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 March 31, 2002

     [_] 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.)

                                    Level 30
                              Bank of China Tower
                             1 Garden Road, Central
                                    Hong Kong
                    (Address of principal executive offices)

                                011-852-981-44904
                            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 May 7, 2002, there were 10,728,469 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 MARCH 31, 2002


                                                                            PAGE
                                                                            ----
                          PART I-FINANCIAL INFORMATION

Item 1 - Financial Statements (Unaudited)
         Condensed Consolidated Balance Sheet at March 31, 2002................3
         Condensed Consolidated Statements of Operations for the
           Three Months Ended March 31, 2002 and March 31, 2001................4
         Condensed Consolidated Statements of Cash Flows for the Three
           Months Ended March 31, 2002 and March 31, 2001......................5
         Notes to Condensed Consolidated Financial Statements..................6

Item 2 - Management's Discussion and Analysis of Financial Condition
           and Results of Operations...........................................7

                           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


                                       2
<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              ARTIFICIAL LIFE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2002
                                   (UNAUDITED)

<TABLE>
<S>                                                                <C>
ASSETS
Current assets:
Cash and cash equivalents                                          $        850
Accounts receivable, trade, net of allowance for doubtful
accounts of $1,924,690                                                1,130,000
Prepaid expenses and other current assets                                30,930
                                                                   ------------

Total current assets                                                  1,161,780
                                                                   ------------

Property and equipment:
Furniture and fixtures                                                  865,186
Office equipment                                                          2,000
                                                                   ------------
                                                                        867,186
Less accumulated depreciation and amortization                          572,963
                                                                   ------------
                                                                        294,223
                                                                   ------------

Other assets:
Capitalized software development costs, net of accumulated
amortization of $27,662                                                  43,736
Investments in unconsolidated subsidiaries                              125,000
Deposits and other assets                                                 9,825
                                                                   ------------
                                                                        178,561
                                                                   ------------
TOTAL ASSETS                                                       $  1,634,564
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable                                                   $  1,401,159
Note payable - officer/stockholder                                    1,107,145
Deferred revenue                                                         90,000
Accrued expenses                                                        655,762
                                                                   ------------

Total current liabilities                                          $  3,254,066
                                                                   ------------

Commitments and contingencies
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,
10,943,389 shares issued and outstanding                                109,434
Additional paid-in capital                                           26,349,966
Notes receivable from stockholders                                      (18,635)
Accumulated deficit                                                 (28,060,268)
                                                                   ------------


Total stockholders' equity (deficit)                                 (1,619,503)
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)               $  1,634,564
                                                                   ============
</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
                                                             March 31,
                                                             ---------

                                                       2002            2001
                                                       ----            ----
<S>                                                <C>             <C>
Revenues:
Software license agreement                         $    750,000    $    225,381
Application services and other                           55,000       1,215,662
                                                   ------------    ------------

                                                        805,000       1,441,043
                                                   ------------    ------------
Operating expenses:
General and administrative                              176,667       1,973,564
Engineering and cost of sales                           201,905       2,243,147
Research and development                                 25,239         151,283
Sales and marketing                                     100,952       1,077,955
Provision for doubtful accounts                              --          31,947
                                                   ------------    ------------

Total operating expenses                                504,763       5,477,896
                                                   ------------    ------------

Income (loss) from operations                           300,237      (4,036,853)

Other income (expenses):
Foreign exchange loss                                                   (17,691)
Interest income                                           2,799           7,278
Interest expense                                        (25,767)        (16,528)
                                                   ------------    ------------

Income (loss) before provision for income taxes         277,269      (4,063,794)

Provision for income tax                                     --              --
                                                   ------------    ------------

Net income (loss)                                  $    277,269    $ (4,063,794)
                                                   ============    ============

Basic and diluted net income (loss) per share      $       0.03    $      (0.39)
                                                   ============    ============

Weighted average shares outstanding
used in per share calculation                        10,943,389      10,321,525
                                                   ============    ============
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.


