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SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,  D.C.  20549


FORM 10-QSB





(Mark One)





|                                 | Quarterly Report pursuant to    Section 13 or 15 (d) of the Securities Exchange Act of 1934 
|-------------------------------- | --------------------------------------------------------------------------------------------
|                                 | for the quarterly period ended June    30, 2003.                                            
|                                 |                                                                                             
|                                 | Transition Report pursuant to    Section 13 or 15 (d) of the Securities Exchange Act of 1934
|                                 | for the transition period from    ____________ to ____________.                             
|                                 |                                                                                             
|Commission    File No. 000-30294




|Dialog    Group, INC.                                            
|-----------------------------------------------------------------
|(Exact name of Small    Business Issuer in its Charter)          
|                                                                 
|Delaware                                                         
|(State or Other    Jurisdiction of Incorporation or Organization)
|                                                                 
|Twelfth    Floor, 257 Park Avenue South, New York, NY            
|(Address of Principal    Executive Offices)                      
|                                                                 
|212.254.1917                                                     
|(Issuers Telephone    Number)                                   




Check whether the issuer (1) has filed all reports required to be filed  by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past  12 months (or 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    No





Check whether the registrant filed all documents and reports required  to be filed by Section l2, 13 or 15(d) of the Exchange Act after the  distribution of securities under a plan confirmed by a court:                      Yes    No





State the number of shares outstanding of each of the  issuers classes of common equity, as of the latest practicable date.





At August 13, 2003 there were 82,287,489 shares of  common stock, par value $.001 per share outstanding.





Transitional Small Business Disclosure Format (check  one):                      Yes    No





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Dialog  Group, INC. AND SUBSIDIARIES





INDEX





|Page    Number                          |                                                                                                                                           
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------
|                                        |                                                                                                                                           
|Part    I.        Financial Information
|                                        |                                                                                                                                           
|                                        | Item    1            Financial    Statements                                                                                              
|                                        |                                                                                                                                           
|F-2                                     | Condensed Consolidated Balance Sheets    as of June 30, 2003 (unaudited) and December 31, 2002                                            
|                                        |                                                                                                                                           
|F-3                                     | Condensed Consolidated Statements of    Operations and Comprehensive Loss for the three Months Ended June 30, 2003    and 2002 (Unaudited)
|                                        |                                                                                                                                           
|F-4                                     | Condensed Consolidated Statements of    Operations and Comprehensive Loss for the Six Months Ended June 30, 2003 and    2002 (Unaudited)  
|                                        |                                                                                                                                           
|F-5                                     | Condensed Consolidated Statements of    Cash Flows for the Six Months Ended June 30, 2003 and 2002 (Unaudited)                            
|                                        |                                                                                                                                           
|F-6 to F-22                             | Notes to Condensed Consolidated    Financial Statements (Unaudited)                                                                       
|                                        |                                                                                                                                           
|23 - 29                                 | Item    2. Managements Discussion and Analysis or Plan of Operation                                                                      
|                                        |                                                                                                                                           
|30                                      | Item 3. Controls and Procedures                                                                                                           
|                                        |                                                                                                                                           
|Part II.        Other    Information   
|                                        |                                                                                                                                           
|31                                      | Item    1.           Legal    Proceedings                                                                                                 
|                                        |                                                                                                                                           
|31  33                                 | Item    2(c)        Recent Sales of    Unregistered Securities                                                                            
|                                        |                                                                                                                                           
|33                                      | Item    4            Submission    of Matters to a Vote of Security Holders.                                                              
|                                        |                                                                                                                                           
|33                                      | Item    6.           Exhibits    and Reports on Form 8-K                                                                                  

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DIALOG GROUP, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEETS





ASSETS





|                                                           |  | June 30,    2003 |            | December    31,    2002 |  
|---------------------------------------------------------- |  | ---------------- | ---------- | ----------------------- | -
|                                                           |  |                  |            |                         |  
|                                                           |  | (Unaudited)      |            |                         |  
|CURRENT    ASSETS:                                         |  |                  |            |                         |  
|Cash                                                       |  | $                | 172,004    |                         | $
|Accounts receivable, net                                   |  |                  | 1,249,115  |                         |  
|Inventories                                                |  |                  | 11,613     |                         |  
|Prepaid expenses and other current assets                  |  |                  | 329,206    |                         |  
|                                                           |  |                  |            |                         |  
|Total current assets                                       |  |                  | 1,761,938  |                         |  
|PROPERTY    AND EQUIPMENT, NET                             |  |                  | 248,476    |                         |  
|DATABASE,    NET                                           |  |                  | 1,001,945  |                         |  
|OTHER    ASSETS:                                           |  |                  |            |                         |  
|Note receivable                                            |  |                  | 100,000    |                         |  
|Goodwill                                                   |  |                  | 4,575,776  |                         |  
|Other assets                                               |  |                  | 57,505     |                         |  
|                                                           |  |                  |            |                         |  
|Total other assets                                         |  |                  | 4,733,281  |                         |  
|                                                           |  |                  |            |                         |  
|TOTAL    ASSETS                                            |  | $                | 7,745,640  |                         | $
|                                                           |  |                  |            |                         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)          |  |                  |            |                         |  
|CURRENT    LIABILITIES:                                    |  |                  |            |                         |  
|Accounts payable                                           |  | $                | 2,348,169  |                         | $
|Notes and obligations payable, current                     |  |                  | 599,371    |                         |  
|Accrued expenses                                           |  |                  | 1,995,622  |                         |  
|Deferred revenue                                           |  |                  | 680,913    |                         |  
|Other current liabilities                                  |  |                  | 135,842    |                         |  
|Due to related parties                                     |  |                  | 209,058    |                         |  
|                                                           |  |                  |            |                         |  
|Total current liabilities                                  |  |                  | 5,968,975  |                         |  
|                                                           |  |                  |            |                         |  
|LONG    TERM DEBT                                          |  |                  | 14,272     |                         |  
|                                                           |  |                  |            |                         |  
|STOCKHOLDERS    EQUITY (DEFICIENCY):                      |  |                  |            |                         |  
|Preferred stock                                            |  |                  | 83,330     |                         |  
|Common stock                                               |  |                  | 82,221     |                         |  
|Additional paid-in-capital                                 |  |                  | 5,326,101  |                         |  
|Accumulated deficit                                        |  |                  | (3,681,594 | )                       |  
|Accumulated other comprehensive income                     |  |                  | 21,110     |                         |  
|Less: deferred compensation                                |  |                  | (68,775    | )                       |  
|                                                           |  |                  |            |                         |  
|Total stockholders equity (deficiency)                    |  |                  | 1,762,393  |                         |  
|                                                           |  |                  |            |                         |  
|TOTAL    LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY) |  | $                | 7,745,640  |                         | $
|                                                           |  |                  |            |                         |  




The accompanying notes  are an integral part of these financial statements.





F-2


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DIALOG GROUP, INC. AND  SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS  OF OPERATIONS AND COMPREHENSIVE LOSS





FOR THE THREE MONTHS ENDED JUNE  30, 2003 AND 2002





(Unaudited)





|                                                                |  | 2003 |            | 2002 |  
|--------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|                                                                |  |      |            |      |  
|REVENUES                                                        |  | $    | 3,047,559  |      | $
|COST OF REVENUES                                                |  |      | 1,739,258  |      |  
|                                                                |  |      |            |      |  
|GROSS PROFIT                                                    |  |      | 1,308,301  |      |  
|OPERATING EXPENSES:                                             |  |      |            |      |  
|Payroll and payroll related expenses                            |  |      | 923,363    |      |  
|Selling and marketing                                           |  |      | 59,158     |      |  
|Depreciation and amortization                                   |  |      | 115,223    |      |  
|Other general and administrative expenses                       |  |      | 787,346    |      |  
|                                                                |  |      |            |      |  
|Total Operating Expenses                                        |  |      | 1,885,090  |      |  
|                                                                |  |      |            |      |  
|INCOME (LOSS) FROM OPERATIONS                                   |  |      | (576,789   | )    |  
|OTHER INCOME (EXPENSES):                                        |  |      |            |      |  
|Interest expense                                                |  |      | (18,737    | )    |  
|Interest income                                                 |  |      | 6,506      |      |  
|Other income                                                    |  |      | 67,851     |      |  
|                                                                |  |      |            |      |  
|Net Other Income (Expenses)                                     |  |      | 55,620     |      |  
|                                                                |  |      |            |      |  
|NET INCOME (LOSS)                                               |  |      | (521,169   | )    |  
|                                                                |  |      |            |      |  
|OTHER COMPREHENSIVE LOSS:                                       |  |      |            |      |  
|Foreign curreny translation adjustments                         |  |      | (17,110    | )    |  
|                                                                |  |      |            |      |  
|TOTAL COMPREHENSIVE INCOME (LOSS)                               |  | $    | (538,279   | )    | $
|                                                                |  |      |            |      |  
|NET LOSS PER SHARE, BASIC AND DILUTED                           |  | $    | (0.01      | )    | $
|                                                                |  |      |            |      |  
|NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED -PRO-FORMA       |  | $    |           |      | $
|                                                                |  |      |            |      |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC AND    DILUTED |  |      | 79,182,092 |      |  
|                                                                |  |      |            |      |  




The accompanying notes  are an integral part of these financial statements.





