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, 2005.

/ /   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 1, 2005 there were 151,842,923 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,  2004
            (audited) and June 30, 2004 (unaudited)

F-2         Condensed  Consolidated  Statements of Operations and  Comprehensive
            Loss for the Three Months Ended June 30, 2005  (unaudited)  and June
            30, 2004 (unaudited)

F-3         Condensed  Consolidated  Statements of Operations and  Comprehensive
            Loss for the Six Months Ended June 30, 2005 (unaudited) and June 30,
            2004 (unaudited)

F-4         Condensed Consolidated Statements of Cash Flows for the Three Months
            Ended June 30, 2005 (unaudited) and June 30, 2004 (unaudited)

F-5 to
F-37        Notes to Condensed Consolidated Financial Statements (unaudited)

3-12        Item 2. Management's Discussion and Analysis or Plan of Operation

13          Item 3. Controls and Procedures

                  Part II - Other Information

14          Item 1 Legal Proceedings

15          Item 2 Recent  Unregistered  Sales of Equity  Securities  and Use of
            Proceeds

17          Item 6. Exhibits


<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                            ASSETS                            June 30,       December 31
                                                               2005             2004
                                                           -----------------------------
                                                           (Unaudited)
CURRENT ASSETS:
<S>                                                         <C>             <C>
  Cash                                                           49,795          131,690
  Accounts receivable (Net)                                     946,415          608,985
  Prepaid expenses and other current assets                     286,073           68,114
                                                           -----------------------------

     Total current assets                                     1,282,283          808,789
----------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET                                      47,820           42,087

OTHER ASSETS:
  Data assets (net)                                             437,733          521,478
  Website (net)                                                  93,802          106,364
  Affiliate web platform (net)                                  252,000
  Security deposits                                              59,320           75,338
  Goodwill                                                    4,114,765
    Total other assets                                        4,957,620          703,180
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
TOTAL ASSETS                                                  6,287,723        1,554,056
========================================================================================
                          LIABILITIES
CURRENT LIABILITIES:
  Bank overdraft                                                 25,783               --
  Accounts payable                                            2,099,193        1,615,925
  Accrued expenses                                            1,153,150          880,547
  Deferred revenue                                              531,899          808,490
  Notes and loans payable                                       269,583          226,915
  Current liabilities use to related parties                    225,000          113,011
  Other current liabilities                                     123,057           18,139
                                                           -----------------------------
     Total current liabilities                                4,427,665        3,663,027
                                                           -----------------------------

LONG TERM DEBT:
   Pearl Street 5% convertible notes - related party          1,105,000          510,000
   Convertible notes- related parties                            26,000
   Convertible notes - related parties employees                218,045          118,045
                                                           -----------------------------
TOTAL LONG TERM DEBT:                                         1,349,045          628,045
                                                           -----------------------------

STOCKHOLDERS' EQUITY (DEFICIENCY):

  Preferred stock                                                   313              313
  Common stock                                                  488,529          116,673
  Additional paid-in-capital                                  9,386,558        5,912,491
  Accumulated deficit                                        (9,284,787)      (8,765,993)
  Dividends-preferred stock                                     (79,600)              --
                                                           -----------------------------
Total stockholders' equity (deficiency)                         511,013       (2,736,516)
                                                           -----------------------------

                                                           -----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)       6,287,723        1,554,556
========================================================================================
</TABLE>


                                      F-1
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

                FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    2005              2004
                                                                               -------------     -------------
<S>                                                                            <C>               <C>
REVENUES                                                                       $   1,418,642     $   2,137,254

COST OF REVENUES                                                                     611,083           858,005
                                                                               -------------     -------------

GROSS PROFIT                                                                   $     807,559     $   1,279,249

OPERATING EXPENSES:
  Selling, General and Administrative Expenses                                     1,269,101         1,421,929
                                                                               -------------     -------------

          Total Operating Expenses                                                 1,269,101         1,421,929
                                                                               -------------     -------------

INCOME/( LOSS) FROM OPERATIONS                                                      (461,542)         (142,680)

OTHER INCOME (EXPENSES):
  Interest expense                                                                   (86,051)          (14,052)
  Other (Expenses)                                                                                     (13,385)
  Forgiveness of Debt                                                                 18,414           161,737
  Other income                                                                            --             2,047
                                                                               -------------     -------------

