UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB

(Mark One)

/X/   Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2004.

/X/   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.
                 ----------------------------------------------
                 (Name of Small Business Issuer in its Charter)

Delaware                               .                              87-0394290
---------------------------------------                   ----------------------
(State or Other Jurisdiction of                                 (I.R.S. Employer
Incorporation or Organization)                            Identification Number)

Twelfth Floor, 257 Park Avenue South, New York, NY                    10010
-----------------------------------------------------            ---------------
     (Address of Principal Executive Offices)                       (Zip Code)

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   /X/   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 /X/ 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 12, 2004 there were 109,638,587 shares of common stock, par
value $.001 per share outstanding.

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

<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES

                                      INDEX

   Page
  Number

                    PART I.     FINANCIAL INFORMATION

               Item 1           Financial Statements

    F-1        Condensed Consolidated Balance Sheets as of December 31, 2003
               (audited) and June 30, 2004 (unaudited)

    F-2        Condensed Consolidated Statements of Operations and Comprehensive
               Loss for the Three Months Ended June 30, 2004 (unaudited) and
               June 30, 2003 (unaudited)

    F-3        Condensed Consolidated Statements of Operations and Comprehensive
               Loss for the Six Months Ended June 30, 2004 (unaudited) and June
               30, 2003 (unaudited)

    F-4        Condensed Consolidated Statements of Cash Flows for the Six
               Months Ended June 30, 2004 (unaudited) and June 30, 2003
               (unaudited)

F-5 to F-23    Notes to Condensed Consolidated Financial Statements (unaudited)

  24-35        Item 2. Management's Discussion and Analysis or Plan of Operation

    35         Item 3. Controls and Procedures

                    PART II.    OTHER INFORMATION

  36-37        Item 2(c)        Recent Sales of Unregistered Securities

    38         Item 6           Exhibits and Reports on Form 8-K

<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                       -----------------------------------

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      -------------------------------------

                                     ASSETS

                                                       JUNE 30,     DECEMBER 31
                                                         2004           2003
                                                     -----------    -----------
                                                     (Unaudited)

CURRENT ASSETS:
  Cash                                               $        --    $   147,246
  Accounts receivable (Net)                              903,908        716,879
  Notes receivable                                        37,500        100,000
  Prepaid expenses and other current assets               63,125         87,591
                                                     -----------    -----------
     Total current assets                              1,004,533      1,051,716
                                                     -----------    -----------

PROPERTY AND EQUIPMENT, NET                               25,433         16,708

OTHER ASSETS:
  Data Assets (Net)                                      527,326        656,996
  Website (Net)                                          109,847        122,792
  Other assets                                            63,545         89,342
                                                     -----------    -----------
    Total other assets                                   700,718        869,130
                                                     -----------    -----------

TOTAL ASSETS                                         $ 1,730,684    $ 1,937,554
                                                     ===========    ===========


          LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
  Bank overdraft                                     $    53,328    $        --
  Accounts payable                                     2,324,113      2,156,021
  Accrued expenses                                       490,624        937,065
  Deferred revenue                                       842,813        757,540
  Current portion of long-term debt                      148,271        230,177
  Other current liabilities                              119,041         12,500
  Due to related parties                                   4,920          4,920
                                                     -----------    -----------
     Total current liabilities                         3,983,111      4,098,223
                                                     -----------    -----------

STOCKHOLDERS' DEFICIENCY:
  Preferred stock                                            320            322
  Common stock                                           109,639         85,813
  Additional paid-in-capital                           5,709,559      5,370,879
  Accumulated deficit                                 (7,963,945)    (7,582,883)
  Dividends- Preferred Stock                            (108,000)       (34,800)
                                                     -----------    -----------
Total stockholders' equity (deficiency)               (2,252,427)    (2,160,669)
                                                     -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY       $ 1,730,684    $ 1,937,554
                                                     ===========    ===========

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

                                      F-1
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                       -----------------------------------

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 -----------------------------------------------

                           FOR THE THREE MONTHS ENDING
                           ---------------------------

                                                                  (RESTATED FOR
                                                                   DISCONTINUED
                                                      JUNE 30,      OPERATIONS)
                                                        2004       JUNE 30, 2003
                                                     -----------   -------------

REVENUE                                              $ 2,137,254    $ 2,348,456

COST OF REVENUES                                         858,005      1,553,764
                                                     -----------    -----------

GROSS  PROFIT                                          1,279,249        794,692

OPERATING EXPENSES:
Selling, General and Administrative Expenses           1,421,929      1,291,393
                                                     -----------    -----------

Total Operating Expenses                               1,421,929      1,291,393
                                                     -----------    -----------

LOSS FROM OPERATIONS                                    (142,680)      (496,701)

OTHER INCOME (EXPENSES)
Interest expenses                                        (14,052)        (9,580)
Other expenses                                           (13,385)            --
Other income                                               2,047             --
Forgiveness of Debt                                      161,737             --
                                                     -----------    -----------

Total Other Income (Expenses)                            136,347         (9,580)
                                                     -----------    -----------

NET LOSS BEFORE DISCONTINUED OPERATIONS                   (6,333)      (506,281)

DISCONTINUED OPERATIONS                                  (64,447)       (31,998)
                                                     -----------    -----------

NET LOSS                                             $   (70,780)   $  (538,279)
                                                     ===========    ===========

Loss Per Share, Basic and Diluted
on Net Loss from Continuing Operations                    (0.001)        (0.010)
                                                     ===========    ===========

Loss Per Share, Basic and Diluted - Pro-forma             (0.001)            --
                                                     ===========    ===========

Weighted Average Common Shares Outstanding
                      Basic                           89,612,709     79,182,092
                                                     ===========    ===========

   The accompanying notes are an integral partt of the financial statements.

                                      F-2
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                       -----------------------------------

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 -----------------------------------------------

                           FOR THE SIX MONTHS ENDING
                           -------------------------

                                                                  (RESTATED FOR
                                                                   DISCONTINUED
                                                      JUNE 30,      OPERATIONS)
                                                        2004       JUNE 30, 2003
                                                     -----------   -------------

REVENUE                                              $ 4,082,685    $ 3,480,880

COST OF REVENUES                                       1,797,975      2,240,554
                                                     -----------    -----------

GROSS  PROFIT                                          2,284,710      1,240,326

OPERATING EXPENSES:
Selling, General and Administrative Expenses           2,812,874      1,787,087
                                                     -----------    -----------

Total Operating Expenses                               2,812,874      1,787,087
                                                     -----------    -----------

LOSS FROM OPERATIONS                                    (528,164)      (546,761)

OTHER INCOME (EXPENSES)
Interest expenses                                        (32,512)      (115,922)
Other expenses                                           (13,285)            --
Other income                                               1,947             --
Forgiveness of Debt                                      255,400             --
                                                     -----------    -----------

Total Other Income (Expenses)                            211,550       (115,922)
                                                     -----------    -----------

NET LOSS BEFORE DISCONTINUED OPERATIONS                 (316,614)      (662,683)

DISCONTINUED OPERATIONS                                  (64,447)       (73,889)
                                                     -----------    -----------

NET LOSS                                             $  (381,061)   $  (736,572)
                                                     ===========    ===========

Loss Per Share, Basic and Diluted
on Net Loss from Continuing Operations                    (0.004)        (0.010)
                                                     ===========    ===========

Loss Per Share, Basic and Diluted - Pro-forma             (0.004)            --
                                                     ===========    ===========

Weighted Average Common Shares Outstanding
                      Basic                           87,720,713     52,523,913
                                                     ===========    ===========

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

                                      F-3
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                       -----------------------------------

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------

                 FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
                 -----------------------------------------------

                                   (UNAUDITED)
                                   -----------

                                                         2004          2003
                                                     -----------    -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                             $  (381,060)   $  (722,988)
Adjustments to Reconcile Net Loss to Net Cash
    used in Operating Activities:
Depreciation and amortization                            166,421        135,319
Provisions for Bad Debts                                  11,571             --
Forgiveness of debt                                     (255,400)            --
Common Stock, Warrants and
Stock Options issued for Services                             --         84,872
Changes in Operating Assets and Liabilities:
(Increase) Decrease In:
Accounts Receivable                                     (198,600)      (296,304)
Inventory                                                     --            (89)
Other Current Receivables                                     --         26,915
Prepaid Expenses & Other Current Assets                   24,466        (49,354)
Other Assets                                              25,797             --
Increase (Decrease) In:
Accounts Payable & Accrued Expenses                      209,683        724,710
Other Current Liabilities                                106,542        (58,978)
Deferred Revenues                                         85,273       (525,453)
                                                     -----------    -----------
       NET CASH USED IN OPERATING ACTIVITIES            (205,307)      (681,350)
                                                     -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Data Base                                         --       (126,528)
Purchase of Property and Equipment                       (20,032)       (54,253)
Purchase for Web Site Development                        (12,500)            --
Net Cash Acquired from HCH and Azimuth                        --         13,912
Increase in Deposit                                           --        (15,528)
                                                     -----------    -----------
            NET CASH USED IN  INVESTING ACTIVITIES       (32,532)      (182,397)
                                                     -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder Loans, net                                        --         10,474
Proceeds from Sale of Common Stock                        35,000        730,662
Short Term Borrowing, net                                 (6,907)         4,278
Notes Receivable - Findstar                               62,500             --
                                                     -----------    -----------
            NET CASH PROVIDED BY FINANCING ACTIVITIES     90,593        745,414
                                                     -----------    -----------