F-3


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DIALOG GROUP, INC. AND  SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS  OF OPERATIONS AND COMPREHENSIVE LOSS





FOR THE SIX MONTHS ENDED JUNE 30,  2003 AND 2002





(Unaudited)





|                                                                |  | 2003 |            | 2002 |  
|--------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|                                                                |  |      |            |      |  
|REVENUES                                                        |  | $    | 4,382,798  |      | $
|COST OF REVENUES                                                |  |      | 2,477,637  |      |  
|                                                                |  |      |            |      |  
|GROSS PROFIT                                                    |  |      | 1,905,161  |      |  
|OPERATING EXPENSES:                                             |  |      |            |      |  
|Payroll and payroll related expenses                            |  |      | 1,217,897  |      |  
|Selling and marketing                                           |  |      | 152,971    |      |  
|Depreciation and amortization                                   |  |      | 135,319    |      |  
|Loss on goodwill impairment                                     |  |      |           |      |  
|Loss on website impairment                                      |  |      |           |      |  
|Loss on trademark impairment                                    |  |      |           |      |  
|Loss on fixed assets impairment                                 |  |      |           |      |  
|Other general and administrative expenses                       |  |      | 1,067,984  |      |  
|                                                                |  |      |            |      |  
|Total Operating Expenses                                        |  |      | 2,574,171  |      |  
|                                                                |  |      |            |      |  
|LOSS FROM OPERATIONS                                            |  |      | (669,010   | )    |  
|OTHER INCOME (EXPENSES):                                        |  |      |            |      |  
|Interest expense                                                |  |      | (128,337   | )    |  
|Interest income                                                 |  |      | 8,402      |      |  
|Other income                                                    |  |      | 65,957     |      |  
|                                                                |  |      |            |      |  
|Net Other Income (Expenses)                                     |  |      | (53,978    | )    |  
|                                                                |  |      |            |      |  
|NET LOSS                                                        |  |      | (722,988   | )    |  
|                                                                |  |      |            |      |  
|OTHER COMPREHENSIVE INCOME:                                     |  |      |            |      |  
|Foreign currency
      translation adjustments                  |  |      | (13,584    | )    |  
|                                                                |  |      |            |      |  
|TOTAL COMPREHENSIVE LOSS                                        |  | $    | (736,572   | )    | $
|                                                                |  |      |            |      |  
|NET LOSS PER SHARE, BASIC AND DILUTED                           |  | $    | (0.01      | )    | $
|                                                                |  |      |            |      |  
|NET LOSS PER SHARE, BASIC AND DILUTED - PRO-FORMA               |  | $    |           |      | $
|                                                                |  |      |            |      |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC AND    DILUTED |  |      | 52,523,913 |      |  
|                                                                |  |      |            |      |  




The accompanying notes  are an integral part of these financial statements.





F-4


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DIALOG GROUP, INC. AND  SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS





FOR THE SIX MONTHS ENDED JUNE 30,  2003 AND 2002





(UNAUDITED)





|                                                                               |  | 2003 |           | 2002 |  
|------------------------------------------------------------------------------ |  | ---- | --------- | ---- | -
|                                                                               |  |      |           |      |  
|Cash Flows from Operating Activities:                                          |  |      |           |      |  
|Net loss                                                                       |  | $    | (722,988  | )    | $
|Adjustments to reconcile net loss to net cash    used in operating activities: |  |      |           |      |  
|Depreciation and amortization                                                  |  |      | 135,319   |      |  
|Loss on goodwill impairment                                                    |  |      |          |      |  
|Loss on website impairment                                                     |  |      |          |      |  
|Loss on trademark impairment                                                   |  |      |          |      |  
|Loss on fixed assets impairment                                                |  |      |          |      |  
|Gain on debt forgiveness                                                       |  |      |          |      |  
|Common stock, warrants and stock options issued    for services                |  |      | 84,872    |      |  
|Changes in operating assets and liabilities:                                   |  |      |           |      |  
|(Increase) decrease in:                                                        |  |      |           |      |  
|Accounts receivable                                                            |  |      | (296,304  | )    |  
|Inventory                                                                      |  |      | (89       | )    |  
|Other current receivable                                                       |  |      | 26,915    |      |  
|Prepaid expenses and other current assets                                      |  |      | (49,354   | )    |  
|Increase (decrease) in:                                                        |  |      |           |      |  
|Accounts payable and accrued expenses                                          |  |      | 724,710   |      |  
|Other current liabilities                                                      |  |      | (58,978   | )    |  
|Deferred revenue                                                               |  |      | (525,453  | )    |  
|                                                                               |  |      |           |      |  
|Net Cash Used in Operating Activities                                          |  |      | (681,350  | )    |  
|                                                                               |  |      |           |      |  
|Cash Flows from Investing Activities:                                          |  |      |           |      |  
|Purchase    of database                                                        |  |      | (126,528  | )    |  
|Purchase    of property and equipment                                          |  |      | (54,253   | )    |  
|Net    cash acquired from HCH and Azimuth                                      |  |      | 13,912    |      |  
|Increase    in deposit                                                         |  |      | (15,528   | )    |  
|                                                                               |  |      |           |      |  
|Net Cash Used in Investing    Activities                                       |  |      | (182,397  | )    |  
|                                                                               |  |      |           |      |  
|Cash Flows from Financing Activities:                                          |  |      |           |      |  
|Shareholders loans, net                                                        |  |      | 10,474    |      |  
|Proceeds from sale of common stock                                             |  |      | 730,662   |      |  
|Short-term borrowing, net                                                      |  |      | 4,278     |      |  
|                                                                               |  |      |           |      |  
|Net Cash Provided by Financing    Activities                                   |  |      | 745,414   |      |  
|                                                                               |  |      |           |      |  
|Net decrease in cash                                                           |  |      | (118,333  | )    |  
|Effect of exchange rate on cash                                                |  |      | (21,259   | )    |  
|Cash, beginning of period                                                      |  |      | 311,596   |      |  
|                                                                               |  |      |           |      |  
|Cash, end of period                                                            |  | $    | 172,004   |      | $
|                                                                               |  |      |           |      |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                              |  |      |           |      |  
|Interest paid during the period                                                |  | $    |          |      | $
|                                                                               |  |      |           |      |  
|Income taxes paid during the period                                            |  | $    |          |      | $
|                                                                               |  |      |           |      |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING    ACTIVITIES:     |  |      |           |      |  
|Shares    issued in acquistion of HCD                                          |  | $    | 1,017,139 |      | $
|                                                                               |  |      |           |      |  
|Shares    issued in acquistion of IP2M                                         |  | $    | 260,908   |      | $
|                                                                               |  |      |           |      |  
|Shares    issued in acquisition of HCH                                         |  | $    | 264,033   |      | $
|                                                                               |  |      |           |      |  
|Shares issued in acquisition of Azimuth                                        |  | $    | 528,067   |      | $
|                                                                               |  |      |           |      |  




The accompanying notes  are an integral part of these financial statements.





F-5


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 1 - | BASIS OF PRESENTATION
|-------- | ---------------------




The condensed consolidated balance sheet as of June  30, 2003, the condensed consolidated statements of operations for the three  months and six months ended June 30, 2003 and 2002,and the condensed  consolidated statements of cash flows for the six months ended June 30, 2003  and 2002 are unaudited. However, in the opinion of management, all adjustments  (which include reclassifications and normal recurring adjustments) necessary to  present fairly the financial position, results of operations and cash flows at  June 30, 2003 and for all periods presented, have been made. The results of  operations for the three-month and six-month periods ended June 30, 2003 are  not necessarily indicative of the operating results for the full year.





These condensed consolidated financial statements and  notes are presented in accordance with rules and regulations of the Securities  and Exchange Commission. Certain information and footnote disclosures normally  included in the consolidated financial statements prepared in accordance with  accounting principles generally accepted in the United States of America have  been condensed or omitted.  It is  suggested that these condensed consolidated financial statements be read in  conjunction with the Companys consolidated financial statements and notes  thereto included in the Companys December 31, 2002 Form 10-KSB, and the  consolidated financial statements of Healthcare Dialog, Inc. and Subsidiaries  (HCD) and the financial statements of IP2M, Inc. (IP2M) (see Note 2), filed  with the Company Form 8-K/A.





PRINCIPLES  OF CONSOLIDATION





The condensed consolidated financial statements  include the accounts of the Company (DGI) and its wholly-owned subsidiaries,  Healthcare Dialog, Inc. (HCD), IP2M, Inc. (IP2M), Software, plc,  (Software) (formerly Findstar, plc), ThinkDirectMarketing, Inc. (TDMI), Healthcare  Horizons, Inc. (HCH), HCDs wholly-owned and majority-owned subsidiaries,  P.V.D and Partners (PVD), CLP Graphics Center, Inc. (CLP), QD Corporation  (QD), Softwares wholly-owned subsidiary, Panda Software (UK) Limited, and  TDMIs wholly-owned subsidiary, DirectMailQuotes, LLC (DMQ). All significant  intercompany balances and transactions have been eliminated.





F-6


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 1 - | BASIS OF PRESENTATION (CONTINUED)
|-------- | ---------------------------------




REPORTING PERIOD





As further explained in Note 2, the acquisition of HCD  effective March 1, 2003 was accounted for as a reverse acquisition. HCD was  deemed to be the accounting acquirer and the Company was deemed the legal  acquirer. The accompanying condensed consolidated financial statements for the  three months ended June 30, 2003 depict the results of operations and cash  flows of the Company and all subsidiaries. The accompanying condensed  consolidated financial statements for the six months ended June 30, 2003 depict  the results of operations and cash flows of HCD and subsidiaries for the six  months ended June 30, 2003, the results of operations and cash flows of DGI,  Software and subsidiary, TDMI and subsidiary and IP2M from March 1, 2003,  (effective date of the acquisitions) to June 30, 2003, and the results of  operations and cash flows of HCH from April 1, 2003 (effective date of the  acquisition) to June 30, 2003. The accompanying
condensed consolidated  financial statements for the three months and six months ended June 30, 2002  depict the results of operations and cash flows of HCD and subsidiaries only.





|NOTE 2 - | ACQUISITIONS
|-------- | ------------




ACQUISITION OF HCD





On November 6, 2002, the Company entered into an  Agreement for Merger (the Agreement) with HCD. On February 27, 2003, the  Agreement was amended and the merger was consummated. It became effective on  March 1, 2003.