          Net Other Income (Expenses)                                                (67,637)          136,347
                                                                               -------------     -------------

INCOME/(LOSS)FROM CONTINUING OPERATIONS                                             (529,179)           (6,333)

INACTIVE & DISCONTINUED OPERATIONS                                                   (57,975)          (64,447)
                                                                                                 -------------

NET INCOME/( LOSS)                                                             $    (587,154)    $     (70,780)
                                                                               =============     =============

 Preferred E Series share dividends                                                  (39,800)          (37,000)
 Interest paid on convertible notes                                                   13,608             3,127
                                                                               -------------     -------------

 Income/(loss) applicable to common shareholders from continuing operations         (555,371)          (40,206)
 Inactive and discontinued operations                                                (57,975)          (64,447)
                                                                               -------------     -------------

 Net Income/(loss) applicable to common shareholders                           ($    613,346)    ($    104,653)
                                                                               =============     =============

EARNINGS/( LOSS) PER SHARE, BASIC AND DILUTED ON NET INCOME/(LOSS)             ($      0.004)    ($      0.000)
FROM CONTINUING OPERATIONS

EARNINGS/(LOSS) PER SHARE ON DISCONTINUED OPERATIONS, BASIC AND DILUTED        ($      0.000)    ($      0.001)

NET EARNINGS/( LOSS) PER SHARE, BASIC AND DILUTED                              ($      0.004)    ($      0.001)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,                            153,054,074        89,612,709
BASIC AND DILUTED
</TABLE>


                                      F-2
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    2005              2004
                                                                               -------------     -------------
<S>                                                                            <C>               <C>
REVENUES                                                                       $   3,135,358     $   4,082,685

COST OF REVENUES                                                                   1,303,736         1,797,975
                                                                               -------------     -------------

GROSS PROFIT                                                                   $   1,831,622     $   2,284,710

OPERATING EXPENSES:
  Selling, General and Administrative Expenses                                     2,585,139         2,812,874
                                                                               -------------     -------------

          Total Operating Expenses                                                 2,585,139         2,812,874
                                                                               -------------     -------------

INCOME/( LOSS) FROM OPERATIONS                                                      (753,517)         (528,164)

OTHER INCOME (EXPENSES):
  Interest expense                                                                  (129,387)          (32,512)
  Other (Expenses)                                                                                     (13,285)
  Forgiveness of Debt                                                                 22,164           255,400
  Other income                                                                            --             1,947
                                                                               -------------     -------------

          Net Other Income (Expenses)                                               (107,223)          211,550
                                                                               -------------     -------------

INCOME/(LOSS)FROM CONTINUING OPERATIONS                                             (860,740)         (316,614)

INACTIVE & DISCONTINUED OPERATIONS                                                   (58,265)          (64,447)
                                                                                                 -------------

NET INCOME/( LOSS)                                                             $    (919,005)    $    (381,061)
                                                                               =============     =============

 Preferred E Series share dividends                                                  (79,600)          (73,200)
 Interest paid on convertible notes                                                   22,530             5,627
                                                                               -------------     -------------

 Income/(loss) applicable to common shareholders from continuing operations         (917,810)         (384,187)
 Inactive and discontinued operations                                                (58,065)          (64,447)
                                                                               -------------     -------------

 Net Income/(loss) applicable to common shareholders                           ($    975,875)    ($    448,634)
                                                                               =============     =============

EARNINGS/( LOSS) PER SHARE, BASIC AND DILUTED ON NET INCOME/(LOSS)             ($      0.007)    ($      0.004)
FROM CONTINUING OPERATIONS

EARNINGS/(LOSS) PER SHARE ON DISCONTINUED OPERATIONS, BASIC AND DILUTED        ($      0.000)    ($      0.001)

NET EARNINGS/( LOSS) PER SHARE, BASIC AND DILUTED                              ($      0.007)    ($      0.005)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,                            135,513,274        87,720,713
BASIC AND DILUTED
</TABLE>


                                      F-3
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDING JUNE 30, 2005 & 2004

<TABLE>
<CAPTION>
                                                                                    2005             2004
                                                                                ------------     ------------
Cash Flows from Operating Activities:
<S>                                                                            <C>              <C>
     Net Income/(Loss) from continuing operations                              $   (860,740)    $   (316,614)
     Gain/(Loss) from inactive/discontinued operations                               (58,265)         (64,447)
                                                                                ------------     ------------
     Income/( Loss) from Operations                                             $   (919,005)    $   (381,061)