NET DECREASE IN CASH                                    (147,246)      (118,333)
EFFECT OF EXCHANGE RATE ON CASH                               --        (21,259)
CASH, BEGINNING OF PERIOD                                147,246        311,596
                                                     -----------    -----------
CASH, END OF PERIOD                                  $        --    $   172,004
                                                     ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

        Interest paid during the period              $    32,512    $        --
                                                     ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
 AND FINANCING ACTIVITIES:

Shares Issued in Acquisition of HCD                                 $ 1,017,139
                                                                    ===========
Shares Issued in Acquisition of IP2M                                $   260,908
                                                                    ===========
Shares Issued in Acquisition of HCH                                 $   264,033
                                                                    ===========
Shares Issued in Acquisition of Azimuth                             $   528,067
                                                                    ===========
Conversion of Debt to Equity                         $   179,504
                                                     ===========
Notes Payable Converted Equity                       $    75,000
                                                     ===========
Class E Dividends Payable Converted to Equity        $    71,000
                                                     ===========

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

                                      F-4
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

NOTE 1 -          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND CAPITALIZATION

IMX Pharmaceuticals, Inc., formerly IMX Corporation, was organized under the
laws of the State of Utah on June 2, 1982. The Company changed its name to IMX
Pharmaceuticals, Inc. on June 30, 1997.

Dialog Group, Inc., was incorporated under the laws of the State of Delaware on
October 4, 2002. The Company's authorized capital stock consisted of 1,000
shares with no par value.

On November 12, 2002, IMX Pharmaceutical, Inc. and Dialog Group, Inc. merged
into a single Delaware corporation (the "Company") for the sole purpose of
reincorporating IMX Pharmaceutical, Inc. in Delaware. The name of the surviving
corporation is Dialog Group, Inc.

In conjunction with the merger, the Company's Certificate of Incorporation was
restated to increase the total number of shares of capital stock that the
Company has the authority to issue to 101,000,000. The total number of
authorized shares of common stock, $0.001 par value, is 100,000,000 and the
total number of authorized preferred stock, $0.001 par value, is 1,000,000. The
Board of Directors is authorized to establish the preferred stock in one or more
series and to fix the rights, preferences, privileges, and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting each
series or the designation of such series.

On May 23, 2003, the Company further increased the total number of shares of
capital stock of authorized shares of $0.001 par value common stock available
for issuance to 175,000,000 and the total number of authorized $0.001 par value
preferred stock available for issuance to 1,500,000.

Further, on June 18, 2004, the Company increased the total number of shares of
capital stock of authorized shares of $0.001 par value common stock available
for issuance to 200,000,000 and the total number of authorized $0.001 par value
preferred stock available for issuance to 1,500,000. On June 18, 2004, the
Company eliminated its Class C preferred stock and restated the terms of the
Company's Class E preferred stock. The number of shares of authorized Class E
preferred stock is 200 shares. In the event of liquidation, dissolution or
winding-up or sale of more than 50% of the voting securities of the Company,
holders of the Class E preferred stock shall be entitled to Liquidation Rights
equivalent to $10,000.00 per share plus any accumulated but unpaid dividends.

BUSINESS ACTIVITY

The Company, which is headquartered in New York, NY, has offices in Valencia,
California; Sunrise, Florida; and Houston, Texas. The Company's two divisions,
Data Dialog and Healthcare Dialog, provide a combination of traditional
advertising (print, broadcast) and marketing services (broadcast, new media, and
internet-based promotional venues); as well as a broad spectrum of proprietary
and exclusive databases for healthcare, pharmaceutical, consumer and
business-to-business market clients. The Company owns and/or has exclusive
licensing rights to 75 Web sites, 9 databases, and 5 products.

                                      F-5
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

Additionally, the Company maintains exclusive contracts with leading
multi-national pharmaceutical companies to operate, maintain and provide content
for their consumer-directed Web sites.

Both Dialog Group's divisions currently market its product and service offerings
through three branded, business organizations. The Healthcare Dialog division:
nFusion, +Media, and iData. The Data Dialog division: Data Dialog Marketing,
Data Dialog Digital and Mail Mogul.

ACCOUNTS RECEIVABLE

The Company conducts business and extends credit based on the evaluation of its
customers' financial condition, generally without requiring collateral. Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors credit losses and maintains
allowances for anticipated losses considered necessary under the circumstances.
Recoveries of accounts previously written off are recognized as income in the
periods in which the recoveries are made.

REVENUE RECOGNITION

The Company recognizes revenues in accordance with SAB 101, which reflects the
basic principles of revenue recognition in existing generally accepted
accounting principles. Accordingly, revenues are recognized upon delivery of
goods, services, or licenses to customers. Revenues derived from the sale of
twelve-month SUBSCRIPTIONS to the Company's mailing lists are deferred and
included in income on a monthly basis as revenues are earned.

WEBSITE DEVELOPMENT

The Company accounts for website development and maintenance costs in accordance
with the guidance of EITF 00-2 "Accounting for Website Development Costs" and
Statement of Position 98-1 "Software Developed or Obtained for Internal Use".
Costs incurred in the planning stage are expensed as incurred. Costs incurred in
connection with the development stage are capitalized during the application
development stage and amortized over a 3-year period. Costs incurred during the
post-implementation operation stage, and fees incurred for web hosting, are
expensed as incurred.

NET LOSS PER COMMON SHARE AND DILUTIVE SECURITIES

Earnings (loss) per share are computed in accordance with SFAS No. 128,
"Earnings per Share". Basic earnings per share is computed by dividing net
income, after deducting preferred stock dividends accumulated during the period,
by the weighted-average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during the period.

The Company has convertible preferred stock, options and warrants that were not
included in the computation of diluted loss per share because they are
anti-dilutive.

In January 2003, the FASB issued Interpretations No. 46, "Consolidation of
Variable Interest Entities". FIN No. 46 addresses consolidation by business
enterprises of variable interest entities (formerly special purpose entities or
"SPEs"). The Company does not have any variable interest entities as defined by
FIN No. 46.

                                      F-6
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

In April 2003, the FASB issued Statement No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities". This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under Statement No. 133, "Accounting for Derivatives
Instruments and Hedging Activities." The provisions of this statement are
effective for all derivatives and hedging activities entered into after June 30,
2003. The Company does not participate in such transactions, and accordingly,
adoption of this statement did not have a material effect on the Company's
financial statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards on the classification and measurement of certain
instruments with characteristics of both liabilities and equity. The provisions
of SFAS No. 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The Company does not have such instruments, and accordingly, adoption of this
statement did not have a material effect on the Company's financial statements.

NOTE 2 -          BASIS OF PRESENTATION

The condensed consolidated balance sheet as of June 30, 2004, the condensed
consolidated statements of operations for the three months and six months ended
June 30, 2004 and 2003 and the condensed consolidated statements of cash flows
for the six months ended June 30, 2004 and 2003 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 30,2004 and for all
periods presented, have been made. The results of operations for the three
months or six months period ended June 30, 2004 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,
2003 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, Dialog Group, Inc., and its wholly-owned subsidiaries; Healthcare
Dialog, Inc., IP2M, Inc., Mail Mogul, Inc., and Data Dialog, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.

                                      F-7
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

REPORTING PERIOD

As further explained in Note 3, 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 and six months ended
June 30, 2004 depict the results of operations and cash flows of HCD, MMI, IP2M,
and DGI for the three and six months ended June 30,2004 and the results of
operations and cash flows of HCD DGI, MMI, IP2M from March 1, 2003, (effective
date of the acquisition) to June 30 2004. The accompanying condensed
consolidated financial statements for the three and six months ended June 30,
2004 depict the results of operations and cash flows of HCD, MMI, IP2M, and DGI.

NOTE 3 -          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.

Of the approximately 70,203,000 shares of common stock outstanding after the
consummation of both transactions (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 currently controls the Board of Directors, with two of the current
four members being former officers of HCD. As a result, HCD was deemed the
accounting acquirer and the acquisition of HCD was accounted for as a reverse
acquisition.

                                      F-8
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

ACQUISITION OF HCD - Continued

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 is 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:

      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

                                      F-9
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

ACQUISITION OF IP2M (CONTINUED)

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 Note 9) 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:

      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
                                                                    ==========

                                      F-10
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

PRO-FORMA RESULTS OF OPERATIONS

The following set forth the Company's results of operations for the three months
ended June 30, 2004 with comparative results of operations for the three months
ending June 30, 2003, as if the acquisitions of HCD and IP2M had taken place at
the beginning of 2003. The 2004 amounts include the results of operations for
all entities excluding Data Dialog, Inc. The 2003-proforma amounts have been
restated to include only the remaining entities.