The consideration
    paid by the Company for the acquisition consisted of 30,075,219 shares of
    the Companys common stock and  183,235 shares of the Companys
    Class B-1 preferred stock. The agreement called for an additional $1,650,000
    in financing. One of the Companys major  shareholders had agreed to
    assure that at least $650,000 will be raised and had agreed to post negotiable
    collateral against its obligation to purchase up to 3,513,514 shares of the
    Companys common stock. The parties subsequently  canceled the shareholders
    guarantee that $650,000 will be raised and its obligation to purchase up
    to 3,513,514 shares of the Companys common stock.  In return, the shareholder
    returned to the Company 3,500,000 of the companys  common stock that
    it owned. The 3,500,000 shares were accounted for as a reduction of the purchase
    price, resulting in net shares of common stock of 26,575,219 issued to



HCD. The consideration also included $76,958 of estimated  transaction costs.





F-7


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 2 - | ACQUISITIONS (CONTINUED)
|-------- | ------------------------




ACQUISITION OF HCD  (CONTINUED)





Of the approximately 70,203,000 shares of common stock  outstanding after the acquisitions of both HCD and IP2M (giving effect to the  conversion of the preferred stock), HCD controlled 48.45% of the combined  entity; DGI controlled 40.29% of the combined entity, with IP2M controlling the  remaining 11.26%. In addition, HCD had control of the Board of Directors at the  date of acquisition. As a result, HCD was deemed the accounting acquirer and  the acquisition of HCD was accounted for as a reverse acquisition.





The following set forth the consideration paid by the  Company, which may be subject to certain adjustments:





|Restricted common shares (26,575,219 at $0.03 per    share) |  | $ | 797,257   | 
|----------------------------------------------------------- |  | - | --------- | 
|Restricted preferred shares (183,235 at $1.20 per    share) |  |   | 219,882   | 
|Estimated transaction costs                                 |  |   | 76,958    | 
|                                                            |  |   |           | 
|Total Purchase Price                                        |  | $ | 1,094,097 | 
|                                                            |  |   |           | 




For purpose of determining the price of the common  stock, management believed that the best reference was the price of recent  sales of the Companys common stock. During the month of March 2003, the  Company sold shares of its common stock in reliance of Regulation S to foreign  investors at $0.06 per share. Since the shares issued in this acquisition were  not sold in reliance of Regulation S, which is less restrictive, and there are  additional restrictions, management believed that an additional discount of 50%  should be applied to the $0.06 per share, resulting in a price of $0.03 per  share.





Similarly, since each preferred share is convertible  into 40 shares of common stock, management believed that the preferred shares  should be valued at 40 times $0.03, or $1.20 per share.





The following table set forth the preliminary  allocation of the purchase price to DGIs tangible and intangible assets  acquired and liabilities assumed as of December 31, 2002:





F-8


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 2    - | ACQUISITIONS    (CONTINUED)
|----------- | ---------------------------




ACQUISITION OF HCD  (CONTINUED)





|Cash                                      |  | $ | 54,111     |  
|----------------------------------------- |  | - | ---------- | -
|Accounts receivable                       |  |   | 461,099    |  
|Inventory                                 |  |   | 12,858     |  
|Prepaid expenses and other current assets |  |   | 256,289    |  
|Property and equipment                    |  |   | 128,300    |  
|Other receivable                          |  |   | 100,000    |  
|Other assets                              |  |   | 15,457     |  
|Goodwill                                  |  |   | 3,820,664  |  
|Accounts payable and accrued expenses     |  |   | (2,581,957 | )
|Deferred revenue                          |  |   | (405,442   | )
|Other current liabilities                 |  |   | (227,039   | )
|Short term debt                           |  |   | (540,243   | )
|                                          |  |   |            |  
|Total                                     |  | $ | 1,094,097  |  
|                                          |  |   |            |  




ACQUISITION OF IP2M





On November 23, 2002, the Company entered into a  Letter of Intent relative to its proposed acquisition of IP2M. On February 24,  2003, the acquisition was finalized and the merger was consummated. It became  effective on March 1, 2003.





The consideration paid by the Company for the  acquisition consisted of 6,191,029 shares of the Companys common stock and  44,312 shares of the Company Class B-1 preferred stock. In addition, the  agreement provided for IP2M to receive 589,710 shares of common stock and 3,593  shares of preferred stock subject to the Company acquiring the outstanding  shares of Healthcare Horizons, Inc. and the assets of Azimuth Target Marketing,  Inc. On April 18, 2003, the Company completed the two acquisitions (see below)  and the additional shares were issued to the IP2Ms shareholders. In addition,  IP2Ms shareholders may be issued approximately 700,000 shares of the Companys  common stock if certain financial goals are met. The consideration also  included $69,274 of estimated transactions costs





The following set forth the consideration paid by the  Company, which may be subject to certain adjustments:





F-9


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 2    - | ACQUISITIONS    (CONTINUED)
|----------- | ---------------------------




ACQUISITION OF IP2M  (CONTINUED)





|Restricted common shares (6,780,739 at $0.03 per    share) |  | $ | 203,422 | 
|---------------------------------------------------------- |  | - | ------- | 
|Restricted preferred shares (47,905 at $1.20 per    share) |  |   | 57,486  | 
|Estimated transaction costs                                |  |   | 69,274  | 
|                                                           |  |   |         | 
|Total Purchase Price                                       |  | $ | 330,182 | 
|                                                           |  |   |         | 




The prices of the common shares and preferred shares  issued in this acquisition were determined as described in the acquisition of  HCD.





The following table set forth the preliminary  allocation of the purchase price of IP2Ms tangible and intangible assets  acquired and liabilities assumed as of December 31, 2002:





|Cash                                      |  | $ | 7,014    |  
|----------------------------------------- |  | - | -------- | -
|Accounts receivable                       |  |   | 61,973   |  
|Prepaid expenses and other current assets |  |   | 94,230   |  
|Property and equipment                    |  |   | 72,653   |  
|Goodwill                                  |  |   | 654,224  |  
|Accounts payable and accrued expenses     |  |   | (52,319  | )
|Deferred revenue                          |  |   | (394,646 | )
|Short term debt                           |  |   | (103,530 | )
|Long-term debt                            |  |   | (9,417   | )
|                                          |  |   |          |  
|Total                                     |  | $ | 330,182  |  
|                                          |  |   |          |  




ACQUISTIONS OF HEALTHCARE  HORIZON, INC. (HCH) AND AZIMUTH TARGET MARKKETING, INC. (AZIMUTH)





On April 18, 2003, the Company acquired the  outstanding shares of Healthcare Horizons, Inc. (HCH), a company that was  partially owned by HCD, and the assets of Azimuth Target Marketing, Inc.  (Azimuth) and assumed certain liabilities of Azimuth. HCH and Azimuth are  owners and distributors of demographic, disease, and healthcare information.





The price in the acquisition of HCH was $264,033,  consisting of 1,769,131 shares of the Companys common stock and 10,779 shares  of the Companys Class B-1 preferred stock. The common shares were valued at  $0.12 a share, based on the price of recent sales of the Companys common  stock, including a 50% discount for restrictions. Similarly, since each  preferred share is convertible





F-10


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 2 - | ACQUISITIONS (CONTINUED)
|-------- | ------------------------




ACQUISTIONS OF HEALTHCARE  HORIZON, INC. (HCH) AND AZIMUTH TARGET MARKKETING, INC. (AZIMUTH)  (CONTINUED)





into 40 shares of common stock, the preferred shares  were valued at 40 times $0.12, or $4.8 per share.





The following table set forth the preliminary  allocation of the purchase price of HCHs tangible and intangible assets  acquired and liabilities assumed effective April 1, 2003:





|Cash                                  |  | $ | 1,911    |  
|------------------------------------- |  | - | -------- | -
|Accounts receivable                   |  |   | 938      |  
|Database                              |  |   | 550,000  |  
|Goodwill                              |  |   | 94,179   |  
|Accounts payable and accrued expenses |  |   | (382,995 | )
|                                      |  |   |          |  
|Total                                 |  | $ | 264,033  |  
|                                      |  |   |          |  




The price in the acquisition of Azimuth was $528,067,  consisting of 3,538,261 shares of the Companys common stock and 21,557 shares  of the Companys Class B-1 preferred stock. The prices of the common shares and  preferred shares issued in this acquisition were determined as described in the  acquisition of HCH.





The following table set forth the preliminary  allocation of the purchase price of Azimuths tangible and intangible assets  acquired and liabilities assumed effective April 1, 2003:





|Cash                                  |  | $ | 12,000  |  
|------------------------------------- |  | - | ------- | -
|Accounts receivable                   |  |   | 130,338 |  
|Database                              |  |   | 405,000 |  
|Goodwill                              |  |   | 6,708   |  
|Accounts payable and accrued expenses |  |   | (12,785 | )
|Loan payable                          |  |   | (13,194 | )
|                                      |  |   |         |  
|Total                                 |  | $ | 528,067 |  
|                                      |  |   |         |  




The two acquisitions were not material to the  Companys financial statements.