                                       4
<PAGE>

                              ARTIFICIAL LIFE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    Three-month period
                                                                      ended March 31,
                                                                   2002           2001
                                                                   ----           ----

<S>                                                             <C>            <C>
Cash flows from operating activities:
Net income (loss)                                               $   277,269    $(4,063,794)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization                                       111,853        525,813
Interest income accrued on notes receivable from stockholders        (2,800)        (4,915)
Interest expense accrued on advances from officer/stockholder        25,767
Stock options issued for services rendered                                          38,095
Decrease in accounts receivable, affiliates                                        149,693
Increase (decrease) in accounts receivable, trade                  (705,000)       945,786
Increase in due to/from officer/stockholders                                        (5,450)
(Increase) decrease in prepaid expenses and other assets             32,674        (83,379)
Increase in accounts payable and accrued expenses                   152,928        598,264
Increase in deferred revenue                                                        28,720
                                                                -----------    -----------

                   Net cash used by operating activities           (107,309)    (1,871,167)
                   -------------------------------------        -----------    -----------

Cash flows from investing activities:
Purchases of property and equipment                                      --        (49,918)
                                                                -----------    -----------


                  Net cash used by investing activities                  --        (49,918)
                  -------------------------------------         -----------    -----------

Cash flows from financing activities:
Proceeds from issuance of common stock and warrants                                250,000
Advances from officer/stockholder                                     1,965        485,000
Payments on advance from officer/stockholder                        (29,918)
Proceeds from notes receivable stockholders                         126,000             --
Proceeds from bank credit lines                                                    608,778
                                                                -----------    -----------

                 Net cash provided by financing activities           98,047      1,343,778
                 -----------------------------------------      -----------    -----------

Effect of exchange rate changes on cash                                  --        (52,813)
                                                                ===========    ===========

Net decrease in cash and cash equivalents                            (9,262)      (630,120)

Cash and cash equivalents at beginning of period                     10,112        729,696
                                                                -----------    -----------

Cash and cash equivalents at end of period                      $       850    $    99,576
                                                                ===========    ===========

Supplemental disclosure of cash flow information:
Interest paid                                                   $        --    $    16,528
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.


                                       5
<PAGE>

                              ARTIFICIAL LIFE, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                   THREE MONTHS ENDED MARCH 31, 2002 AND 2001


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 Artificial Life, Inc., 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 intercompany 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-K filed with the Securities
and Exchange Commission.

2. MANAGEMENT'S PLANS

During the year ended December 31, 2001, the Company incurred a net loss of
$6,843,762, and at March 31, 2002, the Company had a working capital deficiency
of $2,092,286 and a stockholders' deficit of $1,619,503. During the three months
ended March 31, 2002, the Company earned net income of $277,269. Without
continuing to improve profitable operations or obtaining additional financing or
capital, the Company may not have sufficient resources to fund its operations.
Management is pursuing short-term borrowings and direct share placement
opportunities to meet anticipated liquidity shortfalls; however there is no
assurance that these activities will be successful.

These factors raise a substantial doubt about the Company's ability to continue
as a going concern. These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

3. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated based on the weighted average
number of common shares outstanding for the three month periods ended March 31,
2001 and 2002. 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 both periods presented,
since the effect of inclusion of all outstanding options and warrants would be
anti-dilutive in 2001 and would not materially impact 2002 results.


                                       6
<PAGE>

4. INCOME TAXES

There is no provisions for income taxes for the three months ended March 31,
2001 or March 31, 2002, as the Company incurred a loss of $4,063,794 during the
three months ended March 31, 2001, and income for the three months ended March
31, 2002 was offset by net operating loss carryforwards. At December 31, 2001,
the Company had approximately $22,000,000 of federal and state net operating
loss carryforwards expiring in 2021 and 2006, respectively. The net operating
loss carryforwards 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.

5. ADVANCES FROM SHAREHOLDER

At December 31, 2000, the Company owed its chief executive officer $1,109,331,
which was reduced by $2,186 during the three months ended March 31, 2002. The
advances bear interest at 10%, are unsecured and are due on demand.

6. SEGMENT INFORMATION

The Company, whose operations consist of a single line of business, markets and
supports "intelligent software robots," software programs, and related
intellectual property, that the Company has designed to automate and simplify
time-consuming and complex business-related Internet functions.

During the three month period ended March 31, 2002, the Company generated all
revenue from the United States.

7. CONTINGENCY

In June 2001, Artificial Life Schweiz and Artificial Life Deutschland, two
former German subsidiaries of the Company, entered into bankruptcy and
dissolution proceedings. The Company believes that no further liabilities will
be incurred by the Parent company in connection with its subsidiaries'
bankruptcy filings. 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.

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 have not yet been assessed but a hearing on this matter is
expected to be conducted during the second quarter of 2002. The Company is
vigorously defending the lawsuit. At March 31, 2002, the Company had accrued
$100,000 in connection with all costs related to this matter.