      Adjustments to reconcile net loss
          to net cash used in operating activities of continuing operations:
          Gain on debt settlement                                                    (22,530)        (255,400)
          Depreciation and amortization                                              200,176          166,421
          Bad debt expense                                                            14,888           11,571
          Common stock, warrants and stock options issued for services               102,655

      Changes in operating assets and liabilities: (Increase) Decrease
          Accounts receivable                                                       (116,859)        (198,600)
          Prepaid and other current assets                                          (215,137)          24,466
          Security deposits                                                           16,018           25,797
          Accounts payable and accrued expenses: Increase (Decrease)                 246,232          151,435
          Other current liabilities                                                   79,007          106,542
          Deferred revenues                                                         (276,591)          85,273
                                                                                ------------     ------------
                   Net Cash Used in Operating Activities                            (891,146)        (263,556)
                                                                                ------------     ------------

Cash Flows from Investing Activities of Continuing Operations:
          Purchase of property and equipment                                          (2,846)         (20,032)
          Loss of property and equipment                                               1,566               --
          Purchase of database                                                       (78,704)         (12,500)
          Net cash acquired in acquisition of Advaliant                               49,795               --
          Purchase of website                                                        (17,000)
                                                                                ------------     ------------
                   Net Cash Used in Investing Activities                             (47,189)         (32,532)
                                                                                ------------     ------------

Cash Flows from Financing Activities of Continuing Operations:

           Bank overdraft                                                             25,783           53,328
          Current liabilities - due to related parties                               111,989            4,920
          Proceeds from issuance of convertible debt to related parties              576,000
          Proceeds from issuance of convertible debt to employees                    100,000
          Short term borrowing, net                                                   42,668           (6,907)
          Note receivable - Findstar                                                                   62,500
          Proceeds from sale of preferred stock                                           --           35,000
                                                                                ------------     ------------
                   Net Cash Provided by Financing Activities                         856,440          148,841
                                                                                ------------     ------------

Increase (decrease) in cash                                                     ($    81,895)        (147,247)

Cash at Beginning of Period                                                     $    131,690     $    147,247
                                                                                ------------     ------------

Cash at End of Period                                                           $     49,795     $         --
                                                                                ============     ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
            Interest paid during the period                                     $    129,387     $     32,512
                                                                                ------------     ------------

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
 AND FINANCING ACTIVITIES:
            Conversion of accrued expenses to common tock                       $     59,624     $    179,504
                                                                                ------------     ------------
            Conversion of accounts payable to common stock                      $      7,500
                                                                                ------------     ------------
            Conversion of notes payable to common stock                                          $     75,000
                                                                                ------------     ------------
            Conversion of class E dividends payable to common stock                              $     71,000
                                                                                ------------     ------------
            Exchangeable shares issued in acquisition of Advaliant              $  3,663,204
                                                                                ------------
            Class F voting preferred shares                                     $          0
                                                                                ------------
</TABLE>


                                      F-4
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

ORGANIZATION AND CAPITALIZATION

On June 30, 2005,  Company  finalized the  acquisition of Advaliant Inc. and the
merger was  consummated.  It became  effective June 30, 2005. The  consideration
paid by the Company for the acquisition consisted of 336,685,584 of exchangeable
shares of Advaliant Inc. for 1 share of Dialog Group,  Inc. common stock and 400
shares of class F voting  preferred stock. For purposes of determining the price
of the  Exchangeable  shares,  Management used the average weight share price of
the Company's common stock for five days before that date of the acquisition and
five days after the date of the acquisition.  The class F shares of stock do not
have a share in the equity of the Company.  They only  substitute for the voting
power of the shares to be issued for the Exchangeable  shares. As the shares are
exchanged, the Class F is cancelled. The value is strictly nominal and, together
with the Exchangeable  shares, can be converted into the stated number of Dialog
Group, Inc. common shares.

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.

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.

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,  was  100,000,000 and the
total number of authorized preferred stock, $0.001 par value, was 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.  And, on June 18, 2004, the
Company eliminated its


                                      F-5
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

Class C preferred stock. Also, on June 18, 2004 the terms of the Company's Class
E preferred  stock were  restated.  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 per share plus any accumulated but unpaid dividends.