F-11


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 2    - | ACQUISITIONS    (CONTINUED)
|----------- | ---------------------------




PRO-FORMA RESULTS OF  OPERATIONS





The following set forth the Companys results of  operations for the three months ended June 30, 2003, with comparative results  of operations for the three months ended June 30, 2002, as if the acquisitions  of HCD and IP2M had taken place at the beginning of the periods.





|                                                     |  | Three    Months    Ended    June 30, 2003 |            | Three    Months    ended    June 30, 2002 |  
|---------------------------------------------------- |  | ----------------------------------------- | ---------- | ----------------------------------------- | -
|                                                     |  |                                           |            |                                           |  
|REVENUE                                              |  | $                                         | 3,023,856  |                                           | $
|COST OF REVENUE                                      |  |                                           | 1,738,339  |                                           |  
|                                                     |  |                                           |            |                                           |  
|GROSS PROFIT                                         |  |                                           | 1,285,517  |                                           |  
|OPERATING EXPENSES:                                  |  |                                           |            |                                           |  
|Payroll and payroll    related expenses              |  |                                           | 923,363    |                                           |  
|Selling and marketing                                |  |                                           | 59,158     |                                           |  
|Depreciation and    amortization                     |  |                                           | 115,223    |                                           |  
|Loss on goodwill    impairment                       |  |                                           |           |                                           |  
|Other general and    administrative expenses         |  |                                           | 786,965    |                                           |  
|                                                     |  |                                           |            |                                           |  
|Total Operating    Expenses                          |  |                                           | 1,884,709  |                                           |  
|                                                     |  |                                           |            |                                           |  
|Loss from Operations                                 |  |                                           | (599,192   | )                                         |  
|OTHER INCOME (EXPENSES)                              |  |                                           |            |                                           |  
|Interest expense                                     |  |                                           | (18,737    | )                                         |  
|Gain on debt    settlements                          |  |                                           |           |                                           |  
|Other income                                         |  |                                           | 72,463     |                                           |  
|                                                     |  |                                           |            |                                           |  
|Net Other Income                                     |  |                                           | 53,726     |                                           |  
|                                                     |  |                                           |            |                                           |  
|NET LOSS                                             |  | $                                         | (545,466   | )                                         | $
|                                                     |  |                                           |            |                                           |  
|PRO-FORMA NET LOSS PER SHARE - BASIC AND DILUTED     |  | $                                         |           |                                           | $
|                                                     |  |                                           |            |                                           |  
|PRO-FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |  |                                           | 79,182,092 |                                           |  
|                                                     |  |                                           |            |                                           |  




F-12


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 2    - | ACQUISITIONS    (CONTINUED)
|----------- | ---------------------------




PRO-FORMA RESULTS OF  OPERATIONS (CONTINUED)





The following set forth the Companys results of  operations for the six months ended June 30 2003, with comparative results of  operations for the six months ended June 30,2002, as if the acquisitions of HCD  and IP2M had taken place at the beginning of the periods.





|                                                     |  | Six Months    Ended    June 30, 2003 |            | Six Months    ended    June 30, 2002 |  
|---------------------------------------------------- |  | ------------------------------------ | ---------- | ------------------------------------ | -
|                                                     |  |                                      |            |                                      |  
|REVENUE                                              |  | $                                    | 5,703,340  |                                      | $
|COST OF REVENUE                                      |  |                                      | 3,148,351  |                                      |  
|                                                     |  |                                      |            |                                      |  
|GROSS PROFIT                                         |  |                                      | 2,554,989  |                                      |  
|OPERATING EXPENSES:                                  |  |                                      |            |                                      |  
|Payroll and payroll    related expenses              |  |                                      | 1,794,011  |                                      |  
|Selling and marketing                                |  |                                      | 153,938    |                                      |  
|Depreciation and    amortization                     |  |                                      | 150,861    |                                      |  
|Loss on goodwill    impairment                       |  |                                      |           |                                      |  
|Loss on website    impairment                        |  |                                      |           |                                      |  
|Loss trademark    impairment                         |  |                                      |           |                                      |  
|Loss on fixed assets    impairment                   |  |                                      |           |                                      |  
|Other general and    administrative expenses         |  |                                      | 1,547,571  |                                      |  
|                                                     |  |                                      |            |                                      |  
|Total Operating    Expenses                          |  |                                      | 3,646,381  |                                      |  
|                                                     |  |                                      |            |                                      |  
|Loss from Operations                                 |  |                                      | (1,091,392 | )                                    |  
|OTHER INCOME (EXPENSES)                              |  |                                      |            |                                      |  
|Interest expense                                     |  |                                      | (134,873   | )                                    |  
|Gain on debit    settlements                         |  |                                      |           |                                      |  
|Gain on sale of options                              |  |                                      |           |                                      |  
|Other income                                         |  |                                      | 72,715     |                                      |  
|Other expenses                                       |  |                                      |           |                                      |  
|                                                     |  |                                      |            |                                      |  
|Net Other Income                                     |  |                                      | (62,158    | )                                    |  
|                                                     |  |                                      |            |                                      |  
|NET LOSS                                             |  | $                                    | (1,153,550 | )                                    | $
|                                                     |  |                                      |            |                                      |  
|PRO-FORMA NET LOSS PER SHARE - BASIC AND DILUTED     |  | $                                    | (0.02      | )                                    | $
|                                                     |  |                                      |            |                                      |  
|PRO-FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |  |                                      | 52,523,913 |                                      |  
|                                                     |  |                                      |            |                                      |  




F-13


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 3    - | GOING    CONCERN CONSIDERATIONS
|----------- | -------------------------------




The accompanying condensed consolidated financial  statements have been presented assuming the continuity of the Company as a  going concern.  However, the Company has  incurred substantial losses resulting in an accumulated deficit of  approximately $3,682,000 as of June 30, 2003. These conditions raise  substantial doubt as to the ability of the Company to continue as a going  concern.





Managements plans with regards to this issue are as  follows:





LIQUIDITY





| |  | The Company is continuing the sale of its equity    securities, as further discussed in Note 9. During the second quarter of 2003, the Company raised    approximately $467,000 in such activities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




PROFITABILITY





The Company intends to develop new and increased  revenues and gross margins in all areas of operations. Specifically, the  Company intends to:





| |  | Restructure its sales organization to allow for more    effective sales processes. These steps include, among others, consolidating    sales operations for subscription sales in offices in Florida, as well as    expansion of sales organization.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                     
| |  | Reduce expenses through office consolidation and    payroll reduction.                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                     
| |  | Enter into strategic relationships with data    suppliers that will return higher levels of match rate with a better quality    of data.                                                                                                            




Many of these profitability objectives have been met  early in the second quarter.





Presently, the Company cannot ascertain the eventual  success of managements plans with any degree of certainty. The accompanying  condensed consolidated financial statements do not include any adjustments that  might result from the eventual outcome of the risks and uncertainty described  above.





F-14


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DIALOG GROUP,  INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 4 - | LOANS AND NOTES PAYABLE
|-------- | -----------------------




Loans and notes payable consisted of the following as  of June 30, 2003





|Convertible
      notes in the aggregate amount of $100,000 due to three former IP2M non-related
      party note holders assumed by the Company. The notes are due August 31,
      2004. The
      notes bear interest at the rate of 10% per annum. The notes are convertible
      into shares of the Companys common stock. The number of shares to
      be issued upon conversion will be determined by the closing bid price of
      the Companys    common stock on the date of conversion. Each holder
      is entitled to convert up to 25% of the initial balance of the note (including
      accrued interest) each month. |  | $ | 100,000  |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Note payable to Axciom    Corporation in the original amount of $400,000. The maturity of the note was    extended to February 2003 and the note is now in default. See Note 9. The    note bears interest at 8% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 400,000  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|$115,000 revolving    credits agreement with a commercial bank renewable every year until October    13, 2004.  The line of credit bears    interest at prime plus 2% per annum and is personally guaranteed by one of    the Companys shareholders.                                                                                                                                                                                                                                                                                                                                                                                        |  |   | 90,285   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Line of credit    agreement with Dell Financial Corporation for equipment purchase. The    agreement provides for monthly payments of $414.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 10,164   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|SBA loan, bearing    interest at $6.25% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   | 13,194   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Total loans and notes    payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 613,643  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Less: Current    maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | (599,371 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Long Tem Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $ | 14,272   | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Maturities of long-term debt consist of the    following as of June 30, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |          |  
|2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $ | 599,371  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   | 14,272   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $ | 613,643  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |          |  




F-15


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 5    - | EQUITY
|----------- | ------




INCREASE IN NUMBER OF  AUTHORIZED SHARES





On June 24, 2003, the Companys Certificate of  Incorporation was restated to increase the number of authorized shares of  $0.001 par value common stock to 175,000,000 and to increase the number of  authorized shares of $0.001 par value preferred stock to 1,500,000.





ELIMINATION OF CLASS C  PREFERRED STOCK AND CLASS D PREFERRED STOCK





Also on June 24, 2003, The Companys Certificate of  Incorporation was restated to eliminate the Class C preferred stock and the  Class D preferred stock. None of the authorized Class C and Class D preferred  stock were outstanding.





CREATION OF CLASS C-1  CONVERTIBLE PREFERRED STOCK





On May 30, 2003, The Companys Certificate of  Incorporation created and authorized a series of preferred stock of 34,500  shares entitled Class C-1 convertible preferred stock.  Each Class C-1 preferred stock is convertible  into 1,000 shares of common stock. The Class C-1 preferred stock has no voting  rights, is not entitled to receive dividends and is entitled to certain  liquidation rights.





CREATION OF CLASS C-2  CONVERTIBLE PREFERRED STOCK





On May 30, 2003, The Companys Certificate of Incorporation  created and authorized a series of preferred stock of 5,000 shares entitled  Class C-2 convertible preferred stock.   Each Class C-2 preferred stock is convertible into 1,000 shares of  common stock. The Class C-2 preferred stock has no voting rights, is not  entitled to receive dividends and is entitled to certain liquidation rights.





CREATION OF CLASS C-3  CONVERTIBLE PREFERRED STOCK





On June 30, 2003, The Companys Certificate of  Incorporation created and authorized a series of preferred stock of 5,000  shares entitled Class C-3 convertible preferred stock.  Each Class C-3 preferred stock is  convertible into 1,000 shares of common stock. The Class C-3 preferred stock  has no voting rights, is not entitled to receive dividends and is entitled to  certain liquidation rights.





F-16


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 5    - | EQUITY    (CONTINUED)
|----------- | ---------------------




SHARES ISSUED IN  ACQUISTION OF HCH AND AZIMUTH





As discussed in Note 2, during the quarter ended June  30, 2003, the Company issued 5,307,392 shares of common stock in the  acquisition of HCH and Azimuth valued at $0.12 per share and 32,336 shares of  preferred stock valued at $4.80 per share.