In connection with claims for unpaid wages and vacation pay made by former
employees of its U.S. operations, the Company has accrued $150,000 representing
the maximum amount of damages claimed with respect to this matter. The Company
is currently negotiating settlements with certain of these 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 March 31, 2002,
no suits had been filed.

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-K for the
year ended December 31, 2001. We do not intend to update any such
forward-looking statements.

INTRODUCTION

OVERVIEW

Our company was founded in 1994 under the name of NEUROTEC International Inc. as
a subsidiary of a German parent company called NEUROTEC GmbH, a leading
artificial intelligence, multimedia and Internet solutions company at the time.
In 1997 pursuant to a management buyout we changed our name to Artificial Life,
Inc. Our initial business plan focused on the provision of software


                                       7
<PAGE>

consulting services. We subsequently shifted our business focus from providing
such services to the development, marketing and support of so called intelligent
agents or smart bots. These products are designed to automate and simplify
complex business-related internet functions, such as web navigation, direct
sales and marketing, e-mail automation, user profiling, knowledge management,
financial planning and portfolio management. At present, we have again updated
our business plan to emphasize marketing and sales of our products and, in the
process, have significantly reduced our research and development budget.

Even though we have generated significant revenues over the past years, our
accumulated losses to date have exceeded our accumulated revenues and we
incurred losses until the second quarter of 2001. However, based upon our
substantial restructuring efforts in the second quarter of 2001 and our efforts
to maintain stringent cost controls, we managed to achieve profitability in the
third and fourth quarters of 2001. In the first quarter ended March 31, 2002, we
generated $805,000 in revenues with a net profit of $277,269. However, there can
be no assurances such results will continue in future quarters.

Our accumulated past losses have severely impacted our liquidity and cash
position which, in turn, have significantly impeded our ability to fund our
operations. Consequently, in connection with our Annual Report on Form 10-K for
the fiscal years ended December 31, 2000 and 2001, our independent certified
public accountants expressed an opinion doubting our ability to continue as a
going concern. As of March 31, 2002, we had total assets of $1,634,564 and total
liabilities of $3,254,066. Current assets as of March 31, 2002 were $1,161,780
and current liabilities were $3,254,066.

On April 6, 2001 we received a letter from the Nasdaq National Market (Nasdaq)
stating that we were no longer in compliance with certain listing requirements.
On July 12, 2001, a panel hearing was held by Nasdaq to discuss our plans and
ability to comply with the listing requirements. We subsequently presented a
detailed plan to the panel and requested a 90-day grace period to comply with
the requirements. On August 20, 2001, we were de-listed from the Nasdaq stock
exchange. The de-listing may materially impair the ability of stockholders to
buy and sell shares of our stock, and trading is now limited primarily to
over-the-counter quotation services, such as the Over-the-Counter Bulletin
Board.

During the first half of 2001, we restructured our operations, implemented a
significant cost reduction program, and began efforts to sell intellectual
property for direct use into third-party systems. We also reevaluated our
business and product lines with increased emphasis on marketing and sales of our
products and now reserve product development efforts primarily for individual
clients that contract for such development. Consequently, we continue to
anticipate devoting fewer resources to engineering and research and development
activities in the future. As a result, we significantly reduced our engineering
and research and development costs in 2001. We continued to keep costs for
engineering and research and development at a minimum during the first quarter
of 2002. Also, in the fourth quarter of 2001, our chief executive officer
elected to forgo his salary earned in 2001 of $319,440. Payment of such salary
had been deferred during the year.

In addition, we implemented a significant cost reduction program during the
first half of 2001. Costs for operations were kept to a minimum for the second
half of 2001 and we have continued with these cost reduction efforts during the
first quarter of 2002. In 2001 we took drastic steps to reduce our United States
operations, including a major reduction of office facilities, the relocation of
our headquarters from Boston, Massachusetts to New York, New York, the
termination of our lease for our former headquarters in Boston, Massachusetts
and the termination of most of our staff. During the second quarter of 2002, we
again relocated our headquarters to Hong Kong, but have retained our New York
office to service our United States operations and clients.

Also, we have continued to reduce our marketing expenses, website development,
and operating infrastructure development budgets. Furthermore, we are continuing
to review plans to consolidate the operations of Artificial Life Mobile, Inc.
and Artificial Life Ventures, Inc and to relocate both entities to Hong Kong, to
minimize overhead costs and expenses. We are currently seeking a long-term lease
contract for our new headquarters in Hong Kong and until we have secured a
long-term lease, will continue to occupy a temporary office in New York City and
Hong Kong. Lease obligations from these offices are currently less than $7,000
per month.