BUSINESS ACTIVITY

The Company,  which is  headquartered  in New York, NY, has offices in Valencia,
California,  and Sunrise,  Florida. 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.

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.

CONCENTRATION OF CREDIT RISK

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash.

The  Company  maintains  cash  balances  at  several  banks.  Accounts  at  each
institution  are  insured by the Federal  Deposit  Insurance  Corporation  up to
$100,000.  From time to time, the Company had cash in financial  institutions in
excess of federally insured limits.

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.  The Company has a $350,000  line of
credit with a commercial  asset-backed lender with a term of two years beginning
August 2004.It is secured by the Company's accounts receivables,  equipment, and
inventory. At June 30, 2005, the allowance for doubtful accounts is $147,627. Of
this amount,  $132,500 is related to an agreement and issuance of  non-qualified
stock  options (see Note 6- Non-Trade  Accounts  Receivable)  and the  Company's
collection efforts.


                                      F-6
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost.  Depreciation  is computed  using the
straight-line  method over the estimated useful life of the assets,  which range
from three years to five years. Expenditures for major betterments and additions
are capitalized, while replacement, maintenance and repairs, which do not extend
the lives of the respective assets,  are charged to expense currently.  Any gain
or loss on  disposition  of assets is  recognized  currently.  The Company has a
$350,000 line of credit with a commercial asset-backed lender with a term of two
years beginning August 2004.It is secured by the Company's accounts receivables,
equipment, and inventory.

GOODWILL AND OTHER ASSETS

Goodwill
The  Company  tests  goodwill  and other  assets for  impairment  annually.  The
provisions of SFAS No. 142 require the completion of an annual  impairment test,
with the impairments recognized in current earnings.

Databases

The  databases  consist of the one acquired from  Healthcare  Horizons and other
acquired  from Azimuth  Target  Marketing  along with the costs of expanding the
databases  through the use of telephone  surveys.  As the databases,  along with
current telephone surveys, are generating revenue streams and are expected to do
so in the future, no impairment is required.  The databases are amortized over a
three year period,  while the telephone  surveys are amortized  over a five year
period.

Website

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 three year period.  Costs incurred during
the post-implementation  operation stage, and fees incurred for web hosting, are
expensed as incurred

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company reviews long-lived assets for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying amount of an asset to future  undiscounted cash flows
expected  to be  generated  by the asset.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying  amount of the assets exceeds the fair value.  Assets to be disposed of
are  reported  at the lower of the  carrying  amount or fair value less costs to
sell.


                                      F-7
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

FAIR VALUE OF FINANCIAL INSTRUMENTS

The  Company's  financial   instruments  consist  primarily  of  cash,  accounts
receivable,  other  receivable,  accounts  payable,  accrued  expenses,  current
liabilities  and  debt.  The  carrying  amounts  of such  financial  instruments
approximate  their  respective  estimated  fair  value  due  to  the  short-term
maturities  and  approximate  market  interest rates of these  instruments.  The
estimated  fair value is not  necessarily  indicative of the amounts the Company
would  realize in a current  market  exchange  or from  future  earnings or cash
flows.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reported period. Actual results could differ from those estimates.

COMPENSATED ABSENCES

The Company only accrues for  compensated  absences of employees with employment
agreements  with the  Company  that  require  the  Company to  provide  for this
benefit. Accordingly, the liability, if any, for such absences has been recorded
in the accompanying consolidated financial statements.

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 in the Healthcare
Division upon a monthly  review by management of each agreement to determine the
percentage  of the  goods,  or  services  actually  delivered,  or  provided  to
customers.  In the Data Division  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. Revenues are earned on other goods or
services when actually delivered or provided to the customer.

SHIPPING AND HANDLING COSTS

The Company  records  shipping  and  handling  costs in the cost of sales in the
statement of operations.

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


                                      F-8
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

earnings  (loss) per share is  computed  by  dividing  net income  (loss) by the
weighted-average  number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during the period.

The following is a summary of the securities that could potentially dilute basic
earning  (loss)  per  share  in the  future.  These  were  not  included  in the
computation of the diluted  earnings  (loss) per share because their exercise or
conversion would be anti-dilutive.