SALES OF COMMON STOCK IN  PRIVATE PLACEMENTS





During the quarter ended June 30, 2003, the Company  sold the following shares of common stock in private placements:





|Number of Shares |  | Average    Price per Share |        | Net    Proceeds
|---------------- |  | -------------------------- | ------ | ---------------
|                 |  |                            |        |                
|639,285          |  | $                          | 0.0921 |                
|1,911,467        |  | $                          | 0.0525 |                
|2,855,826        |  | $                          | 0.0600 |                
|450,498          |  | $                          | 0.0805 |                
|1,661,544        |  | $                          | 0.0800 |                
|                 |  |                            |        |                
|7,518,620        |  |                            |        |                
|                 |  |                            |        |                




In connection with those sales, the Company paid cash  commissions aggregating approximately   $31,148. In addition the Company is to issue warrants to purchase  414,134 shares of the Companys common stock to consultants in connection with  those sales.





ISSUANCE OF COMMON STOCK  FOR SERVICES





During the quarter ended June 30, 2003, the Company  issued an aggregate of 129,600 shares of its common stock to consultants. The  shares were valued at $14,552, based on the price of the Companys common stock  on the date of the agreements, less a discount for restriction.  In addition, the Company is to issue an  additional 132,400 shares of common stock valued at $15,756 under one of the  consulting agreements. This amount is included in accrued expenses in the  accompanying condensed consolidated balance sheet.





F-17


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 5 - | EQUITY (CONTINUED)
|-------- | ------------------




ISSUANCE OF PENALTY  SHARES





During the year ended December 31, 2002, the Company  had sold shares of its common stock in private placements. During the second  quarter of 2003, 69,000 additional shares were issued to nine of these  investors. The Company had not complied with its obligation to register shares  previously sold to these holders.





EXERCISE OF STOCK OPTIONS





During the quarter ended June 20,2003, the Company  entered into a consulting agreement providing, among other things, for the  consultant to purchase a number of shares of the Companys common stock valued  at up to $3,000,000, at the thirty day low price of the Companys common stock.  The consultant exercised 800,000 options during the quarter and purchased  800,000 shares at $0.125 per share.





In addition, the agreement provided for the consultant  to receive at the end of each month in which options were exercised 15% of the  number of shares purchased. As a result, the Company issued an additional  120,000 of common stock to the consultant. The shares were valued at $0.12 per  share, which was the price used to value the common stock issued in the  acquisitions of HCH and Azimuth. The Company recognized consulting expense of  $14,400 during the quarter related to this transaction.





ISSUANCE OF COMMON STOCK  IN LIEU OF DIRECTOR COMPENSATION





During the quarter ended June 20, 2003, Carter Barnard  plc, one of the Companys shareholders, compensated two of the Companys  directors and in return, was allowed to purchase 288,000 shares of the  Companys common stock at par value. The shares were valued at $0.12 a share,  which was the price used to value the common stock issued in the acquisitions  of HCH and Azimuth.





|NOTE 6 - | RELATED PARTY TRANSACTIONS
|-------- | --------------------------




DUE TO RELATED PARTIES





As of June 30, 2003, the Company was indebted to four  shareholders in the aggregate amount of $177,038. The loans bear interest at  the rate of 10.5% per annum and are due on demand. The remaining balance of  $32,020 due to a related party is non-interest bearing.





F-18


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 6 - | RELATED PARTY TRANSACTIONS    (CONTINUED)
|-------- | -----------------------------------------




RENT FROM RELATED PARTIES





The Company leases an apartment from a company  controlled by two of its shareholders and executives. Rent expense paid to  these related parties amounted to $20,156 and $40,312 during the three months  and six months ended June 30, 2003, respectively.





|NOTE 7  | STOCK OPTIONS
|-------- | -------------




Effective January 1, 2003, the Company adopted the  recognition provisions of SFAS No. 148, Accounting for Stock-Based  Compensation  Transition and Disclosure.   Prior to 2002, the Company accounted for employee stock options using  the provisions of APB No. 25 Accounting for Stock Issued to Employees and  related interpretations. As of December 31, 2002, there were 71,015 employee  stock options outstanding. However, due to the lack of marketability of the  Companys common stock, the Company was unable to value the options.





During the six months ended June 30, 2003, 2,437,700  stock options were granted to employees, non-employee directors, officers and  consultants. 812,553 of these options vested during the quarter, and the  Company recognized compensation expense of $9,535.





|NOTE 8  | SEGMENT DISCLOSURES
|-------- | -------------------




During the quarter ended June 30, 2003, The Company  restructured its reportable operating segments to include HealthCare Dialog  (Healthcare), Data Dialog (Data), and Software. Healthcare includes HCD and  its wholly-owned subsidiaries, IP2M and HCH. Data includes TDMI and its  wholly-owned subsidiary, DMQ. Software includes Findstar and its wholly-owned  subsidiary. Operating results for 2002 were reclassified to conform to the 2003  restructure.





| |  | Healthcare provides pharmaceutical companies with a    suite of integrated healthcare-specific campaign creation and management    capabilities  including strategic and creative services, media placement,    interactive communication services, patient/consumer target identification,    and database enhancement and management services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                  
| |  | Data offers smalll and mid size businesses the    ability to target, create, print and execute a direct marketing compaign    online from their desktop                                                                                                                                                                                          




F-19


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DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 8  | SEGMENT DISCLOSURES (CONTINUED)
|-------- | -------------------------------




| |   | computer as well as offering a reverse telephone    append service to inbound telephone call center.                                                                                                                                                                                                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                      
| |  | Software is the exclusive distributor of Panda    Anti-Virus software in the United Kingdom.     Panda Software International     S.L., Softwares licensor, is a leading international developer of    antivirus software for all types of client types including corporations,    small and medium size businesses, and home users.




The Company allocates the costs of revenues and direct  operating expenses to these segments.





Information regarding the Companys operating segments  for the quarter and six months ended June 30, 2003 and 2002 are being presented  on a pro-forma basis, which includes the results of operations of the Company and all subsidiaries (except HCH
and Azimuth which results are immaterial) from April 1 to June 30 for the three month periods and from January 1 to June 30 for the six-month periods. Management believes that such comparative results of operations are more meaningful  than the actual results of operations that include operations from the date of  acquistion only for accounting acquirees.





Quarter ended June 30,  2003 (Pro-Forma)





|                              |  | Healthcare |           | Data |   | Software  |   | Corporate |         | Total |  
|----------------------------- |  | ---------- | --------- | ---- | - | --------- | - | --------- | ------- | ----- | -
|                              |  |            |           |      |   |           |   |           |         |       |  
|Revenues                      |  | $          | 1,413,969 |      | $ | 1,213,353 |   | $         | 396,534 |       | $
|Cost of revenues              |  |            | 1,088,565 |      |   | 500,056   |   |           | 149,718 |       |  
|                              |  |            |           |      |   |           |   |           |         |       |  
|Gross profit                  |  |            | 325,404   |      |   | 713,297   |   |           | 246,816 |       |  
|General and administrative    |  |            | 328,522   |      |   | 508,588   |   |           | 297,005 |       |  
|                              |  |            |           |      |   |           |   |           |         |       |  
|Income (loss) from operations |  |            | (3,118    | )    |   | 204,709   |   |           | (50,189 | )     |  
|Interest expense              |  |            | (7,080    | )    |   | (8,000    | ) |           | (1,157  | )     |  
|Other income (expenses)       |  |            |          |      |   | 6,506     |   |           | 65,957  |       |  
|                              |  |            |           |      |   |           |   |           |         |       |  
|                              |  | $          | (10,198   | )    |   | 203,215   |   | $         | 14,611  |       | $
|                              |  |            |           |      |   |           |   |           |         |       |  




F-20


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Back to Index





DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 8     | SEGMENT    DISCLOSURES (CONTINUED)
|----------- | ----------------------------------




Quarter ended June 30,  2002 (Pro-Forma)





|                              |  | Healthcare |           | Data |   | Software |   | Corporate |            | Total |  
|----------------------------- |  | ---------- | --------- | ---- | - | -------- | - | --------- | ---------- | ----- | -
|                              |  |            |           |      |   |          |   |           |            |       |  
|Revenues                      |  | $          | 1,499,165 |      | $ | 797,278  |   | $         | 269,340    |       | $
|Cost of revenues              |  |            | 789,305   |      |   | 520,079  |   |           | 40,782     |       |  
|                              |  |            |           |      |   |          |   |           |            |       |  
|Gross profit                  |  |            | 709,860   |      |   | 277,199  |   |           | 228,558    |       |  
|General and administrative    |  |            | 929,121   |      |   | 901,287  |   |           | 1,645,644  |       |  
|                              |  |            |           |      |   |          |   |           |            |       |  
|Income (loss) from operations |  |            | (219,261  | )    |   | (624,088 | ) |           | (1,417,086 | )     |  
|Gain on debt settlement       |  |            |          |      |   |         |   |           |           |       |  
|Interest expense              |  |            | (36,409   | )    |   | (62,591  | ) |           |           |       |  
|Other income (expenses)       |  |            |          |      |   |         |   |           | 23,480     |       |  
|                              |  |            |           |      |   |          |   |           |            |       |  
|                              |  | $          | (255,670  | )    | $ | (686,679 | ) | $         | (1,393,606 | )     | $
|                              |  |            |           |      |   |          |   |           |            |       |  




Six Months Ended June 30,  2003 (Pro-Forma)





|                              |  | Healthcare |           | Data |   | Software  |   | Corporate |         | Total |  
|----------------------------- |  | ---------- | --------- | ---- | - | --------- | - | --------- | ------- | ----- | -
|                              |  |            |           |      |   |           |   |           |         |       |  
|Revenues                      |  | $          | 2,718,479 |      | $ | 2,125,833 |   | $         | 859,028 |       | $
|Cost of revenues              |  |            | 1,847,835 |      |   | 975,632   |   |           | 324,884 |       |  
|                              |  |            |           |      |   |           |   |           |         |       |  
|Gross profit                  |  |            | 870,644   |      |   | 1,150,201 |   |           | 534,144 |       |  
|General and administrative    |  |            | 828,570   |      |   | 1,077,265 |   |           | 591,948 |       |  
|                              |  |            |           |      |   |           |   |           |         |       |  
|Income (loss) from operations |  |            | 42,074    |      |   | 72,936    |   |           | (57,804 | )     |  
|Gain on debt settlement       |  |            |           |      |   |           |   |           |         |       |  
|Interest expense              |  |            | (65,091   | )    |   | (16,000   | ) |           | (2,949  | )     |  
|Other income (expenses)       |  |            | 2         |      |   | 6,506     |   |           | 65,957  |       |  
|                              |  |            |           |      |   |           |   |           |         |       |  
|                              |  | $          | (23,015   | )    | $ | 63,442    |   | $         | 5,204   |       | $
|                              |  |            |           |      |   |           |   |           |         |       |  