In the third quarter of 2001, we started a second business division focusing on
life science applications. We believe that the algorithms and methods that we
have developed over the last several years will allow new and innovative
applications in the health care and life science industries. We do not intend to
develop products in this division, but rather, intend to work on a consulting
and project basis with clients and further intend to license our existing
intellectual property for the life science area. However, we cannot guarantee
that we will be successful in this new application of our product line or that
this new business division will generate significant revenues in the future. We
intend to develop partnerships with Asian and global companies in the life
science and biocomputing arena from our Hong Kong location with Japan, Korea,
Singapore and Greater China as the main target markets.

Although we realized significant revenues in 1999, 2000 and 2001, and although
revenues increased from 1999 to 2000, software license revenues decreased
significantly in 2001 as compared to 2000. The decrease in software license
revenues was due to many factors, including but not limited to, the downturn of
the global internet market, the general negative business climate throughout the
world, our inability to obtain additional financing to fund operations, the
cessation of our European and Russian operations, and the significant downsizing
and restructuring of our United States operations.


                                       8
<PAGE>

In the near term, we will continue limited product development. Because our
continued losses have severely impacted our liquidity and cash position, to the
extent that our marketing and sales of existing products and limited product
development efforts do not result in commercially successful products that
generate significant net revenues, our business will be materially adversely
affected. We cannot assure that we will ever generate sufficient revenues from
the sale of our products or associated services to achieve and maintain
profitability.

In light of our current global downsizing and because we have shifted our
primary business focus from software consulting to licensing developed
intellectual property, marketing and support of our existing products, results
of operations to date are not reflective of our business prospects going forward
or our past cumulative revenues and losses. 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 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 and our ability to attract and retain qualified personnel.
Gross profit margins will vary from product to product and between products and
services. Although we may have some ability to affect our products and services
mix, our sales mix may vary from period to period and our gross margins will
fluctuate accordingly.

In addition to our restructuring efforts, we are also 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.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data for the three-month periods ended March
31, 2002 and March 31, 2001 have been derived from our financial statements. Any
trends reflected by the following table may not be indicative of future results.

<TABLE>
<CAPTION>
                                                                For the three-month period ended
                                                                            March 31,
                                                                            ---------
                                                                      2002            2001
                                                                      ----            ----
<S>                                                               <C>             <C>
Statement of Operations Data:
Revenue ......................................................    $    805,000    $  1,441,043
Costs and expenses ...........................................    $    504,763    $  5,477,896
Other income (expense) .......................................    $    (22,968)   $    (26,941)
Net income (loss) ............................................    $    277,269    $ (4,063,794)
Shares outstanding ...........................................      10,943,389      10,321,525
Income (Loss) per share (basic and diluted) ..................    $       0.03    $      (0.39)

Balance Sheet Data:
Total assets .................................................    $  1,634,564    $  4,592,730
Stockholders' equity (deficit) ...............................    $ (1,619,503)   $   (536,517)
</TABLE>

RESULTS OF OPERATIONS

During the quarter ended March 31, 2002, license revenues decreased slightly
compared with the license revenues we generated in the fourth quarter of 2001.
During the first quarter of 2002, our operating expenses were also reduced.
These changes were in large part due to our successful cost control measures.
These changes are consistent with the change in our business strategy towards
limiting development to product, project-based initiatives and sales of our
existing products.

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001

REVENUES: Revenues for the quarter ended March 31, 2002 were $805,000 as
compared to $1,441,043 for the quarter ended March 31, 2001. The decrease of
$636,043 or 44% was primarily due to longer sales cycles, the general negative
business climate in our industry, and our inability to obtain necessary
additional funding.

ENGINEERING AND COST OF SALES: These costs generally consist of salary and
payroll tax expenses, 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 March 31, 2002 were $201,905 as compared to $2,243,147 for
the quarter ended March 31, 2001. The decrease of 2,041,242 or 91% was primarily
due to massive reduction of personnel and infrastructure cost during the
downsizing process over the last four quarters.


                                       9
<PAGE>

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 March 31, 2002 were $25,239 as compared to
$151,283 for the quarter ended March 31, 2001. The decrease of $126,045 or 83%
is primarily due to the mature stage that a majority of our products have
reached and our increased emphasis on the support and sales of these products,
rather than the development of new products.