                                                    Three           Three
                                                    Months          Months
                                                    Ending          Ending
                                                 June 30, 2004   June 30, 2003
                                                 -------------   -------------

REVENUE                                           $1,857,416      $2,348,456

COST OF SALES                                        747,922       1,553,764
                                                  ----------      ----------

GROSS PROFIT                                       1,109,494         794,692

OPERATING EXPENSES:
Selling, General and Administrative Expenses       1,103,515       1,291,393
                                                  ----------      ----------

TOTAL OPERATING EXPENSE                            1,103,515       1,291,393
                                                  ----------      ----------

INCOME (LOSS) FROM OPERATIONS                          5,979        (492,539)

Other Income (Expenses):
Interest expenses                                    (14,052)         (9,580)
Other expenses                                       (13,285)
Other income                                           2,047
Forgiveness of Debt                                  161,737
                                                  ----------      ----------
Total Other Income (Expense)                         136,447          (9,580)
                                                  ----------

Profit/(Loss) from continuing operations             142,426        (506,281)
                                                  ----------      ----------

Discontinued Operations                              (64,447)        (39,185)
                                                  ----------      ----------

Net Profit/(Loss)                                 $   77,979      $ (545,466)
                                                  ==========      ==========

                                      F-11
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

PRO-FORMA RESULTS OF OPERATIONS

The following set forth the Company's results of operations for the six months
ended June 30, 2004 with comparative results of operations for the six months
ending June 30, 2003, as if the acquisitions of HCD and IP2M had taken place at
the beginning of 2003. The 2004 amounts include the results of operations for
all entities excluding Data Dialog, Inc. The 2003-proforma amounts have been
restated to include only the remaining entities.

                                                      Six             Six
                                                     Months          Months
                                                     Ending          Ending
                                                  June 30, 2004   June 30, 2003
                                                  -------------   -------------

REVENUE                                             3,604,969       4,277,789

COST OF SALES                                       1,635,349       2,726,376
                                                    ---------     -----------

GROSS PROFIT                                        1,969,620       1,551,413

OPERATING EXPENSES:
Selling, General and Administrative Expenses        2,099,612       2,372,229
                                                    ---------     -----------

TOTAL OPERATING EXPENSE                             2,099,612       2,372,229
                                                    ---------     -----------

INCOME (LOSS) FROM OPERATIONS                        (129,992)       (820,816)

Other Income (Expenses):
Interest expenses                                     (32,512)       (115,924)
Other expenses                                        (13,285)
Other income                                            1,947            252
Forgiveness of Debt                                   254,100
                                                    ---------     -----------
Total other income (expenses)                         210,251        (115,672)
                                                    ---------     -----------

Profit/(Loss) from continuing operations               80,259        (936,488)
                                                    ---------     -----------

Discontinued Operations                               (64,447)       (217,062)
                                                    ---------     -----------

Net Profit/(Loss)                                   $  15,812     $(1,153,550)
                                                    =========     ===========

                                      F-12
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

ACTUAL RESULTS OF OPERATIONS

The following set forth the Company's actual results of operations for the three
months ended June 30, 2004, with comparative actual results of the continuing
operations for the three months ended June 30, 2003

                                                     Three Months   Three Months
                                                        Ending        Ending
                                                    June 30, 2004  June 30, 2003
                                                    -------------  -------------

REVENUE                                              $ 2,137,254    $ 2,348,456

COST OF SALES                                            858,005      1,553,764
                                                     -----------    -----------

GROSS PROFIT                                           1,279,249        794,692

OPERATING EXPENSES:
Selling, General, and Administrative Expenses          1,421,929      1,291,393
                                                     -----------    -----------
TOTAL OPERATING EXPENSE                                1,421,929      1,291,393
                                                     -----------    -----------

INCOME (LOSS) FROM OPERATIONS                           (142,680)      (496,701)
                                                     -----------    -----------

Other Income (Expenses):
Interest expenses                                        (14,052)        (9,580)
Forgiveness of Debt                                      161,737
Other Income                                               2,047
Other expenses                                           (13,385)
                                                                    -----------
Total other income (expenses)                            136,347         (9,580)
                                                     -----------    -----------
Loss Before Discontinued Operations                       (6,333)      (506,281)
                                                     -----------    -----------

Discontinued Operations                                  (64,447)       (31,998)
                                                     -----------    -----------

Net Loss                                                 (70,780)      (538,279)
                                                     ===========    ===========

                                      F-13
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

ACTUAL RESULTS OF OPERATIONS

The following set forth the Company's actual results of operations for the six
months ended June 30, 2004, with comparative actual results of the continuing
operations for the six months ended June 30, 2003


                                                      Six Months     Six Months
                                                        Ending        Ending
                                                    June 30, 2004  June 30, 2003
                                                    -------------  -------------

REVENUE                                              $ 4,082,685    $ 3,480,880

COST OF SALES                                          1,797,975      2.240,554
                                                     -----------    -----------

GROSS PROFIT                                           2,284,710      1,240,326
                                                     -----------    -----------

OPERATING EXPENSES:
Selling, General, and Administrative Expenses          2,812,874      1,787,087
                                                     -----------    -----------
TOTAL OPERATING EXPENSE                                2,812,874      1,787,087
                                                     -----------    -----------

INCOME (LOSS) FROM OPERATIONS                           (528,164)      (546,761)
                                                     -----------    -----------

Other Income (Expenses):

Interest income                                                               2
Interest expenses                                        (32,512)      (115,924)
Other income                                               1,947
Forgiveness of Debt                                      255,400
Other expenses                                           (13,285)
                                                     -----------    -----------
Total other income (expenses)                            211,550       (129,924)

Loss Before Discontinued Operations                     (316,614)      (676,267)

Discontinued Operations                                  (64,447)       (60,305)
                                                     -----------    -----------

Net Loss                                             $  (381,061)   $  (736,572)
                                                     ===========    ===========

NOTE 4 -          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
$7,963,987 as of June 30, 2004. 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:

                                      F-14
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

LIQUIDITY

o    During the second quarter of 2004, the Company converted approximately
$227,000 of liabilities to equity. The Company continues to pursue appropriate
financing opportunities such as factoring of accounts receivables, issuance of
convertible debentures, and other equity related financing options.

PROFITABILITY

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

o    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.

o    Reduce expenses through office consolidation and improved labor
utilization.

o    Enter into strategic relationships with data suppliers that will return
higher levels of match rate with a better quality of data.

o    Reduce operating costs through improved procurement procedures.

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.

NOTE 5 -        LOANS AND NOTES PAYABLE

Loans and notes payable consisted of the following as of June 30, 2004

Convertible notes in the aggregate amount of $100,000 due to
three former IP2M 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. During the Second
Quarter of 2004 $75,000.00 of Notes were converted to Common
Stock                                                              $     25,000

$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.                   $    107,742

                                     F-15
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

Small business loan assumed upon the purchase of Azimuth Target
Marketing. The loan bears interest at prime plus 21/4% per annum,
due in equal installments over 36 months, maturing during 2004.    $      6,563

Line of credit agreement with Dell Financial Corporation for
equipment purchase. The agreement provides for monthly payments
of $414.                                                           $     8,966
                                                                   -----------

Total loans and notes payable                                      $   148,271

Less: Current maturities                                           $  (148,271)
                                                                   -----------

Long Term Debt                                                     $     - 0 -
                                                                   ===========

NOTE 6 -  EQUITY

SHARES ISSUED IN ACQUISITION OF HCD

As discussed in Note 2, during the quarter ended March 31, 2003, the Company
issued net shares of common stock of 26,575,219 in the HCD acquisition valued at
$0.03 per share and 183,235 shares of preferred stock valued at $1.20 per share.

SHARES ISSUED IN ACQUISTION OF IP2M

As discussed in Note 2, during the quarter ended March 31, 2003, the Company
issued 6,780,739 shares of common stock in the acquisition of IP2M value at
$0.03 per share and 47,905 shares of preferred stock valued at $1.20 per share.

ISSUANCE OF COMMON STOCK TO FORMER HDC SHAREHOLDERS

During the quarter ended March 31, 2003, an aggregate number of 1,238,599 shares
of the Company's common stock were issued to former HCD shareholders for certain
services provided to the Company. These shares were issued at $0.03 per share,
which was the value of the shares issued in the acquisition of HCD.

ISSUANCE OF COMMON STOCK AND WARRANTS IN CONNECTION WITH BRIDGE LOAN

As discussed in Note 4, in connection with the bridge loan, the Company issued
1,100,000 shares of common stock and warrants to issue 350,000 shares of common
stock to the lender, in lieu of origination fee and interest on the loan. The
shares and warrants were valued at $36,500, based on their fair value, and this
amount was charged to interest expense.

DEBT CONVERSION

During the first quarter of 2004 an additional $20,000 in debt was converted to
Class E Preferred Stock.

During the quarter ending June 30, 2004, certain creditors of Dialog Group and
its subsidiaries agreed to settle the remaining parts of their claims for
18,458,878 shares of common stock. At the time of settlement, this common stock
was valued at an aggregate of $18,459 due to the restrictions on resale and the
size of the blocs relative to the capacity of the market. The creditors included
Peter DeCrescenzo ($79,679 forgiven, 3,983,927 shares), Cindy Lanzendoen

                                      F-16
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

($79,412 forgiven, 3,970,608 shares), Vincent DeCrescenzo, Sr. ($58,643
forgiven, 2,932,147) shares, and Richard Kundrat (3,983,927 shares in lieu of
monthly director's fees). Each creditor represented itself in writing to be an
accredited investor who was purchasing these shares for its own investment and
agreed to restrictions on resale placed with the Company's transfer agent and
the printing of a legend on his 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).