                                    Period          Period
                                    Ended           Ended
                                   June 30,        June 30,
                                     2005            2004
                                 ------------    ------------

Preferred stock                    62,244,640      20,244,104

Warrants                            3,241,640       2,991,640
Stock options                       3,477,500       3,477,500
Convertible notes                 136,888,548               0
Exchangeable shares-Advaliant     336,685,584
                                 ------------    ------------

Total                             542,537,912      27,167,789
                                 ============    ============

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                       June 30,
                                                                                 2005             2004
                                                                             ------------     ------------
<S>                                                                          <C>              <C>
Numerator:
        Income/(loss) from continuing operations                                 (529,179)          (6,333)
        Preferred E Series share dividends                                        (39,800)         (37,000)
        Interest paid on convertible notes                                         13,608            3,127
                                                                             ------------     ------------
        Income/(loss) applicable to common shareholders
        from continuing operations                                               (555,371)         (40,206)
        Inactive and discontinued operations                                      (57,975)         (64,447)
                                                                             ------------     ------------
        Net Income/(loss) applicable to common shareholders                      (613,346)        (104,653)

Denominator:
        Basic earning(loss) per share-weighted average shares                 153,054,074       89,612,709
        Effect of dilutive securities:
              Convertible notes
              Preferred stock
              Share options
              Warrants
        Diluted  earning(loss) per share-adjusted weighted average shares
        and assumed conversions                                               153,054,074       89,612,709

Earnings(loss) per share data:
        Basic-continuing operations                                          ($    0.0036)    ($    0.0004)
        Basic-inactive and discontinued operations                           ($    0.0004)    ($    0.0008)
                                                                             ------------     ------------

        Basic                                                                ($    0.0040)    ($    0.0012)

        Diluted-continuing operations                                        ($    0.0036)    ($    0.0004)
        Diluted-inactive and discontinued operations                         ($    0.0004)    ($    0.0004)
                                                                             ------------     ------------
        Diluted                                                              ($    0.0040)    ($    0.0012)
</TABLE>


                                      F-9
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

The  conversion of  convertible  notes,  preferred  stock,  share  options,  and
warrants  are  anti-dilutive  (assuming  conversion  into  common  shares  would
increase  earnings  per share or decrease  loss per share) and,  therefore,  not
included in the calculation of diluted earnings/(loss) per share

<TABLE>
<CAPTION>
                                                                                   Six Months Ended
                                                                                       June 30,
                                                                                 2005             2004
                                                                             ------------     ------------
Numerator:
<S>                                                                          <C>              <C>
        Income/(loss) from continuing operations                             ($   860,740)    ($   316,614)
        Preferred E Series share dividends                                        (79,600)         (73,200)
        Interest paid on convertible notes                                         22,530            5,627
                                                                             ------------     ------------
        Income/(loss) applicable to common shareholders                          (917,810)        (384,187)
        from continuing operations
        Inactive and discontinued operations                                      (58,065)         (64,447)
                                                                             ------------     ------------
        Net Income/(loss) applicable to common shareholders                      (975,875)        (448,634)

Denominator:
        Basic earning(loss) per share-weighted average shares                 133,653,132       87,720,713
        Effect of dilutive securities:
              Convertible notes
              Preferred stock
              Share options
              Warrants
        Diluted  earning(loss) per share-adjusted weighted average shares
        and assumed conversions                                               133,653,132       87,720,713

Earnings(loss) per share data:
        Basic-continuing operations                                          ($    0.0069)    ($    0.0044)
        Basic-inactive and discontinued operations                           ($     0.004)    ($    0.0007)
                                                                             ------------     ------------
        Basic                                                                ($    0.0073)    ($    0.0055)

        Diluted-continuing operations                                        ($    0.0069)    ($    0.0044)
        Diluted-inactive and discontinued operations                         ($     0.004)    ($    0.0007)
                                                                             ------------     ------------
        Diluted                                                              ($    0.0073)    ($    0.0051)
</TABLE>

The  conversion of  convertible  notes,  preferred  stock,  share  options,  and
warrants  are  anti-dilutive  (assuming  conversion  into  common  shares  would
increase  earnings  per share or decrease  loss per share) and,  therefore,  not
included in the calculation of diluted earnings/(loss) per share


                                      F-10
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

INCOME TAXES

The Company accounts for income taxes using SFAS No. 109, "Accounting for Income
Taxes," which requires  recognition of deferred tax  liabilities  and assets for
expected  future  tax  consequences  of events  that have been  included  in the
financial statements or tax returns. Under this method, deferred tax liabilities
and  assets  are  determined  based  on the  difference  between  the  financial
statement  and tax bases of assets and  liabilities  using  enacted tax rates in
effect  for the year in  which  the  differences  are  expected  to  reverse.  A
valuation  allowance  is recorded  for  deferred tax assets if it is more likely
than not  that  some  portion  or all of the  deferred  tax  assets  will not be
realized.