F-21


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Back to Index





DIALOG  GROUP, INC. AND SUBSIDIARIES





NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30,  2003





(Unaudited)





|NOTE 8  | SEGMENT DISCLOSURES (CONTINUED)
|-------- | -------------------------------




Six Months Ended June 30,  2002 (Pro-Forma)





|                              |  | Healthcare |            | Data |   | Software   |   | Corporate |            | Total |  
|----------------------------- |  | ---------- | ---------- | ---- | - | ---------- | - | --------- | ---------- | ----- | -
|                              |  |            |            |      |   |            |   |           |            |       |  
|Revenues                      |  | $          | 3,093,291  |      | $ | 1,573,503  |   | $         | 490,892    |       | $
|Cost of revenues              |  |            | 1,718,037  |      |   | 986,260    |   |           | 121,273    |       |  
|                              |  |            |            |      |   |            |   |           |            |       |  
|Gross profit                  |  |            | 1,375,254  |      |   | 587,243    |   |           | 369,619    |       |  
|General and administrative    |  |            | 3,076,214  |      |   | 1,894,951  |   |           | 1,908,329  |       |  
|                              |  |            |            |      |   |            |   |           |            |       |  
|Income (loss) from operations |  |            | (1,700,960 | )    |   | (1,307,708 | ) |           | (1,538,710 | )     |  
|Gain on debt settlement       |  |            | 74,692     |      |   |           |   |           |            |       |  
|Interest expense              |  |            | (48,705    | )    |   | (67,029    | ) |           | (33,202    | )     |  
|Other income (expenses)       |  |            | 877        |      |   | (2,389     | ) |           | 368,312    |       |  
|                              |  |            |            |      |   |            |   |           |            |       |  
|                              |  | $          | (1,674,096 | )    | $ | (1,377,126 | ) | $         | (1,203,600 | )     | $
|                              |  |            |            |      |   |            |   |           |            |       |  




|NOTE 9     | LITIGATION
|----------- | ----------




As discussed in Note 4, the note payable of $400,000  due to Axciom Corporation is now in default. During July of 2003, Axciom  Corporation commenced an action against the Company.  The complaint seeks $400,000 on the note, and $295,415 for unpaid  data usage, and $1,250,000 for unused minimum usage requirements for 2003 and  2004. The Company has accrued approximately $209,000 for the unpaid  data usage but intends to vigorously contest the claims.





In June of 2003, one of the Companys vendors  commenced an action against HCD.  The  complaint seeks $85,076 for printing services and attorneys fees. The Company  has accrued approximately $75,000 and believes that a settlement  will be reached with the vendor for that amount.





|NOTE 10     | SECOND QUARTER ADJUSTMENTS
|------------ | --------------------------




During the
    second quarter of 2003, total revenues of $3,047,559 included approximately
    $125,000 of deferred revenue of the Data Dialog group that should have been
     recognized during the first quarter of 2003. In addition, total other general
    and administrative expenses included a write-off of approximately $60,000
    that should have been recognized in the first quarter of 2003, also attributable
    to the Data Dialog group. Had the revenue of $125,000 and the $60,000 write-off
    been recognized in the first quarter of 2003, net loss for the quarter ended
    June 30, 2003 would have been $586,169, compared to the reported net loss
    of $521,169.


F-22

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Item 2. Managements Discussion and Analysis or Plan of Operation.

General Dialog Group, Inc. (formerly IMX Pharmaceuticals, Inc.) (Dialog Group) is a publicly traded corporation (OTCBB:DLGG) with headquarters in New York City and offices in Valencia, California; Sunrise, Florida; Houston, Texas and Cambridge, United Kingdom. At the beginning of the second quarter, Dialog Group completed the acquisition of Healthcare Horizons, Inc (Healthcare Horizons) and the assets of Azimuth Target Marketing, Inc. During the first quarter, Dialog Group had completed its acquisition of Healthcare Dialog, Inc. (HealthCare) and IP2M, Inc. (IP2M) As a result, Dialog Group can conceive and implement a comprehensive program for its healthcare and other clients and execute it with Dialog Groups specialized data bases and services and channel of communication. Dialog Groups divisions combine depth of healthcare knowledge, broad strategic and creative services, and their own  information and channels to
consumers to assist Dialog Groups clients to achieve their objectives. Through its three operating divisions, Dialog Group provides its clients a suite of products that are available as either a turnkey solution or as a component for their marketing plan.  Dialog Group provides proprietary online and offline support for the healthcare, small business, telephone service bureau, financial services and direct marketing industries in the United States, and software in the United Kingdom.  Current and past healthcare clients include Novartis AG, Schering-Plough, GlaxoSmithKline, Johnson and Johnson, Boehringer-Ingelheim and Forest Laboratories.  Partners and strategic relationships include the United States Post Office, Clear Channel Communications, ABC Radio, McGraw-Hill Television,
National Association of Insurance and Financial Advisors, and Microsoft.


Description of the Healthcare Dialog Division

The Healthcare Dialog division consists of HealthCare, IP2M, and Healthcare Horizons. Healthcare Dialog is a provider of relationship marketing communications services to the healthcare industry. HealthCare has long provided pharmaceutical companies with a suite of integrated healthcare-specific campaign creation and management capabilities  including strategic and creative services, interactive communication services, patient/consumer target identification, and database enhancement and management services.  Combining these services into integrated programs, Healthcare Dialog creates, launches, and continually upgrades a range of targeted and highly customizable direct and interactive marketing campaigns.  Clients use HealthCare to help establish and build more valuable and longer lasting relationships with physicians, patients, and consumers over a broad array of permission-based contact points,
including Internet websites, opt-in e-mails, digital, on-demand print, direct mail and telemarketing.  The Healthcare Dialog division provides clients with comprehensive healthcare expertise, access to databases of more than 100 million households, experience in scalable mass personalization distribution technology, capabilities in syndicated marketing campaigns and track record of successfully delivering professional results.


23

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The acquisition of IP2M has broadened the channels HealthCare can use to reach its clients targets. IP2M has developed a unique marketing platform in healthcare that integrates radio, television, and the Internet to assist clients in targeting consumers. IP2M offers a national solution using the existing loyalty of the local radio and television stations to drive traffic to the client's content and advertising within the IP2M platform.


| | This allows HealthCare Dialog
    to offer its clients
| | ------------------------------------------------------
| |                                                      
| |                                                      
| |                                                      

Using the IP2M platform, the Healthcare Dialog division will provide healthcare-related content to a media partners branded website and sell the entire package of radio, television and online media to its healthcare customers.  Through its media partnerships, IP2M brings immediate access to over 1,000 radio and television stations and an audience in excess of 100,000,000 people.  Each of these radio and television stations is sending consumers to their websites. Thus, the divisions clients receive the benefit of its media partners existing website viewers. IP2Ms unique technology allows it to distribute different content and advertising to each site based on
market and demographics in a scalable manner.  Through its network of thousands of websites, radio and television stations, the Healthcare Dialog division is able to reach and specifically target millions of consumers on a nation-wide basis and provide customization based on product and market segmentation.  As the Healthcare Dialog division integrates all media, it has become a one stop shop offering clients cost-efficiencies. Past and present HealthCare clientele includes global pharmaceutical leaders such as Novartis AG and Schering-Plough Corp. Healthcare Dialog partners with numerous client-side brand teams and sales force management teams offering its wide ranging experience with both mass market and niche client brands, including such household names as Coppertone®.  Because of its in-house content development and media production capabilities, Healthcare Dialog also provides its services to other industries. IP2Ms clients for 2002 included Roche Pharmaceutical, Pfizer, GlaxoSmithKline, Depuy Johnson & Johnson, Takeda Pharmaceuticals, Novartis, St Lukes Hospital and Quality Medical Management. Each client has
extended its campaign, engaged the Healthcare Dialog Division for additional brands, or placed the division on its 2003 media plan. Healthcare Horizons owns, collects,
    and distributes demographic, disease, and healthcare information. Their permission-based
    data acquisition and management system offers HealthCares clients a superior level of market intelligence providing them with an unprecedented opportunity to market on a one-to-one basis. As part of its marketing services, HealthCare Horizons provides a co-op telephone interview in which custom questions are asked for non-competing clients to develop prospects for their products and services.  Each participating household is pre-selected from a proprietary national household database and then interviewed by a live operator.  Responses to a clients question set are available
for use immediately after the interview and become the property of the client.


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Healthcare Horizons also provides its services to other industries including insurance, hotel and hospitality services. Its past and present clients include Claritin, Progressive Insurance, Marriot Vacation Clubs, and Assurant Clinical Trials.


Description of Data Dialog

The Data Dialog division consists of ThinkDirectMarketing, Mail Mogul, and the Azimuth Data. ThinkDirectMarketing provides small and mid-size businesses the ability to target, create, print and execute a direct marketing campaign online from their desktop computer.  ThinkDirectMarketing offers online subscribers access to consumer and business databases containing information on over 100 million US businesses and consumers that can be searched by geographic and demographic information including age, income, and other demographic profiles. In addition to its subscription products ThinkDirectMarketing offers thousands of specialized consumer and business lists from the nations largest data compilers. ThinkDirectMarketing also offers data services such as data appending and list cleansing. To complement
these data services ThinkDirectMarketing has made available to its customers the ability from their desktops to plan, budget, and execute an entire direct mail campaign using its online mailing solutions. ThinkDirectMarketings marketing partners include: the United States Postal Service; Microsoft Corporation, Avery Dennison, the National Association of Insurance and Financial Advisors (NAIFA) consisting of insurance and financial advisors worldwide; Artisoft, a provider of computer telephony systems; and Interactive Intelligence, a developer of enterprise software for call centers. ThinkDirectMarketings direct mail, mailing services, and telemarketing products are specifically tailored to provide a cost-effective and powerful direct marketing solution for new customer acquisition and customer retention to the more than 20 million small and medium size businesses in the United States. Products and services are delivered from Dialog Groups web site and sales offices in the U.S. DigitalData, ThinkDirectMarketings
    call center data platform has been integrated for access and used by major
    Call Center and CRM solution providers. This opens their extensive reseller
    channels to Data Dialog. Current clients include PetMed and Air Jamaica.