During the second quarter, a note holder converted a total of $75,000 of
principal and $8,971 in accrued interest into 4,155,178 shares of common stock.
Pursuant to an opinion of the note holders counsel, the shares were issued
without legends or stop orders because the notes converted pursuant to 3(a)(9)
has been issued more than two years before conversion and, pursuant to Rule
144(k), the certificates evidencing the shares could be so issued.

In June 2004, a bankruptcy creditor was issued 12,500 shares of common stock for
her Class 8 bankruptcy claims at the rate of one share for each four dollars of
court approved claim. The issuance of the common stock to creditors is exempt
from the registration requirements of Section 5 of the Securities Act pursuant
to section 1145 of the United States Bankruptcy Act.

During the quarter ending June 30, 2004, the Company eliminated its Class C
preferred stock

CONVERSION OF PREFERRED STOCK INTO COMMON STOCK

During this quarter, a former TDMI shareholder converted 1,320 shares of Class B
Preferred Stock into 52,800 shares of Common Stock. The certificate 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.

CLASS E PREFERRED STOCK DIVIDENDS

During the second quarter, the Board decided to pay the quarterly dividends on
the Company's Class E Preferred Stock in shares of common stock. The dividends,
at a rate of $400 per share per quarter, for the last quarter of 2003 and the
first quarter of 2004 had not been paid. Pursuant to the provisions of the Class
E Preferred Stock Declaration, shares of common stock, based on the average
closing price for the shares during the last 20 trading days before the
dividends were due, can be paid in lieu of cash. During April, a total of
1,109,384 shares were issued to settle $71,000 of dividends due at that time.
The holders of the Class E Preferred Stock had represented themselves in writing
to be accredited investors who were purchasing those shares and any shares
issued as dividends for their own investment and agreed to restrictions on
resale placed with the Company's transfer agent and the printing of a legend on
his certificate. Because of these factors, this issuance is exempt from
registration under the Securities Act as not involving a public distribution
under section 4(2).

                                      F-17
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

NOTE 7 -        RELATED PARTY TRANSACTIONS

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 $5,800 during the quarter ended June 30,2004, and $17,200 for six months
ended June 30, 2004.

NOTE 8 -       SEGMENT DISCLOSURES

The Company's reportable operating segments are categorized in three components:
(1) Healthcare; which includes Healthcare Dialog, Inc., and IP2M, Inc., (2)
Data; which includes Mail Mogul, Inc., and Data Dialog, Inc., (3) Corporate
which is Dialog Group, Inc.

HEALTHCARE

Healthcare Dialog designs, develops and distributes products and services that
automate and streamline direct marketing and customer relationship management
processes to the healthcare industry.

IP2M provides, maintains and delivers healthcare information over the internet
and television.

DATA

Mail Mogul is an online market place for sellers of direct mail, providing
leads, website applications, mailing lists, mailing supplies as well as other
products and services.

Data Dialog provides online marketing list, direct mail programs and creates
target lists for specific direct marketing categories for small to medium sized
businesses.

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

                                      F-18
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

   Quarter ended June 30, 2004  (Pro-Forma)

<TABLE>
<CAPTION>
                                                                                            Consolidated
                                                   DGI        Healthcare        Data            Total

<S>                                            <C>            <C>            <C>            <C>
REVENUE                                                       $ 1,002,153    $   855,263    $ 1,857,416

COST OF SALES                                                     413,905        334,017        747,922
                                                              -----------    -----------    -----------

GROSS PROFIT                                                      588,248        521,246      1,109,494

OPERATING EXPENSES:

Selling, General and Administrative Expenses   $   543,214        143,285        417,016      1,103,515
                                               -----------    -----------    -----------    -----------

TOTAL OPERATING EXPENSE                            543,214        143,285        417,016      1,103,515
                                               -----------    -----------    -----------    -----------

INCOME (LOSS) FROM OPERATION                      (543,214)       444,963        104,230          5,979
                                               -----------    -----------    -----------    -----------

Other Income (Expenses):

Interest expenses                                   (5,570)        (8,459)           (23)       (14,052)
Other expenses                                      (2,704)       (10,581)       (13,285)
Other income                                         1,962             85          2,047
Forgiveness of Debt                                  9,888        109,099         42,750        161,737
                                               -----------    -----------    -----------    -----------
Total other income (expenses)                        1,614         92,021         42,812        136,447
                                               -----------    -----------    -----------    -----------

INCOME/(LOSS) FROM CONTINUING OPERATIONS          (541,600)       536,984        147,042        142,426
                                               -----------    -----------    -----------    -----------

Income/(Loss) from Discontinued Operations         (39,025)       (25,422)       (64,447)
                                                              -----------    -----------    -----------

Net Profit/(Loss)                                 (580,625)       511,562        147,042         77,979
                                               ===========    ===========    ===========    ===========
<CAPTION>
    Quarter ended June 30, 2003 (Pro-Forma)
                                                                                            Consolidated
                                                   DGI        Healthcare        Data           Total

<S>                                            <C>            <C>            <C>            <C>
REVENUE                                                       $ 1,413,969    $   934,487    $ 2,348,456

COST OF SALES                                                   1,088,559        465,205      1,553,764
                                                              -----------    -----------    -----------

GROSS PROFIT                                       325,410        469,282        794,692

OPERATING EXPENSES:
Selling, General and Administrative Expenses   $   750,594        328,968        211,831      1,291,393
                                               -----------    -----------    -----------    -----------
TOTAL OPERATING EXPENSE                            750,594        328,968        211,831      1,291,393
                                               -----------    -----------    -----------    -----------
INCOME (LOSS) FROM OPERATION                      (750,594)        (3,558)       257,451       (496,701)
                                               -----------    -----------    -----------    -----------
</TABLE>

                                      F-19
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

<TABLE>
<CAPTION>
Other Income (Expenses):
<S>                                            <C>            <C>            <C>            <C>
Interest expenses                                   (2,500)        (7,080)                       (9,580)
                                               -----------    -----------                   -----------

Total other income (expenses)                       (2,500)        (7,080)                       (9,580)
                                               -----------    -----------                   -----------

INCOME/(LOSS) FROM CONTINUING OPERATIONS          (753,094)       (10,638)       257,451       (506,281)

Income/(Loss) from Discontinued Operations          14,611            440        (54,236)       (39,185)
                                               -----------    -----------    -----------    -----------

Net Profit/(Loss)                                 (738,483)       (10,198)       203,215       (545,466)
                                               ===========    ===========    ===========    ===========
<CAPTION>
  Six Months ended June 30, 2004 (Pro-Forma)
                                                                                           Consolidated
                                                   DGI        Healthcare        Data          Totals
<S>                                            <C>            <C>            <C>            <C>
REVENUE                                                       $ 1,935,970    $ 1,669,000    $ 3,640,970

COST OF SALES                                                     863,223        772,126      1,635,349
                                                              -----------    -----------    -----------

GROSS PROFIT                                                    1,072,747        896,874      1,969,621

OPERATING EXPENSES:

Selling, General and Administrative Expenses   $ 1,148,500        342,431        657,681      2,099,612
                                               -----------    -----------    -----------    -----------

TOTAL OPERATING EXPENSE                          1,148,500        342,431        657,681      2,099,612
                                               -----------    -----------    -----------    -----------

INCOME (LOSS) FROM OPERATION                    (1,148,500)       730,316        239,193       (129,991)

Other Income (Expenses):

Interest expenses                                  (15,864)       (16,625)           (23)       (32,512)
Other expenses                                      (2,704)       (10,581)                      (13,285)
Other income                                         1,962             85                         2,047
Forgiveness of Debt                                102,152        109,099         42,749        254,000
                                               -----------    -----------    -----------    -----------
Total other income (expenses)                       83,584         83,855         42,812        210,251
                                               -----------    -----------    -----------    -----------

INCOME/(LOSS) FROM CONTINUING OPERATIONS        (1,064,916)       814,171        282,005         80,260
                                               -----------    -----------    -----------    -----------


INCOME/(LOSS) FROM DISCONTINUED  OPERATIONS        (37,024)       (25,422)                      (64,446)
                                               -----------    -----------                   -----------

NET INCOME/(LOSS)                              $(1,103,940)   $   788,749    $   282,005    $    15,814
                                               ===========    ===========    ===========    ===========
</TABLE>

                                      F-20
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

<TABLE>
<CAPTION>
  Six Months ended June 30, 2003 (Pro-Forma)
                                                                                           Consolidated
                                                   DGI        Healthcare        Data          Totals
<S>                                            <C>            <C>            <C>            <C>
REVENUE                                                       $ 2,718,479    $ 1,559,310    $ 4,277,789

COST OF SALES                                                   1,847,829        878,547      2,726,376
                                                              -----------    -----------    -----------

GROSS PROFIT                                                      870,650        680,763      1,551,413

OPERATING EXPENSES:

Selling, General and Administrative Expenses   $ 1,148,598        826,053        397,578      2,372,229
                                               -----------    -----------    -----------    -----------

TOTAL OPERATING EXPENSE                          1,148,598        826,053        397,578      2,372,229
                                               -----------    -----------    -----------    -----------

INCOME (LOSS) FROM OPERATION                    (1,148,598)        44,597        283,185       (820,816)

Other Income (Expenses):
Interest expenses                                  (50,833)       (65,091)      (115,924)
Other income                                           250              2            252
                                               -----------    -----------    -----------    -----------
Total other income (expenses)                      (50,583)       (65,089)      (115,672)

INCOME/(LOSS) FROM CONTINUING OPERATIONS         1,199,181)        20,492)       283,185       (936,488)
                                               -----------    -----------    -----------    -----------

INCOME/(LOSS) FROM DISCONTINUED OPERATIONS           5,204         (2,523)      (219,743)      (217,062)
                                               -----------    -----------    -----------    -----------

NET INCOME/(LOSS)                              $(1,193,977)   $   (23,015)   $    63,442)   $(1,153,550)
                                               ===========    ===========    ===========    ===========
</TABLE>

                                      F-21
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

NOTE 9 -      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. During the quarter ended June 30, 2004, 1,925,000
stock options were granted to employees, non-employee directors, officers and
consultants. 575,000 of these options vested during the quarter, while 1,213,946
options vested in the six months ending June 30, 2004.

