003. The increase of $163,801 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 six month period ended June 30, 2004 were $45,340 as compared
to $73,057 for the six month period ended June 30, 2003. The decrease of $27,717
was primarily due to the reallocation of human resources to engineering and cost
of sales.

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 six month period ended June 30,
2004 were $100,806 compared to $1,400 for the six month period ended June 30,
2003. The increase of $99,406 was primarily due to increased staff cost, travel
and sales and marketing activities in Europe and Asia.

OTHER INCOME (EXPENSES): Other income (expenses) are income and expenses that
were not generated from normal business activities. The result of other income
(expense) for the six month period ended June 30, 2004 were $12,444 as compared
to ($38,350) for the six months ended June 30, 2003, and consisted primarily of
the extinguishment of accounts payable pursuant to a settlement agreement with
the vendor.

NET LOSS: The net loss for the six month period ended June 30, 2004 was
$398,283 as compared to a loss of $218,052 for the six month period ended June
30, 2003. The generation of losses is mainly due to the resumption of
engineering and sales and marketing activities. The basic and diluted net loss
per share for the period ended June 30, 2004 was $0.01 as compared to $0.02
per share for the six months ended June 30, 2003.

ACCOUNTS PAYABLE ADJUSTMENT

In 2001 the Company recorded revenues from a German customer in connection with
its sale of ALIFE Messenger and ALIFE Webguide software. Also in 2001, the
Company purchased software programming services from the same customer. At
December 31, 2001 accounts payable to the customer were offset against accounts
receivable. During the year ended December 31, 2002, documentation in connection
with the offset was misplaced in conjunction with the Company's relocation to
Hong Kong, and the payable of $250,000 was reinstated , resulting in an
overstatement in accounts payable and accumulated deficit as of December 31,
2002. The error was discovered during the three months ended June 30, 2004, when
the Company retrieved the misplaced documentation. Accordingly, the financial
statements have been restated, resulting in a decrease to accounts payable and
accumulated deficit as of January 1, 2003 of $250,000. The restatement did not
affect net loss or basic and diluted net loss per share for the three and six
months ended June 30, 2004 and 2003.

The Company reported net losses of $2,043,682 and $578,237 for the years ended
December 31, 2002 and 2003, respectively. Accumulated deficits were $30,372,219
and $30,950,456, and total liabilities were $3,575,557 and $3,736,950 as of
December 31, 2002 and 2003, respectively. Because of the significance of these
amounts, management believes that the judgment of a reasonable person relying on
previously issued reports would not have been changed or influenced by the
correction of the overstatement to accounts payable, and therefore that a
reissuance of such previously issued reports is not considered necessary.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004, we had a working capital deficit of $1,899,154 and a
stockholders' deficit of $1,809,846.

In order to fund our cash needs we have borrowed funds from time to time from
our chief executive officer, Eberhard Schoeneburg. As of June 30, 2004 we owed
our CEO an aggregate of $494,112, as compared to $1,509,762 in the first quarter
of 2004. The reduction of approximately $1,000,000 was due to a conversion of
his loan to equity by converting $1,000,000 into 2,272,727 shares of the
Company's common stock. The remaining advanced funds bear interest at a rate of
5% per year, are unsecured and are due with 6 months notice.

During the three months ended June 30, 2004 the Company received $660,300 cash
from sales of newly issued stock.

ITEM 3. CONTROLS AND PROCEDURES
On June 30, 2004 ("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


                                       10

<PAGE>


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.


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<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. No final settlement has been achieved. The Company
has accrued $100,000 in connection with this matter.

In connection with claims for certain unpaid wages and vacation pay made by
former employees of its former U.S. operations, the Company has originally
accrued $150,000 representing the maximum amount of damages claimed by former
employees. Although certain of these employees of the Company's U.S. operations
have filed claims for unpaid wages and vacation pay with the Office of the
Attorney General of the Commonwealth of Massachusetts, to the Company's
knowledge, as of August 12, 2004, no suits had been filed. On July 23, 2002, a
hearing on these claims was held before an Administrative Law Magistrate. The
potential liability for these asserted claims has been reduced by the Magistrate
to approximately $108,000 and the accrual in our books has been reduced
accordingly. After conducting the hearing the Administrative Law Magistrate
confirmed the claims. On September 10, 2002, the Attorney General has filed a
tax lien for the amount of $108,015. The Company has tried to negotiate
individual settlement agreements with its former employees but does not assume
that such negotiations will eventually be successful.

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

ITEM 2 - CHANGES IN SECURITIES

In April 2004, the Company sold 370,000 shares of common stock for $0.50 per
share to five individual investors. In connection with these sales of shares,
the Company issued 62,500 shares of common stock for $0.20 per share and paid
$4,700 cash to an individual as commission for raising capital.

On April 19 2004, advances of $1,000,000 due to the Company's Chief Executive
Officer were converted into 2,272,727 shares of the Company's common stock for
$0.44 a share.

In May 2004, the Company sold 833,332 shares of common stock for $0.50 a share
to two investors and paid $50,000 to an individual as commission for raising
capital.

On May 6 2004, the Company granted to an individual an option to purchase
500,000 shares of common stock with an exercise price of $0.40 a share which
vested immediately and expires in May 2006.

 On May 10 2004, the Company issued 18,540 shares of common stock for $0.50 a
share to settle an account payable.

On May 14 2004, the Company sold 200,000 shares of common stock for $30,000
being execution of option granted in March 2004 with an exercised price of $0.15
a share.

On June 19 2004, a short-term convertible loan of $25,000 due to a stockholder
was converted into 147,059 shares of the Company's common stock for $0.17 a
share.


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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.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

         (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

         (b) Reports on Form 8-K:

         There were no reports on Form 8-K filed in the three months ended
         June 30, 2004.


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<PAGE>


                                   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: August 16, 2004         By:______________________________
                              Name:  Eberhard Schoeneburg
                              Title: Chief Executive Officer and
                                     Principal Financial Officer




















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