25

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Mail Mogul provides mailing list acquisition, mailing supplies, National Change of Address (NCOA) for data cleansing and enhancement and the industrys premier lead generation service, Directmailquotes.com, for the letter shop channel. Mail Mogul is also one of the five USPS partners, further consolidating Dialog Groups position as the Postal Services leading affiliate.


Description of Software Dialog

Software Dialog is a sales and technical support led organization with telemarketing capabilities currently selling and distributing on an exclusive basis the Panda Software anti-virus software and products in the United Kingdom. The current product range consists of a complete set of antivirus solutions covering all home and business applications. Panda International distributes the software through country or regional exclusives, such as Software, and directly over the Panda web site, on television sales channels such as QVC, and to retailers such as Staples. Software Dialog sells exclusively through its channel partners: distributors and resellers. The products are also sold directly to corporate and business end users. Software Dialog provides local technical support. All of the anti-virus product users are initially licensed for 1, 2 or 3 years. As sales continue, renewals, necessary to keep the users virus list current, become an important part of Software Dialogs sales. Software Dialog has dedicated additional staff to solicit existing customers for renewal. During the second quarter of 2003, renewals constituted 47% of revenues from sales to corporate customers and 56% of revenue from sales to home users.


Results of Operations

Dialog Groups consolidated operations reflected in this quarters financial statements include all three divisions. The operations conducted by Healthcare Horizons and Azimuth are only included in this quarter but not the first quarter as they were not acquired until April. The consolidated results of operations for the six months ended June 30, 2003 and 2002 are being presented on a pro-forma basis, which includes the results of operations of Dialog Group and its subsidiaries (except Healthcare Horizon, which results are immaterial) from April 1 to June30 for the three month periods and form January 1 to June 30 for the six month periods. Management believes these comparative results of operations are
more meaningful then the actual results of operations that include operations from the date of acquisition only for the accounting acquirees.


26

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Dialog Group Dialog Groups consolidated Revenue for the three and six month periods ended June 30, 2003 were approximately $3,024,000 and approximately $5,703,000 respectively. This is compared to approximately $2,566,000 and $5,157,000 for the same periods in 2002. The consolidated Costs of Revenue for the same periods were approximately $1,738,000 and $3,148,000 in 2003 compared with $1,350,000 and $2,825,000 in 2002. The sources of the revenue and costs for each division are discussed below. Operating Expenses for the second quarter and first half of 2003 were approximately $1,885,000 and $3,646,000, respectively, and $4,232,000 and $7,852,000 for the same periods in 2002 include each divisions operating costs and the Dialog Groups central administrative costs. Dialog Groups central administrative costs reflect the growth of Dialog Groups financing and management responsibilities. They were $751,000 during the second quarter of 2003 and $1,149,000 for the first six months of this year. Administrative costs for the same periods during 2002 were $756,000 and $972,000, respectively. Increases in Administration Costs included reallocation of executive costs from HealthCare Dialog, addition of accounting and financial staff, and additional expenses associated with regulatory requirements. Losses from Operations were $599,000 and $1,091,000 for the three and six month periods ended June 30, 2003 compared with $3,016,000 and $5,520,000 for the same periods in 2002. The Net Loss for the three months ended June 30, 2003, after Other Income of $54,000, was $545,000. This compares with a Net Loss for the three months ended June 30, 2002, after Other Income of $650,000, of $2,366,000. The three month 2002 Other Income is the net of $184,000 in interest expense and gain on debt settlements of $756,000 and other income of $78,000. The Net Loss for the six months ended June 30, 2003, after Other Expense of $62,000, was $1,154,000 compared to a Net Loss of $4,261,000, after Other Income of $1,259,000, during the six months ended June 30, 2002. The 2003 Other Expense is a net of $135,000 in interest expense and $73,000 of other income. The 2002 Other Income is a net of $234,000 of interest expense and $831,000 of gain on debt settlements, $240,000 of gain on the sale of options, and $424,000 of other income. Second quarter 2003 revenues included
    $125,000 of deferred revenue in the Data Dialog division that should have
    been recognized in the first quarter. In addition, that divisions other
    general and administrative expense for the second quarter included $60,000
    of write offs that should have been taken in the first quarter. Had these
    revenues and expenses been recognized in the first quarter, the Net Loss
    for the second quarter would have been $586,000 instead of $545,000.


27

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Healthcare Dialog For the three and six months ended June 30, 2003, the Healthcare Dialogs revenues were approximately $1,414,000 and $2,718,000, respectively, as compared toapproximately $1,499,000 and $3,093,000 for the same periods ended June 30, 2002, a decrease of about $85,000 and $375,000, respectively, a decline of 6 % and 12 % respectively. The reduction in Revenues during the second quarter and the first half of 2003 was due to two major marketing programs Healthcare Dialog sold to a pharmaceutical client being in the design and production stage simultaneously in 2002 That did not occur in 2003 although Healthcare Dialog has contracted with the client in 2003 to manage these programs for fixed monthly
retainers. The work involved in managing is significantly less than that which was required in the design and development stages and as a result charges to the client in 2003 are less. In addition, the QD division of HealthCare was active in 2002, but produced no income in 2003. It was dissolved in the second quarter of 2003. Healthcare Dialogs Costs of Revenue were $1,089,000 and $1,848,000 for the three and six months ended June 30, 2003, representing 77% of Revenue in the second quarter and 68% of Revenue in the first half of 2003. This compares with Costs of Revenue of $789,000 and $1,718,000 for the same periods in 2002. The 2002 Costs of Revenue represented 53% and 56% of Revenue, respectively. In the second quarter of 2003, a greater percentage of revenues came from print products as compared with 2002, increasing Healthcare Dialogs cost ratios. Healthcare Dialogs total operating expenses were approximately $329,000 and $829,000 for the three and six months ended June 30, 2003, respectively. This compares withapproximately $929,000 and $3,076,000 for the same periods ended June 30, 2002. The decrease between both periods resulted from staff reductions and office consolidations and reallocation of certain executive expenses to Dialog Group administrative cost. as well as managements decision in the first quarter of 2002 to write down $624,859, $300,000 and $95,067 in loss on goodwill impairment, loss on website impairment and loss on fixed assets disposal respectively which did not occur in
2003. For the three months ended June 30, 2003, Healthcare Dialogs consolidated net loss from operations were approximately $3,000, an improvement from the $219,000 loss during the second quarter of 2002. The six month consolidated net gain for the six months ended June 2003 of approximately $42,000 represents an improvement from net losses of about $1,701,000 in the same period ending in 2002. While sales during both periods were lower, the write down of assets in 2002 combined with reduced marketing and administrative expenses during 2003 combined to improve the bottom line by over $200,000 during the second quarter and $1.7 million for 2003 to date. Data Dialog: Data Dialogs revenues were approximately $1,213,000 and $2,126,000, respectively for the three and six months ended June 30, 2003 as compared toapproximately $797,000 and $1,574,000 for the same periods ended June 30, 2002, an increase of about $416,000 (52%) and $552,000 (35%) for the three and six month periods. The improved results are due to new customers as well as increased revenues from existing customers and the introduction and rollout of the batch version of Data Dialogs DigitalData service. These improvements were mitigated by the costs of a disruption to sales caused by the relocation of Data Dialogs sales offices and the integration of new assets during both periods.


28

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Reported sales for the second quarter include approximately $125,000 of recognition of revenue from sales of one product which had not been realized in the first quarter of 2003. However, the remaining $1,088,000 in sales for the quarter compares favorably to the $797,000 for the second quarter of 2002. Data Dialogs Costs of Revenue were $500,000 and $976,000 for the three and six months ended June 30, 2003, representing 41% of Revenue in the second quarter and 46% of Revenue in the first half of 2003. This compares with Costs of Revenue of $520,000 and $968,000 for the same periods in 2002. The 2002 Costs of Revenue represented 65% and 63% of Revenue, respectively. In the second quarter Data Dialogs efforts to source data from supplies that offer higher margins and to offer data from recently acquired assets began to reduce the Costs of revenue. Data Dialogs consolidated total operating expenses were approximately $509,000 for the three months ended June 30, 2003. This compares withapproximately $901,000 for the same period in 2002. For the six month periods, expenses were $1,077,000 in 2003 and $1,895,000 in 2002. These decreases between both periods was accomplished by a reduction of executive positions, consolidation of staff, specifically technology and management staffing, and closure of offices. For the three months ended June 30, 2003, Data Dialog had Net Income from Operations of approximately $205,000; the Net Income for the six months ended June 30, 2003 was almost $73,000. These represent improvements from net losses of about $624,000 and $1,308,000 for the comparable periods ending June 30, 2002. Increased sales during both periods combined with reduced salary, marketing, and administrative expenses combined to improve the profitability of this division. Software Dialog: For the three months ended June 30, 2003, the Software Dialogs net revenues were approximately $397,000 as compared to $269,000 for the second quarter in 2002. For the first half of 2003, net revenues totaled $859,000 as compared with $491,000 for the six months ended June 30, 2002. These increases for both periods are attributable to opening up new sales routes and the continuing expansion of channel sales through resellers and distributors. Software Dialogs Costs of Revenue were $150,000 and $325,000 for the three and six months ended June 30, 2003, representing 38% of Revenue in the second quarter and 38% of Revenue in the first half of 2003. This compares with Costs of Revenue of $41,000 and $121,000 for the same periods in 2002. The 2002 Costs of Revenue represented 15% and 25% of Revenue, respectively. The Softwares total operating expenses were approximately $297,000 and $592,000 for the three and six months ended June 30, 2003 compared with $1,646,000 and $1,908,000 for same periods in 2002. The 2002 results for both 2002 periods include a loss on goodwill impairment of $1,102,000. Excluding the impairment, both periods still show a reduction of ongoing costs during the period. In addition, operating expenses in 2003 were increased by the release of extraordinary provisions and creditor accruals made in prior periods.