Stock options activity for the six months ending June 30, 2004 is as follows:

                                                   Number       Weighted Average
                                                 Of Shares      Exercise Price
Balance, December 31, 2003                       1,737,448              $0.18
Options Granted                                  1,925,000              $0.036
Options Forfeited                                        0               0
Options Expired                                          0               0
Options Excerised                                        0               0
                                                 ----------------------------
Options outstanding, June 30, 2004               3,662,448              $0.14
                                                 ============================

NOTE 10 -         LITIGATION

SUPPLIERS

During July of 2003, Axciom Corporation commenced an action against
ThinkDirectMarketing, Inc., a discontinued subsidiary. The complaint seeks
$400,000 on a note payable, and $295,415 for unpaid data usage, and $1,250,000
for unused minimum usage requirements for 2003 and 2004. The debts, if any, are
those of the discontinued entity however an amount for legal fees has been
accrued to contest any claim for charges made against the Company. This
litigation is still in the preliminary stages and no other amounts have been
accrued.

In June of 2003, a Company vendor commenced an action against Healthcare Dialog,
Inc, a subsidiary. The complaint seeks $85,076 for printing services and
attorney's fees. The Company has accrued an amount for which it believes that a
settlement will be reached. Payments are currently being made. At June 30, 2004,
approximately $35,000 is the unpaid balance.

In December 2003, the Company was named in a suit with Chrisom, Inc. Prior to
the Company's acquisition of Healthcare Horizon, a judgment was awarded to
Chrisom. The amount is accrued in the financial statements of the Company

Healthcare Horizons, Inc., a discontinued subsidiary vendor filed an action
against the subsidiary claiming unpaid invoices of approximately $54,000. The
Company is working directly with the vendor's lawyers to resolve this matter.
The full amount is accrued in the financial statements of Healthcare Horizons,
Inc.

An action was filed against the Company by Wells Fargo Financial Leasing, Inc.
for non payment of equipment lease commitments made by Healthcare Dialog, Inc.
Subsequent to year end, a settlement was reached and the agreement is executed
by both parties. The amount is fully recorded in the financial statements of the
Company

                                      F-22
<PAGE>

                      DIALOG GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            JUNE 30, 2004 (UNAUDITED)

A supplier, Collins Ink, in June 2004, obtained a judgment of $92,347 for unpaid
invoices. The full amount is recorded in the financial statements of the
Company.

In June 2004 Label Source, obtained a judgment of $121,037 for unpaid invoices.
The full amount is recorded in the financial statements of the Company

USA Direct, in April 2004 obtained a $39,025 judgment related to a discontinued
operation of the Company. This amount is fully accrued in the financial
statements of the Company.

In April 2004 PR Newswire, obtained a $8,900 judgment against the Company for
unpaid invoices. The amount is fully recorded in the financial statements of the
Company.

EMPLOYEES

In April 2003, Dialog Group received a summons from a Colorado State District
Court seeking to enforce a former employee's termination agreement. A settlement
agreement was reached for $47,330. TDMI, a discontinued subsidiary, made
payments of approximately $33,000 during 2003. The current balance of $5,666 is
accrued in the Company's financial statements

In April 2003, two former employees commenced arbitration proceeding against the
Company relating to their termination of employment. The employees seek damages
totaling $375,789. TDMI, a discontinued subsidiary, has accrued $147,000 against
this potential liability and is contesting both claims. This potential liability
is relieved through the disposition of the subsidiary.

During December 2001, a shareholder, who was also a former employee of P.V.D. &
Partners, Inc., filed a complaint to recover unpaid salary and expenses, which
the employee claimed were owed and attempted to exchange shares of PVD for
shares of Healthcare Dialog, a subsidiary. An agreement was reached and the
settlement has been accrued by the Company.

The Company has reached a possible settlement with a former employee for claims
against it under an employment contract. Settlement documents have been prepared
awaiting execution. The Company accrued for a liability sufficient to cover the
settlement.

                                      F-23
<PAGE>

ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

GENERAL

     During 2003, Dialog Group acquired Healthcare Dialog, Inc. and IP2M, Inc.
During the fourth quarter of that year, it shut down operations of Think Direct
Marketing because of the failure of its operating platform and the quality of
its data. The new operating platform, utilizing superior data sources, was
launched as of December 1, 2003. It is operated by Dialog Group's Data Dialog
subsidiary.

     At the end of the fiscal year, ThinkDirectMarketing, Inc and Healthcare
Horizons were sold to an unrelated party. In addition, Software Dialog plc,
which distributed the Panda anti-virus software in England, was sold to its
managers and a group of English investors.

     Dialog Group's consolidated operations reflected in this quarter's and the
first half year's financial statements include only both its remaining
divisions. The consolidated results of operations for the quarters and the six
month periods ended June 30, 2004 and 2003 are being presented on a pro-forma
basis, which includes the results of operations of Dialog Group and its
subsidiaries. These reports exclude the results of operations for the two
subsidiaries which were sold before the end of the last fiscal year. 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 and would also include the results
of discontinued operations. Dialog Group's consolidated result of operations and
consolidated balance sheet for both 2003 and 2004 include only remaining units.

DESCRIPTION OF THE DIVISIONS

     Dialog Group, Inc. (DLGG) is a publicly traded corporation, headquartered
at 257 Park Avenue South, 12 Floor New York, New York 10010, with offices in
Valencia, California; Sunrise, Florida; and Houston, Texas. The company's two
divisions, Data Dialog and Healthcare Dialog, provide a combination of
traditional advertising (print, broadcast) and marketing services (broadcast,
new media, and internet-based promotional venues); as well as a broad spectrum
of proprietary and exclusive databases for healthcare, pharmaceutical, consumer
and business-to-business market clients. The company owns and/or has licensing
rights to over 75 Web sites, 9 databases, and 5 products.

     Additionally, Dialog Group maintains exclusive contracts with leading
multi-national pharmaceutical companies to operate, maintain, and provide
content for their consumer-directed Web sites.

     Both Dialog Group's divisions currently market its product and service
offerings through three branded, business organizations. The Healthcare Dialog
division: nFusion, +Media, and iData. The Data Dialog Division: Data Dialog
Marketing, Data Dialog Digital and Mail Mogul.

<PAGE>

     HEALTHCARE DIALOG DIVISION

    nFUSION delivers advertising, relationship marketing, and communications
services to the healthcare industry. Clients use its strategic and creative
services to build comprehensive programs for healthcare professionals,
consumers, and sales representatives. These include training materials
development, patient and professional education materials distribution, and
targeted direct mail and advertising campaigns. Clients rely on nFusion's
interactive services to produce sophisticated promotional Web sites, educational
Web sites, interactive training and educational CD-ROMs, Internet advertising,
e-mail campaigns, and proprietary marketing programs.

     +MEDIA'S platform provides, maintains, and delivers healthcare content
across a national network of local TV and Radio station's Web sites. The content
- over 15,000 text articles - attracts millions of health information seekers to
the broadcast stations' Web sites for a combined US household penetration of
80%. Here, client public relations, promotional, and educational material are
blended into a seamless presentation for maximum viewer impact. To maintain
repeat traffic, all features are refreshed regularly.

     IDATA uses proprietary technologies to support health care and
pharmaceutical clients in their direct marketing efforts, clinical trial
recruitment, and consumer/patient market research efforts. It offers unique
healthcare data on over 1.2 million households, which serves as the foundation
for the highly targeted and efficient communication plans of pharmaceutical
companies, retailers, and other healthcare companies. Its exclusive data is
compiled from respondents who agree to telephone interviews. The primary
function of this business unit is to identify patient/consumer targets and
enhance patient/consumer databases. Working with +Media, iData also offers data
gathering programs over the Internet.

     DATA DIALOG DIVISION

     DATA DIALOG MARKETING serves the direct marketing needs of small and
medium-sized businesses with systems and tools that generate business and
consumer prospect leads, data services, and streamline business processes by
integrating the collection and distribution of data. Data Dialog Marketing
offers a host of data-related services, such as targeted marketing lists,
turnkey direct mail programs, and data-cleansing to multiple market segments
including insurance, financial planning, real estate, auto dealerships and other
segments that are users of direct mail and prospect marketing. Data Dialog
Marketing also offers a unique service featuring limited selections of
high-quality data specifically designed for the small business segment. The unit
markets a proprietary online list creation tool, Data Dialog Select.

