Artificial Life (PINK:ALIF)

HONG KONG, Dec. 20, 2011 (GLOBE NEWSWIRE) -- Artificial Life, Inc. (OTCPK:ALIF), an innovative investment company, announced today that it and its subsidiaries, Artificial Life Asia Ltd. and Artificial Life Europe GmbH (collectively, "Company") have filed a malpractice lawsuit with the High Court of Hong Kong against KPMG Hong Kong and two of its senior partners. The legal action of the Company was unanimously supported by its board and independent audit committee.

The Company claims that KPMG Hong Kong and two of its senior partners breached their contractual audit obligations under a signed engagement letter during their assignment as Company auditors during 2010 and 2011 until  the termination of their engagement. The Company claims that they are guilty of serious malpractice during their assignment in breach of their contractual duties to the Company and are guilty of a breach of their general duty of care.

The Company also claims that KPMG Hong Kong incorrectly overcharged and overstated invoices for services rendered to the Company during the audit assignment. Despite several written requests, KPMG Hong Kong has – until today - refused even to provide substantiating detailed narratives of the work which it claims to have carried out during the assignment, leaving the Company with no alternative but to question the overall correctness and legitimacy of the audit charges which KPMG has billed to the Company.  

The Company currently estimates and assesses the damage and potential damage caused to the Company by KPMG Hong Kong to exceed US$ 100 million due to – amongst other factors – the loss of substantial market value of its equity, the forced delisting of its shares from the US OTC market and the German Entry Standard Segment, its loss of major cash funding options, its loss of investment opportunities, its loss of revenues and profits and its general loss of business opportunities and general reputation damage caused directly and/or indirectly by KPMG Hong Kong's malpractice, breach of contract and breach of duty of care.

On June 27, 2011, the audit committee of Artificial Life, Inc. (the "Company") approved the dismissal of BDO AG ("BDO") as the Company’s principal accountant effective immediately.

BDO has not issued a report on the financial statements of the Company in either of the two most recent fiscal years.

BDO was engaged by the Company on April 20, 2011. Since that date, there were no disagreements between the Company and BDO on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused BDO to make reference to the subject matter of the disagreement in its report on the Company's consolidated financial statements, and there were no reportable events as that term is described in Item 304(a)(1)(v) of Regulation S-K, except as set out below.

During the course of the audit of the Company's financial statements for the fiscal year ended December 31, 2010, BDO raised a number of accounting matters that would have prevented BDO from rendering an unqualified opinion if the issues were not resolved. There were discussions between the Company, its audit committee and BDO in connection with these matters, which principally related to: the commercial substance of certain material transactions, accounting for recognition of revenues (including timing and actual receipt of cash), valuation of intangible assets, the impact of these matters on the Company’s financial statements as of December 31, 2010 and whether prior years’ financial statements were affected by these matters, and accounting for a joint venture agreement. These issues remained unresolved at the end of BDO’s engagement, which occurred before BDO could complete its work on these and other issues. In addition, as of the date of the Company’s termination of BDO’s engagement, BDO was unable to determine whether the Company had taken timely and appropriate remedial actions with respect to possible illegal acts, within the meaning of Section 10A of the Securities Exchange Act of 1934, identified on June 1, 2011 by BDO to the Company.

In connection with the above, at the recommendation of management, the audit committee of the Company engaged accounting consultants on June 18, 2011 to perform an analysis of the above described issues. Such accounting consultants have met with the Company's audit committee on these matters, have been instructed to continue their work and will continue to report to the audit committee which will determine what, if any, action should be taken.  The Company believes that such actions will constitute prompt remedial action.  The Company’s audit committee will also be addressing these matters in connection with its appointment of a successor auditor.

The Company has provided BDO with a copy of the foregoing statements and has requested that BDO furnish it with a letter addressed to the Securities and Exchange Commission stating that BDO agrees with the Company's statements in this Item 4.01(a). A copy of BDO's letter stating its agreement with such statements is attached as Exhibit 16.1. The Company has authorized BDO to respond to inquiries of the successor accountant concerning the matters set forth above.

HONG KONG, LOS ANGELES, and BERLIN, Jan. 27, 2011 /PRNewswire-Asia/ -- Artificial Life, Inc., today announced the appointment of PricewaterhouseCoopers as its independent consultant to assist in performing the Company's internal control self-assessment under Section 404 of the Sarbanes-Oxley Act of 2002.

"Even though we are not yet legally required to have our internal control procedures audited we will nevertheless asses and install these strong internal control procedures to be prepared well for our future global expansion and expected investments and joint ventures," said Eberhard Schoneburg, CEO of Artificial Life, Inc.