ADVERTISING COSTS

Advertising  costs are expensed as  incurred.  The Company  incurred  $3,973 and
$2,828 in  advertising  costs for the three month period ended June 30, 2005 and
June 30,  2004,  respectively.  The  Company  incurred  $12,034  and  $10,710 in
advertising  costs  for six  months  ended  June 30,  2005  and  June 30,  2004,
respectively.

STOCK-BASED COMPENSATION

On December 2004,  the FASB issued SFAS No. 123R,  "Accounting  for  Stock-Based
Compensation".  This  statement is a revision to SFAS No. 123,  "Accounting  for
Stock-Based  Compensation"  and supersedes APB Opinion  No.25,  "Accounting  for
Stock Issued to Employees".  This statement  requires a public entity to measure
the cost of  employee  services  received  in  exchange  for an award of  equity
instruments  based on the  grant-date  fair  value of the  award  (with  limited
exceptions).  That cost  will be  recognized  over the  period  during  which an
employee is required to provide service,  the requisite  service period (usually
the vesting  period).  The  grant-date  fair value of employee share options and
similar instruments will be estimated using option-pricing models.

In  addition,  a public  entity is  required  to  measure  the cost of  employee
services received in exchange for an award of liability instruments based on its
current value. The fair value of that award will be re-measured  subsequently at
each reporting date through the  settlement  date.  Changes in fair value during
the requisite  service period will be recognized as  compensation  cost over the
period.

For public  entities  that file as small  business  issuers,  this  statement is
effective as of the  beginning of the first interim or annual  reporting  period
that begins after December 15, 2005.

At the required  effective  date,  all public  entities that used the fair value
method for either  recognition or disclosure under Statement 123 are required to
apply this statement using a modified version of prospective application.  Under
that transition method, compensation cost is recognized on or after the required
effective  date for the portion of  outstanding  awards for which the  requisite
service has not yet been rendered,  based on the grant-date  fair value of those
awards  calculated  under  Statement  123 for either  recognition  or  pro-forma
disclosures. For periods before the required effective date,


                                      F-11
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

those  entities  may  elect to  apply  the  modified  version  of  retrospective
application under which financial statements for prior periods are adjusted on a
basis  consistent with the pro forma  disclosures  required for those periods by
Statement  123.  The  Company  does not expect  SFAS No. 123R to have a material
effect on its financial statements.

PRINCIPLES OF CONSOLIDATION

In the opinion of the Company, the accompanying unaudited consolidated financial
statements prepared in accordance with instructions for Form 10-QSB, include all
adjustments  (consisting only of normal recurring  accruals) which are necessary
for a  fair  presentation  of the  results  for  the  periods  presented.  It is
suggested that these  consolidated  financial  statements be read in conjunction
with the  Company's  Annual  Report for the year  ended  December  31,  2004.The
balance  sheet as of  December  31,  2004 was  derived  from  audited  financial
statements as of that date. The results of operations for the three months ended
June 30,  2005  along with six months  ended June 30,  2005 are not  necessarily
indicative of the results to be expected for the full year.

The  consolidated  financial  statements  include the  accounts of the  Company,
Dialog  Group,  Inc.,  and its  wholly-owned  subsidiaries;  Data  Dialog,  Inc.
Healthcare  Dialog,  Inc., IP2M, and Mail Mogul, Inc. All material  intercompany
transactions and balances have been eliminated in consolidation.

REPORTING PERIOD

The  accompanying  condensed  consolidated  financial  statements  for the three
months and six months ended June 30, 2005.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On July 14,  2005,  Financial  Accounting  Standards  Board  issued  FASB  Staff
Position (FSP) SOP 78-9-1,  Interaction of AICPA  Statement of Position 78-9 and
EFIT  Issue  No.  04-5.  This SOP  amends  AICPA  Statement  of  Position  78-9,
Accounting for Investments in Real Estate  Ventures.  This FSP does not apply to
the Company.