     DATA DIALOG DIGITAL is a customer data integration product that
automatically appends names and addresses to telephone numbers on calls made by
consumer and business customers to telephone call centers. Data Dialog Digital
primarily markets its products to telephone bureaus operating in-bound and
blended call centers with 5 to 500 seats. This represents more than 100,000
sites worldwide. Data Dialog Digital currently has contracts with 40 end user
companies and 20 reseller organizations in this market segment and an additional
20 agreements with resellers which service this market. The real time format of
this unit's products gives customers instant access to data, and speeds up their
promotional efforts and improves customer service.

<PAGE>

     MAIL MOGUL brings one-stop shopping to the small- to medium-sized mail shop
industry. Its "Hot Leads" product is this market's first online commerce center
to link customers who need direct mail job quotes with mail shops and direct
marketing service organizations with letter-shop capabilities. Mail Mogul helps
mail shops improve their business opportunities through a
total-business-solutions approach. Mail Mogul provides mail shop and corporate
mailrooms with data for resale to their customers and for internal use.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2004

     Dialog Group

     The strategies implemented to redefine the Company to reduce expenses,
improve margins, and exit unprofitable businesses is beginning to reach
fruition. Revenues for the quarter ended June 30, 2004, including sales of
$280,000 from the company's new Data Dialog division was $2,137,000 compared
with $2,348,000 for the quarter ended June 30, 2003. Sales were equally divided
between Healthcare Dialog and Data Dialog in the quarter: data sales constituted
a greater portion of the total when sales of Healthcare Dialog's iData are
factored in.

     Low margin off line media placement was off from the same quarter a year
ago as a result of management's conscious decision not to compete in this low
margin highly completive category. A one-time recognition of $125,000 of sales
in Mail Mogul during the second quarter of 2003 also contributed to the
company's revenue reduction for the quarter when compared to last year.

     Costs of Revenues for the quarter ended June 30, 2004 was $858,000 or 40%
of sales, compared with $1,554,000 or approximately 66% of sales in the quarter
ended June 30, 2003. Management's efforts to reduce Cost of Revenue continued to
bear fruit in this quarter and were a significant factor in the overall
improvement in the performance of Dialog Group. The increase in the portion of
sales in high margin categories of business, relationships with new data
suppliers, and the utilization of company data assets rather than relying on
external sources will continue to drive down Cost of Revenue in the quarters
ahead. The reclassification of about $125,000 to Operating Expenses in the
company's Mail Mogul business also helped to reduce the Cost of Sale percentage.
Also, Cost of Revenues is additionally reduced by approximately $110,000 during
the second quarter of 2004 as a result of Management's review and analysis of
accruals and adjustment to current estimates. As a result of these factors,
gross profits were up almost 60% for the quarter compared to a year ago, an
improvement of slightly less than one half million dollars. The gross margin for
the quarter was about 60% vs. about 34% for the same quarter a year ago. The
sources of the revenue and costs for each division are further discussed below.


<PAGE>

     Operating Expenses for the quarter ended June 30, 2004 was $1,422,000
compared with $1,291,000 for the quarter ended June 30, 2003. Expenses
associated with a public company, the company's efforts to invest in additional
sales staff for Data Dialog, traditionally less productive during their initial
employment period, and an investment in a new online data delivery platform make
up a majority of the increase in operating expenses. In addition, expense
relating to commissions paid was reclassified to Operating Expenses in 2004.
Operating expenses in several divisions, as well as central expenses, were
additionally reduced by $72,000 during the second quarter of 2004 through
forgiveness of debt and settlement of additional claims for common stock.

     Loss from Operations was $143,000 for the quarter ended June 30, 2004
compared with a loss of $497,000 for the quarter ended June 30, 2003 an
improvement of over $354,000.

     The Net Loss for the quarter ended June 30, 2004 was $70,800 compared with
a Net Loss of $538,000 in the quarter ended June 30, 2003, representing an
improvement of $467,000.

     Healthcare Dialog Division

     For the three months ended June 30, 2004, the Healthcare Dialog division's
total consolidated revenues were approximately $1,002,000 as compared to
approximately $1,414,000 for the same period ended June 30, 2003, a decrease of
about $412,000 or about 29%. Sales in +Media were off from the same quarter a
year ago. In the second half of 2003 the organization responsible for sales of
+Media was moved from Houston to New York City in a effort to be closer to
pharmaceutical companies and healthcare advertising agencies that are
responsible for purchasing internet advertising for large pharmaceutical
companies. As expected, the move had a negative impact on local Houston clients.
Four new national clients were added in the second quarter of 2004. Management
believes this decline in sales is temporary and expects the current strategy to
yield more revenue than in the past once the efforts to increase profitable
online inventory bear fruit.

     Sales in nFusion were down about $250,000 from the same period a year ago.
The decline would have been about $100,000 had a major pharmaceutical client not
moved a project contracted for in the second quarter to the third quarter. In
addition, sales of low margin printing were down from a year ago same quarter.
Resources that in the past were devoted to nFusion are being diverted to other
businesses.

     The remaining healthcare business, iData signed a one-year contract with a
major client who will be participating in the company's syndicated healthcare
survey. None of the sales relating to the iData syndicated survey for the year
to date has been recognized. Management believes once the surveys are conducted
in the third quarter of 2004 the majority of sales invoiced and or contracted
for can be recognized.

     The division's Costs of Revenue was $414,000 for the quarter ended June 30,
2004; representing 41% of revenue compared with $1,089,000 and 77% of revenue
for the quarter ended June 30, 2003. This reduction in Cost of Revenues was
$675,000. The Cost of Revenue improvement as a percentage of revenue was
effected by a major factor. Management believed the +Media cost of inventory
associated with almost one thousand radio station web sites made it difficult
for this platform to produce sales at an acceptable gross profit rate and, in
the fourth quarter of 2003, discontinued the relationship with the media


<PAGE>

organization which owns the radio stations. The current strategy is to
capitalize on the more profitable TV station web site relationships and to find
alternative web inventory which fits into the overall healthcare marketing plan
while providing +Media with better margins. The division's Cost of Revenues are
reduced by approximately net $61,000 arising from forgiveness of debt along with
review and analysis of accrued expenses and update to current estimates.

     Gross Profit improvement more than compensated for the short fall in
revenue for the quarter. Gross Profits for the quarter were about 80% above the
same period a year ago, an increase of over $260,000. The Gross Margin was about
58% for the three months ended June 30, 2004.

     The Healthcare Dialog Division's consolidated Total Operating Expenses were
approximately $143,000 for the three months ended June 30, 2004. This compares
favorably with the approximately $329,000 for the same period ended June 30,
2003. Expenses as a percentage of sales in this quarter of 2004 were
approximately 14% compared to approximately 23% for the same period a year ago.
In this quarter in 2003, Healthcare expenses included the salaries of executives
that in 2004 are charged to Dialog Group directly. In addition, Healthcare
Dialog's rent in the second quarter of 2004 was reduced from 2003 as a result of
the relocation of the Houston office and the expense related to the rent for
offices in New York City being shared with Dialog Group.

     For the three months ended June 30, 2004, this division's consolidated Net
Income from Operations was approximately $537,000. This represents an
improvement from a Net Loss of $11,000 in the same period ending June 30, 2003,
an improvement of approximately $548,000. Despite a decrease in sales, this
division was able to improve Net Income from Operations as a result of a
reduction in the Cost of Revenue, a reduction in actual expenses, and a change
in focus to more profitable businesses. Net Income from Operations is increased
approximately $108,000 from forgiveness of debt.

     Data Dialog Division:

     The analysis of the Data Dialog Division focus on the business remaining
after the sale of ThinkDirectMarketing, Inc.: Mail Mogul for the both 2004 and
2003 and Data Dialog for 2004 only.

     Mail Mogul's revenue for the quarter was $855,000 compared to $934,000 for
the same period a year ago. In the second quarter of 2003, a one-time adjustment
was made to recognize about $125,000 in revenue from prior periods. A review of
sales without this adjustment reveals some $76,000 or 9% more in sales for the
quarter. Management's efforts to increase sales of data in this channel proved
to be successful when compared to the second quarter of 2003. At the same time
management has made no effort to increase sales in the low margin consumables
classification, which has had a negative impact on revenue, but a positive
impact on Gross Profit.

     The results were primarily due to additional sales staff, new customer
acquisitions, and the growth of current customer purchases resulting from
increased marketing efforts. For the quarter, as a result of the increase in
data sales, ancillary services offered by Mail Mogul to its customers, such as
National Change of Address (NCOA), also increased.


<PAGE>

     Data Dialog had sales of $280,000 for the second quarter of 2004. Data
Dialog Marketing Specialty List sales provided the greatest proportion of the
revenue from this category with sales of the company's subscription products and
packaged marketing service making up the balance. Sales increased in the 2nd
quarter of 2004 over the first quarter as the result of a maturing and more
efficient sales force, new sales management, a greater marketing effort and a
more focused drive on providing full service direct mail campaign management
products. The main sales lead generating source has been, and continues to be,
the US Postal Service. During the 2nd Quarter, Data Dialog was in the top link
placement of all merchant affiliates on USPS website, which drove a larger than
normal number of referrals to the Data Dialog website.