GENERAL AND ADMINISTRATIVE: General and administrative expenses consist of
salary and payroll tax expenses of administrative personnel, rent, professional
fees and costs associated with employee benefits, supplies, communications and
travel. General and administrative expenses for the quarter ended March 31, 2002
were $176,667 as compared to $1,973,564 for the quarter ended March 31, 2001.
The decrease of $1,796,697 or 91% was due primarily to a major reduction of
staff and administrative overhead during the downsizing period of the last
fiscal year.

SALES AND MARKETING: Sales and marketing expenses consist of salary and payroll
tax expenses of sales and marketing personnel, costs relating to marketing
materials, advertising, trade show related expense and public relations
activities. Sales and marketing expenses for the quarter ended March 31, 2002
were $100,952 compared to $1,077,955 for the quarter ended March 31, 2001. The
decrease of $977,003 or 90% was primarily due to drastically reduced sales
related salaries and reduction of marketing expenses.

NET INCOME: The net income for the quarter ended March 31, 2002 was $277,269 as
compared to a loss of $4,063,794 for the quarter ended March 31, 2001. The
drastic decrease in losses and the generation of profits is mainly due to
strongly reduced costs and salaries, reduced infrastructure expenses in
combination with the generation of product sales. The net income per share was
$0.03 as compared to a net loss of $0.39 for the quarter ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

From inception through July 3, 1997, we funded our operations primarily through
initial equity investments in 1994 and 1995 totaling $500,000 and net income
from operations. Subsequent to July 3, 1997, we incurred operating losses in
connection with our transition from software consulting to product development,
marketing and sales. These losses have been funded to date by a private
placement of non-voting common stock of $181,367, the net proceeds of which we
received in June 1998 and a private placement of 824,000 shares of common stock
which raised $3,946,481 in net proceeds. In December 1998, we received
$9,302,773 net proceeds from our initial public offering. During 1999, holders
of options to purchase our common stock exercised their options which netted
approximately $1,300,000, which we received in 1999 and the first quarter of
2000. In February 2000, we concluded two private placements of common stock.
Both transactions occurred at purchase prices that were at a premium to the
average closing price for five days prior to the transaction date. The first
transaction netted us $2,562,500 in exchange for 102,500 of our common stock
shares; the second transaction netted us $1,550,000 in exchange for 50,000
common stock shares. In March 2000, we concluded another private placement of
common stock. The transaction occurred at a purchase price that was at a premium
to the average closing price for the five days prior to the transaction date.
The transaction netted us $4,856,250 in exchange for 150,000 common shares and
warrants to purchase 75,000 shares of common stock. In January 2001, we issued
25,000 common shares to a single individual in a private placement. The total
proceeds from this issuance amounted to $250,000. Costs related to these
transactions were immaterial. Our current and future requirements for additional
capital will depend on many factors, including but not limited to, the general
recovery of the global internet markets, the success of our sales, marketing and
promotional programs, and the levels of revenues we are able achieve through the
future sales of our suites of products.

In 2000, we continued to incur losses from operations, and had partially funded
these losses through three private placements of our common stock totaling $8.9
million. We continued to incur losses in the first and second quarters of 2001.
Based upon our substantial restructuring in the second quarter of 2001 and our
continued efforts to maintain stringent cost controls, we were able to achieve
profitability in the third and fourth quarters of 2001 as well as the first
quarter of 2002. While we hope to have generated modest profits by the end of
fiscal year 2002, we cannot assure that we will become profitable in the
foreseeable future. Moreover, the losses we have incurred to date have severely
impacted our liquidity and cash position, resulting in a working capital deficit
of $2,092,286 and stockholders' deficit of $1,619,503 at March 31, 2002.

In order to fund our cash needs for 2001, we borrowed $485,000 from our chief
executive officer, Eberhard Schoeneburg, during the first quarter of 2001, an
additional $600,000 during the second quarter and $50,000 in the fourth quarter
of 2001, for an aggregate of $1,135,000. We repaid $40,000 of this amount in the
third quarter of 2001 and $29,900 in the first quarter of 2002. The advanced
funds bear interest at 10%, are unsecured and are due on demand. As a result of
our current liquidity shortfall and current economic conditions, as of March 31,
2002 (i) Mr. Schoeneburg had deferred approximately $88,250 in wages payable to
him, (ii) our chief operating officer Mr. Frank Namyslik had deferred payment on
an aggregate of approximately $57,000 in consulting fees payable to him, and
(iii) our chief financial officer, Ms. Phaik Chin Lim, had deferred payment on
approximately $159,000 payable to her.