29

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Softwares net loss from operations
    for the three months ended June 30, 2003 was reduced to approximately $50,000
    from $1,417,000 for the three months ended June 30, 2002. For the six months
    ended June 30, the losses in 2003 were reduced to $58,000 from $1,539,000
    in 2003 as a result of increased revenue, the changes in the commission system,
  and control of overhead. Liquidity & Capital Resources Dialog Group had a consolidated working capital deficit of approximately $4,207,000 on June 30, 2003 as compared to a deficit of approximately $3,121,000 at December 31, 2002. The year end deficit did not include the December 31, 2002 working capital deficits of the two acquired companies, HealthCare and IP2M. Their working capital deficits as year end were approximately $908,000 and $1,379,000, respectively. During the quarter ended June 2003, Dialog Group raised over $500,000 through the sale of its stock. Inflation Inflation rates in the United States have not had a significant impact on operating results for the periods presented. Currency exchange risk Software Dialog sells its products, pays its expenses, and keeps its records in British Pounds Sterling. Although currency fluctuations do not represent and economic risk to Software Dialog, changes in exchange rates between the US Dollar and the British Pound can cause changes in the dollar value of assets and liabilities on Dialog Groups balance sheet and may make period results not strictly comparable.


Item  3. Controls and Procedures

During the second quarter of 2003, Dialog Groups disclosure controls and internal control over financial reporting were central concerns of management and the Board of Directors. Accounting operations at all United States offices were centralized in New York and Florida and a professional accounting and control staff has been appointed. At the Annual Meeting in May, Dialog Groups first independent directors were elected and an audit committee was appointed. As Dialog Group has consolidated financial operations, they can still be under the direct supervision of the Chief Financial Officer. Management believes that much progress towards integrating the operations of its acquisitions, but the need for extensions of time to file financial reports shows that progress is still required.


30

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|         |                  
|-------- | -----------------
|Part II. | Other Information

Items 3 and 5 are omitted as they are either not applicable or have been included in Part I.


|Item 1 | Legal Proceedings
|------ | -----------------

On
    June 13, 2003 Demkin Printing Incorporated commenced an action against Healthcare Dialogue, Inc. a/k/a PVD+Partners, a subsidiary, in the Supreme Court of the State of New York, New York County. The complaint seeks $85,076.27 for printing services and attorneys
    fees. An answer was filed, but Dialog Group is seeking to resolve the matter
without additional litigation expense. On July 25, 2003 Acxiom Corporation commenced an action against Dialog Group and its ThinkDirectMarketing subsidiary. The complaint seeks $400,000 on a note and $295,414.67 for unpaid data usage, and $1,250,000 for unused minimum usage requirements for 2003 and 2004. Dialog Group and its subsidiary have appeared in the proceeding and plans to vigorously contest the claims.


|Item 2(c) | Recent Sales of Unregistered
    Securities
|--------- | -------------------------------------------

Acquisition Transactions As of April 18, 2003 Dialog Group issued 5,307,392 shares of common stock and 32,336 shares of class B-1 preferred stock to four individuals to acquire the remaining shares of Healthcare Horizons, Inc and the assets of Azimuth Targeted Marketing, Inc. Each share of the class B-1 preferred stock is convertible into 40 shares of common stock. This transaction is exempt from the registration requirements of Section 5 of the Securities Act under Section 4(2) of the Securities Act it did not involve a public distribution of Dialog Group's securities. Each certificate carries a restrictive legend and a stop transfer order has been placed with the transfer agent. As a result of this acquisition, an additional 589,710 shares of common stock and 3,593 shares of class B-1 preferred stock were issued to the IP2M shareholders. All these shares join those in escrow to secure the accuracy of IP2Ms representations in connection with its acquisition. Regulation S Transactions On October 4, 2002 Dialog Group authorized Starz Investments Limited to sell up to 10,000,000 shares of its Common Stock to investors located outside of the United States.  The shares were offered pursuant to an exemption from registration afforded by Regulation S to the Securities Act of 1933.  Shares sold pursuant to Regulation S are deemed restricted and may not be sold to any U.S. Person (as that term is defined in the Regulation) for a period of one (1) year from date of sale. During the quarter, 3,502,050 shares were issued for a total consideration of $252,589 at an average price of $0.072. Dialog Group paid $25,259 to Burnham Securities as a commission in connection with this placement.


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On March 28, 2003 Dialog Group authorized Californian Securities S.A to sell up to 4,000,000 shares of its Common Stock outside the United States, also pursuant to Regulation S, at a price of $0.06 per share. During the second quarter, 4,016,570 shares were issued for a total consideration of $247,196.  Dialog Group paid $5,889 to Burnham Securities as a commission in connection with this placement. Related Purchases The acquisition agreement relating to HCD required Dialog Group to reimburse Cater Barnard for the services of any director appointed by it in the amount of £2,000 per month f6r each month in 2003. In lieu of this approximately $40,000 Cater Barnard agreed to accept 288,000 shares of common stock at a per share price of $0.139. This transaction is exempt from registration under the Securities Act pursuant to section 4(2) because was a private sale with no intention to redistribute the securities. A restrictive legend was placed on the certificate and a stop order was placed with Dialog Groups transfer agent. Bridge Loan Transaction In connection with a bridge loan associated with the closing of the HCD and IP2M acquisition during the first quarter of 2003, Dialog Group issued 1,100,000 shares of its Common Stock to Californian Securities, S.A. and granted A Street Capital Corp. a warrant to purchase 350,000 of its shares at a price of $0.05 per share. Other issuances On June 4, 2003, 69,000 additional shares were issued to nine investors. These were issued without additional compensation because Dialog Group had not complied with its obligation to register shares previously sold to these holders. Each holder had previously represented himself in writing to be an accredited investor who was purchasing their shares for investment. A restriction on resale has been placed with the Dialog Groups transfer agent and a legend has been placed on each certificate. Because of these factors, this sale is exempt from registration under the Securities Act as not involving a public distribution under section 4(2). 62,000 shares were issued to Kuma Consulting, Inc during the second quarter. On November 1, 2002 Dialog Group entered into consulting agreements with Kuma. Under these agreements Dialog Group agreed to pay Kuma $47,500 and to issue a total of 400,000 shares of its common stock for Kumas consulting services. $47,500 has been paid and 338,000 shares had been issued to Kuma or its designees during previous periods. The shares issued to Kuma are exempt from registration under section 4(2) of the Securities Act as private transactions because they were acquired for investment and are subject to stop orders and restrictive legends. On February 12th, 2003 Dialog Group agreed to issue 200,000 shares to Knightsbridge Capital for consulting services. During this quarter, the first 67,600 shares were issued to Knightsbridges Capitals designees pursuant to this agreement. The issuance of these shares is exempt from registration under section 4(2) of the Securities Act as a private transaction because the shares were acquired for investment and each certificate bears restrictive legends and is subject to a stop transfer order. Issuance of the additional shares is still pending.


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The proceeds of all shares issued for cash were used for general business purposes. Conversions During this quarter, Cater Barnard converted all its 142,810 shares of Class B Preferred Stock into 5,712,400 shares of Common Stock. One former ThinkDirectMarketing shareholder converted 343 shares of Class B Preferred Stock into 13,720 shares of Common Stock. All the certificates issued upon conversion bore Securities Act legends and stop orders have been recorded with the transfer agent. These transactions were exempt from registration under Section 3(a)(9) of the Securities Act of 1933 because they were exchanged by Dialog Group with the holders of its existing preferred stock exclusively and no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange.


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

Dialog Group held its Annual Meeting of Stockholders on May 28, 2003. Peter DeCrescenzo, Vincent DeCrescenzo, Adrian Stecyk, Richard Kundrat, and James Christodoulou were all elected as Directors for a one year term. These are all of Dialog Groups Directors. In addition, at the meeting, amendments to the 2002 Employee Stock Option Plan and the increase of the number of authorized shares of common stock to 175,000,000 and the number of authorized shares of preferred stock to 1,500,000 were approved. The vote for each director totaled 42,565,972 common shares and 152,923 preferred shares. The same number of votes was cast in favor of both proposals. There were no abstentions or broker non-votes.


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




| | (a) | Exhibits
| | --- | --------




| | ExhibitNumber | Description
| | ------------- | -----------
| |               |            
| | None          |            




| | (b) | Reports on Form 8-K
| | --- | -------------------

A report on Form 8-K/A (items 2 and 7) containing the financial statements required by the acquisition of Healthcare Dialog, Inc. and IP2M, Inc. (initially reported on a Form 8-K filed on March 14, 2003) was filed on May 15, 2003.


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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this quarterly report on Form 10-QSB to be signed in its behalf by the undersigned thereunto duly authorized on the 19th day of August 2003.


| | Dialog Group, INC
| | -----------------
| |                  
| | By:              
| |                  

CERTIFICATIONS

Chief Executive Officer

I, Peter V. DeCrescenzo, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Dialog Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: August 19, 2003

| | /s/ PETER V.
            DECRESCENZO
| | ------------------------------------
| | Peter V. DeCrescenzo,
          CEO 

Chief Financial Officer

I, Vincent DeCrescenzo, Sr., certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Dialog Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: August 19, 2003

| | VINCENT DECRESCENZO                   
| | --------------------------------------
| | Vincent DeCrescenzo,
          Sr. CFO

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