     This division's Data Dialog Digital call center reverse append product
enjoyed increased revenue from the first three month of the year. During the
quarter contracts were signed with three new clients who should begin using the
service in the third quarter.

     Mail Mogul's Costs of Revenue were $334,000 for the three months ended June
30, 2004, compared with $465,000 for the quarter ended June 30, 2003 an
improvement of $131,000. Cost of Revenue dollars in 2004 no longer includes
commissions to internal sales staff. As a result, about $120,000 was charged to
operating expenses in 2004 that would have been Cost of Sales had the change in
accounts not taken place. The Mail Mogul Gross Margin rate was up over ten
points during the period from the same period a year ago to about 60%.

     Data Dialog's Costs of Revenue for the April through June of 2004 was
$110,000, about 40% of sales.

     Mail Mogul's Operating Expenses were $441,000 for the quarter ended June
30, 2004 compared with $212,000 for the quarter ended June 30, 2003. A
significant factor impacting this line was the reclassification of commissions
paid in 2004, which was discussed above. Some of the other factors contributing
to the increase were the increased rent associated with the larger offices the
company leases this year and approximately $50,000 of internal allocations of
costs from other business units.

     Data Dialog's Operating Expenses for the three-month period ending June 30,
2004 were $319,000. Selling and marketing expense of $227,000 made up the
greatest portion, which include the initial investments in new sales staff and
the cost of the existing sales group.

     Mail Mogul's Net Income from Operations for the quarter ended June 30, 2004
was $81,000 compared with $257,000 for the same quarter in 2003. The incremental
$125,000 of revenue which was recognized in the second quarter of 2003 was a
significant factor impacting the comparison from year to year.

     Data Dialog's Net Loss from Operations was $149,000 for the three months
ended June 30, 2004. Investments made in sales staff and an online platform
requires a sales level above that reached during the second quarter in order for
this group to show a profit.


<PAGE>

     During the second quarter of 2004, Mail Mogul's Other Income was $43,000
consisting principally of $38,000 from the forgiveness of debt. During the
second quarter of 2003, Mail Mogul had no Other Income.

     Mail Mogul's Net Profit for the quarter ended June 30, 2004 was $124,000
compared with Net Profit of $257,000 for the quarter ended June 30, 2003.

     Data Dialog's second quarter Net Loss for 2004 was $149,000.

SIX MONTHS ENDED JUNE 30, 2004

     Dialog Group

     Revenues for the six months ended June 30, 2004 were $4,083,000 compared
with $4,278,000 for the half year ended June 30, 2003. Sales were split evenly
between the healthcare and data divisions. Sales from the data businesses
including sales of data to healthcare clients. The strategies implemented to
redefine the Company to reduce expenses, improve margins, and exit unprofitable
businesses is beginning to reach fruition. This approach has had a positive
impact on income and fostered the elimination of most of the unprofitable
revenue from a year ago. A significant factor in first half revenue results is
+Media. While Dialog Group remains committed to Healthcare Dialog's +Media
platform sales in +Media were off from the same period a year ago. In the second
half of 2003 the organization responsible for sales of +Media was moved from
Houston to New York City in a effort to be closer to pharmaceutical companies
and healthcare advertising agencies that are responsible for purchasing internet
advertising for large pharmaceutical companies. As expected, the move had a
negative impact on local Houston clients.

     Costs of Revenues for the six months ended June 30, 2004 were $1,798.000
just over 44% of sales, compared with $2,726,000 or approximately 64% of sales
in the half year ended June 30, 2003. The achievement of the goal to reduce Cost
of Revenue significantly factors in the overall improvement of Dialog Group. The
increase in the portion of sales in high margins categories of the business,
relationships with new data suppliers, and the utilization of company assets
rather than relying on external sources have and will continue to drive down
Cost of Revenue. The reclassification of about $160,000 to Operating Expenses in
the company's Mail Mogul business also helped to reduce the Cost of Revenues. As
a result of these factors, Gross Profit is up for the half compared to a year
ago, an improvement of over one million dollars. The gross margin for the
quarter was about 56% vs. 45% for the same period a year ago.

     Operating Expenses for the half year ended June 30, 2004 was $2,813,000
compared with $2,372,000 for the same period ended June 30, 2003. The company's
efforts to invest in additional sales staff that is traditionally less
productive in generating sales during their initial employment period, an
investment in an online data delivery platform, and a more extensive marketing
program also contributed to the increase in operating expenses. The
reclassification in Mail Mogul from Cost of Revenue to Operating Expense
commented on earlier contributed to the increase as well. Depreciation and
amortization increases make up the balance of the increase in operating
expenses. Operating Expenses in several divisions, as well as central expenses
were additionally reduced in 2004 through forgiveness of debt.


<PAGE>

     Losses from Operations were $528,000 for the six months ended June 30, 2004
compared with $821,000 for the half year ended June 30, 2003, an improvement of
close to $300,000.

     Net Other Income was $211,000 for the six months ended June 30, 2004
compared with a Net Other Loss of $116,000 for the same period ended June 30,
2003, an improvement of almost $327,000. The company's Other Income for the
first half of this year included interest expenses of approximately $32,000,
$101,000 arising primarily from review of accrued expenses and adjustment to
current estimates, and $156,000 arising from forgiveness of debt and settlement
of additional claims for common stock.

     All of the Other Income for 2003 was interest expense.

     The Net Loss for the six month's ended June 30, 2004 was $381,000 compared
with $936,000 in the half year ended June 30, 2003, representing an improvement
of about $555,000 from the same quarter a year ago.

     Healthcare Dialog Division

     For the six months ended June 30, 2004, the Healthcare Dialog divisions
total consolidated revenues were approximately $1,936,000 as compared to
approximately $2,718,000 for the first half of 2003 a decrease of $782,000.
Sales in +Media were off from the same period a year ago. In the second half of
2003 the organization responsible for sales of +Media was moved from Houston to
New York City in a effort to be closer to pharmaceutical companies and
healthcare advertising agencies. As expected, the move had a negative impact on
local Houston clients. Sales in nFusion were down from the same period a year
ago. The decline would have been less had a major pharmaceutical client not
moved a project contracted for in the second quarter to the third quarter. In
addition sales of low margin printing were down from a year ago. None of the
sales relating to the iData syndicated survey for the year to date has been
recognized; management believes once the surveys are conducted in the third
quarter of 2004 the majority of sales invoiced and or contracted for can be
recognized. iData, had its first international data sale in the first half of
2004 capitalizing on the growing trend of citizens of the United States filling
medical prescriptions from Canadian companies.

     The division's Costs of Revenue was $863,000 for the first half of 2004;
representing 44% of revenue compared with $1,848,000 and 68% of revenue for the
first half of 2003. The reduction in Cost of Revenues was $985,000. The current
strategy is to capitalize on the more profitable TV station web site
relationships and to find alternative web inventory which fits into the overall
healthcare marketing plan while providing +Media with better margins.

     Gross Profit improvement significantly impacted operating results for the
first half of 2004. Gross Profit for the first half of 2004 was $1,073,000, an
increase of over $200,000 from the same period a year ago. The Gross Margin was
about 55% for the six months ended June 30, 2004. Gross Profit was ahead of the
same six months a year ago as a result of the +Media business which operated at
less than 25% margins a year ago making up less of the total sales of Healthcare
Dialog than it did for the comparable period of 2003.


<PAGE>

     The Healthcare Dialog Division's consolidated Total Operating Expenses were
approximately $342,000 for the six months ended June 30, 2004. This one aspect
compares most favorably with the approximately $826,000 for the same period
ended June 30, 2003 and had the greatest impact on results. Operating Expenses
as a percentage of sales in this half of 2004 were 18% compared to approximately
30% for the same period a year ago. In the first half of 2003, Healthcare
expenses included the salaries of executives that in the same period in 2004 are
charged to Dialog Group directly. In addition, Healthcare rent in the first six
months of 2004 was reduced from 2003 as a result of the relocation of the
Houston office and the expense related to the rent for offices in New York City
being shared with Dialog Group.

     For the six months ended June 30, 2004, this division's consolidated Net
Income from Operations was over $814,000. This represents an improvement from
the net loss of $20,000 in the same period ending June 30, 2003, an improvement
of $834,000. Despite a decrease in sales, this division was able to improve Net
Income from Operations as a result of a reduction in the Cost of Revenue and a
reduction in actual expenses including a reduction in the number of employees,
coupled with expenses being moved to Dialog Group corporate and a decrease in
depreciation along with approximately $111,000 arising from.

     Data Dialog Division:

     The analysis of the Data Dialog Division focus on the business remaining
after the sale of TDMI: Mail Mogul for the both 2004 and 2003 and Data Dialog
2004 only.

     Mail Mogul's revenue was $1,669,000 for the first six months of 2004 which
compared favorably to the $1,559,000 in revenue in the comparable period of
2003. This represents an improvement of over one hundred thousand dollars or
over 6%. The company's efforts to increase sales of data in its mail shop
channel proved successful. Mailing List sales nearly doubled in the first half
compared to the same period a year ago. Improved results were primarily due to
additional sales staff, new customer acquisitions, and the growth of current
customer purchases resulting from increased marketing efforts. For the year to
date, as a result of the increase in data sales, ancillary data services offered
by Mail Mogul to its customers, such as National Change of Address (NCOA), also
increased. During the first half of 2004, Mail Mogul's "Hot Lead" sales remained
constant from a year ago. Sale of consumables decreased during the first half
when compared to the first half of last year as a result of the company's
conscious decision not to provide marketing support to this low margin category.