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<PAGE>

Without obtaining profitable operations or additional financing or capital, we
will not have sufficient resources to fund our operations. We are continuing to
pursue other short-term borrowings and other direct share placement
opportunities to meet our anticipated liquidity shortfalls. We cannot assure
that we will be able to obtain the necessary financing or that such financing
will be adequate to meet our capital needs.

These factors create a substantial doubt about our ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might come from the outcome of this uncertainty.

OTHER

On April 1, 2002, Bill Lucky commenced his employment as our new president.
Prior to joining Artificial Life, Inc., Mr. Lucky served as a senior executive
at Digital Equipment Corporation and at IBM.

In May 1999, we entered into a joint venture with an international retailer in
the field of e-commerce called: net-tissimo AG (later renamed as net-promotions
AG). The main focus of this joint venture is to sell consumer goods over the
internet using deep discounts and high volume, both in terms of transactions and
web visits. As part of the transaction, we licensed our SmartBot technology to
the joint venture. In addition, we provided products and software development
and consulting services to the joint venture and receive payments for this
contribution. Our partner in the joint venture will be responsible for using its
purchasing relationships to obtain certain consumer products which will be sold
on the joint venture's e-commerce Website. We allocated up to $2,150,000 of the
proceeds from our initial public offering to purchase our 50% interest in this
joint venture and to meet our obligations to contribute additional capital to
the joint venture. As of December 31, 2000, we had made a total investment of
$1,932,169 in the joint venture. On January 22, 2001, our ownership interest in
the joint venture decreased from 50% to 19.9% after the joint venture
successfully completed an additional round of financing in which we elected not
to participate. In the first quarter of 2002 net-promotions has again raised
funds in another round of funding in which we again elected not to participate,
resulting in a further reduction of our ownership interest in net-promotions to
approximately 6%.

We have incurred losses for income tax purposes for fiscal years 1998, 1999,
2000 and 2001. These losses will be available to carry forward and reduce income
taxes, if any, in future periods.

                           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 us in
Massachusetts Superior Court alleging that we had breached our commercial lease
by vacating our 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 have not yet been assessed but a hearing on this
matter is expected to be conducted during the second quarter of 2002. At
December 31, 2001, in addition to our lease deposit of $36,000, we have accrued
$100,000 based on our estimate of the ultimate damages we will pay in connection
with this matter. However, the ultimate outcome can not be determined at this
time.

In connection with claims for unpaid wages and vacation pay made by former
employees of our United States operations, we accrued $150,000 representing the
maximum amount of damages claimed with respect to this matter. We are currently
negotiating settlements with certain of these employees. Certain of these
employees have filed claims for unpaid wages and vacation pay with the Office of
the Attorney General of the Commonwealth of Massachusetts. Although the Attorney
General has issued citations alleging that we are liable for an aggregate amount
of approximately $115,000 in connection with these claims, we have appealed
these citations and are contesting the amount of the alleged obligation. We
anticipate participating in an administrative hearing to resolve this matter
during the second quarter of 2002. To our knowledge, as of March 31, 2002 no
suits had been filed. We are vigorously defending these claims and believe our
liability to be substantially less than the $150,000 amount we have accrued in
connection with this matter.

ITEM 2 - CHANGES IN SECURITIES

None


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<PAGE>

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

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.

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:

     None.

     (b) Reports on Form 8-K:

     There were no reports on Form 8-K filed in the three months ended March 31,
     2002, except that:

     On May 1, 2002, we filed a Current Report on Form 8-K under Items 5 and 7
     with the Securities and Exchange Commission announcing that we had
     determined to end our engagement with Wolf & Company, P.C. as our
     independent auditors and that we had engaged Horwath Gelfond Hochstadt
     Pangburn, P.C. to serve as our independent auditors for 2002.


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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.

Date: May 15, 2002                      By: /s/ Eberhard Schoeneburg
                                        ----------------------------------------
                                        Name: Eberhard Schoeneburg
                                        Title: Chief Executive Officer

Date: May 15, 2002                      By: /s/ Phaik Chin Lim
                                        ----------------------------------------
                                        Name: Phaik Chin Lim
                                        Title: Chief Financial Officer
                                        (principal financial officer and
                                        principal accounting officer)


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