     Data Dialog had sales of $478,000 for the first half of 2004. Data Dialog
Marketing Specialty List sales provided the greatest proportion of the revenue
for this company with sales of the company's subscription products and packaged
marketing service making up the balance The main sales lead generating source
has been, and continues to be, the US Postal Service. Year to date, Data Dialog
is in the top link placement of all merchant affiliates on USPS website, which
drove a large number of referrals to the Data Dialog website.


<PAGE>

     This division's Data Dialog Digital call center reverse append product
enjoyed increased revenue. During the half ending June 30, 2004, contracts were
signed with several new clients, including an agreement with a current client to
expand the scope of the relationship from a basic data reseller to a strategic
partner relationship. The client will develop the grammar tables for Data
Dialog's Digital product to enable real time voice response systems. Digital
will be the exclusive reverse append offering for the clients new mid-tier
modular voice enabled customer service products.

     Mail Mogul's Costs of Revenue was $772,000 for the six months ended June
30, 2004, compared with $878,000 for the six months ending June 30, 2003. As a
result of the higher margin data sales contributing more to total sales in this
mail shop channel Cost of Revenue as a percentage of sales improved from 56% in
2003 to 46% in 2004. In addition Cost of Revenue dollars in 2004 no longer
includes commissions to internal sales staff. As a result, about $160,000 was
charged to Operating Expenses in 2004 that would have been Cost of Sales had the
change in accounts not taken place. The Mail Mogul Gross Margin rate was up over
six points during the period from the same period a year ago.

     Data Dialog's Costs of Revenue for the January through June of 2004 was
$162,000, about 34% of sales.

     The Operating Expenses for Mail Mogul during the first half of 2004 were
$658,000 up from the $398,000 of a year ago. In addition to the change mentioned
in the Cost of Revenues section, other factors contributing to the increase were
the increased rent associated with the larger offices the company leases this
year and the investment in additional sales staff that have yet to reach maximum
productivity.

     Data Dialog's Operating Expense level for the first six months of 2004 was
$713,000. The level through the end of the first half remains high relative to
sales.

     Mail Mogul's Net Income from Operations for the six months ended June 30,
2004 was $283,000 compared with $267,000 for the same period in 2003. The
$125,000 sales recognition in the second quarter of 2003 impacted the operating
profit performance for this division on a year to year basis.

     Data Dialog's Net Loss from Operations was $397,000 for the first six
months of 2004. Investments made in sales staff and an online platform requires
a dollar sales level above that reached during the first half in order for this
group to show a profit.

     Mail Mogul's Net Profit for the half year ended June 30, 2004 was $282,000
compared with a net Income of $283,000 for the first half of 2003. 2004 Other
Income includes approximately $38,000 arising of from forgiveness of debt and
settlement of additional claims for common stock

     Data Dialog's six month Net Loss for 2004 was $397,000.

LIQUIDITY & CAPITAL RESOURCES

     DGI had a consolidated working capital deficit of approximately
($2,978,000) on June 30, 2004 as compared to a deficit of approximately
($3,046,000) at December 31, 2003.


<PAGE>

     On June 30, 2004, the Healthcare Dialog Division's financial condition
included a working capital deficit, of about ($1,337,000) as compared to a
deficit of approximately ($1,311,000) at December 31, 2003.

     At the end of March, the Data Dialog Division had a working capital deficit
of approximately ($868,000) as compared to a deficit of about ($716,000) on
December 31, 2003. This is the result of current assets essentially remaining
unchanged while current liabilities increased.

INFLATION

     Inflation rates in the United States have not had a significant impact on
operating results for the periods presented.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     Certain statements contained in this item and elsewhere in this report
regarding matters that are not historical facts are forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Because such forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. All statements that address operating performance,
events or developments that management expects or anticipates to incur in the
future, including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements. The forward-looking statements are based on management's current
views and assumptions regarding future events and operating performance. Many
factors could cause actual results to differ materially from estimates contained
in management's forward-looking statements. The differences may be caused by a
variety of factors, including but not limited to adverse economic conditions,
competitive pressures, inadequate capital, unexpected costs, lower revenues and
net incomes and forecasts, the possibility of fluctuation and volatility of the
Company's operating results and condition, inability to carry out marketing and
sales plans, and loss of key executives, among other things.

ITEM 3            CONTROLS AND PROCEDURES.

     Management continues its focus on the issue of internal control. To that
end, it is continuing the process of centralizing the accounting function and
developing policies and procedures that enhance the Company's internal controls.
With the assistance of a recently hired consultant, Management continues to
evaluate and test present measures while at the same time reviewing areas that
require improvement. Additionally, it continues the process of hiring persons
with the skill sets appropriate to fill the Company's needs.


<PAGE>

PART II.     OTHER INFORMATION

     Items 1, 3, 4, and 5 are omitted as they are either not applicable or have
been included in Part I.

ITEM 2            (C)      RECENT SALES OF UNREGISTERED SECURITIES

     Class E Preferred Stock Dividends

     During the second quarter, the Board decided to pay the quarterly dividends
on the Company's Class E Preferred Stock in shares of common stock. The
dividends, at a rate of $400 per share per quarter, for the last quarter of 2003
and the first quarter of 2004 had not been paid. Pursuant to the provisions of
the Class E Preferred Stock Declaration, shares of common stock, based on the
average closing price for the shares during the last 20 trading days before the
dividends were due, maybe paid in lieu of cash. During April, a total of
1,109,384 shares were issued to settle $71,000 of dividends due at that time.
The holders of the Class E Preferred Stock had represented themselves in writing
to be accredited investors who were purchasing those shares and any shares
issued as dividends for their own investment and agreed to restrictions on
resale placed with the Company's transfer agent and the printing of a legend on
his certificate. Because of these factors, this issuance is exempt from
registration under the Securities Act as not involving a public distribution
under section 4(2).

     Current account payable debt exchange

     In June 2004, certain creditors of Dialog Group and its subsidiaries agreed
to settle the remaining parts of their claims for 19,336,019 shares of common
stock. At the time of settlement, this common stock was valued at an aggregate
of $19,336 due to the restrictions on resale and the size of the blocs relative
to the capacity of the market. The creditors included Peter DeCrescenzo ($79,679
forgiven, 3,983,937 shares), Cindy Lanzendoen ($79,412 forgiven, 3,970,608
shares), Vincent DeCrescenzo, Sr. ($58,643 forgiven, 2,932,147 shares), and
Richard Kundrat (2,000,000 shares in lieu of monthly director's fees). Each
creditor represented itself in writing to be an accredited investor who was
purchasing these shares for its own investment and agreed to restrictions on
resale placed with the Company's transfer agent and the printing of a legend on
his 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).

     Other issuances

     In June 2004, a bankruptcy creditor was issued 12,500 shares of common
stock for her Class 8 bankruptcy claims at the rate of one share for each four
dollars of court approved claim. The issuance of the common stock to creditors
is exempt from the registration requirements of Section 5 of the Securities Act
pursuant to section 1145 of the United States Bankruptcy Act.

<PAGE>

     Conversions

     During the second quarter, a note holder converted a total of $75,000 of
principal and $8,971 in accrued interest into 4,115,178 shares of common stock.
Pursuant to an opinion of the note holders counsel, the shares were issued
without legends or stop orders because the notes converted pursuant to 3(a)(9)
has been issued more than two years before conversion and, pursuant to Rule
144(k), the certificates evidencing the shares could be so issued.

     Also during this quarter, a former TDMI shareholder converted 1,320 shares
of Class B Preferred Stock into 52,800 shares of Common Stock. The certificate
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.

     The proceeds of all shares issued for cash were used for general business
purposes.


<PAGE>



ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

Exhibit No.          Description

 31(i)                    302 Certification of Chief Executive Officer
 31(ii)                   302 Certification of Chief Financial Officer
 32(i)                    906 Certification of Chief Executive Officer
 32(ii)                   906 Certification of Chief Financial Officer

(B)      REPORTS ON FORM 8-K.
         None


<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
<S>                                                  <C>
                                                     DIALOG GROUP, INC.
Date: August 13, 2004
                                                     By:      /s/ Peter V. DeCrescenzo
                                                         ----------------------------------------
                                                     Peter V. DeCrescenzo, President and Chief
                                                     Executive Officer

<CAPTION>
SIGNATURE                                                             TITLE                           DATE
---------                                                             -----                           ----

<S>                                                          <C>                                 <C>
 /s/ Peter V. DeCrescenzo                                    Chief Executive Officer             August 13, 2004
----------------------------------------------
Peter V. DeCrescenzo

 /s/  Vincent DeCrescenzo                                        Chief Financial                 August 13, 2004
----------------------------------------------               and Accounting Officer
Vincent DeCrescenzo
</TABLE>


<PAGE>

                                             INDEX TO EXHIBITS

  Exhibit     Page
  Number      Number        Description
  ---------   -----------   ----------------------------------------------------

     31(i)        __            302 Certification of Chief Executive Officer
     31(ii)       __            302 Certification of Chief Financial Officer
     32(i)        __            906 Certification of Chief Executive Officer
     32(ii)       __            906 Certification of Chief Financial Officer