On July 12,  2005,  Financial  Accounting  Standards  Board  issued  FASB  Staff
Position (FSP) APB-18-1,  Accounting by an Investor for its Proportionate  Share
of Accumulated Other Comprehensive Income of an Investee Accounted for under the
Equity Method in Accordance  with APB Opinion No. 18 upon a Loss of  Significant
Influence,  which  provides  guidance on how an investor  should account for its
proportional share of an investee's equity  adjustments for other  comprehensive
income (OCI) upon a loss of  significant  influence as detailed in paragraph 121
of FASB Statement No. 130,  Reporting  Comprehensive  Income.  This FSP does not
apply to the Company.

On June 29,  2005,  Financial  Accounting  Standards  Board  issued  FASB  Staff
Position  (FSP) FAS  150-5,  address  whether  freestanding  warrants  and other
similar   instruments  on  shares  that  are  redeemable   (either  puttable  or
mandatorily  redeemable)  would be subject to the requirements of FASB Statement
No. 150,  Accounting for Certain Financial  Instruments with  Characteristics of
both  Liabilities and Equity,  regardless of the regardless of the timing of the
redemption feature or the redemption price.


                                      F-12
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

FSP  FAS  150-1  explains  that  warrants  for  shares  that  are  puttable  are
liabilities  under  paragraph  11 of Statement  150 because the warrants  embody
obligations  to  repurchase  the  issuer's  shares and may require a transfer of
assets.  Similarly,  as  stated  in FSP  FAS  150-1,  warrants  for  mandatorily
redeemable  shares are classified as liabilities under paragraph 11 of Statement
150 because the warrants  embody  obligations to repurchase the issuer's  shares
that, if exercised, will require a transfer of assets.

The  guidance  in this FSP  shall  be  applied  to the  first  reporting  period
beginning after June 30, 2005. If the guidance in this FSP results in changes to
previously  reported  information,  the  cumulative  effect  shall  be  reported
according to the transition  provisions of Statement 150 in the first  reporting
period after June 30, 2005. This FSP does not apply to the Company

On May 31, 2005, Financial Accounting Standards Board issued FASB Staff Position
(FSP) to  clarify  the  application  of EITF  Issue  No.00-19,  "Accounting  for
Derivative  Financial  Instruments  Indexed  to, and  Potentially  Settled in, a
Company's Own Stock", to freestanding financial instruments originally issued as
employee  compensation that can be settled only by delivering registered shares.
This FSP clarifies that a requirement to deliver  registered  shares,  in and of
itself, will not result in a liability classification for freestanding financial
instruments  originally issued as employee  compensation.  This clarification is
consistent  the  Board's  intent in issuing  FASB  Statement  No.  123  (revised
December 2004), Share-Based Payment. This FSP does not apply to the Company.

In May 2005,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial   Accounting   Standards  No.  154,   Accounting   Changes  and  Error
Corrections,  a replacement of APB Opinion No. 20 and FASB Statement No. 3. This
Statement  provides  guidance on accounting for reporting of accounting  changes
and error  corrections.  It  establishes,  unless  impracticable,  retrospective
application  as the  required  method  for  reporting  a  change  in  accounting
principle  in the absence of explicit  transition  requirements  specific to the
newly adopted  accounting  principle.  This Statement also provides guidance for
determining  whether  retrospective   application  of  a  change  in  accounting
principle  is  impracticable  and for  reporting  a  change  when  retrospective
application  is  impracticable.  This  Statement  also provides  guidance on the
correction of an error by restating previously issued financial statements. This
Statement shall effective for accounting  changes and corrections of errors made
in fiscal years  beginning  after December 15, 2005. The Company does not expect
Financial  Accounting  Standards Board issued Statement of Financial  Accounting
Standards No. 154,  Accounting  Changes and Error Corrections to have a material
effect on its financial statements.

On March 29, 2005,  the SEC  published  Staff  Accounting  Bulletin No. 107. The
interpretations  in this staff accounting  bulletin ("SAB") express the views of
the  staff  regarding  the  interaction   between  the  Statement  of  Financial
Accounting  Standards  Statement  No. 123 (revised  2004),  Share-Based  Payment
("Statement  123R"  or the  Statement")  and  certain  Securities  and  Exchange
Commission ("SEC") rules and regulations and provide the staff's views regarding
the valuation of  share-based  payment  arrangements  for public  companies.  In
particular,   this  SAB  provides   guidance  related  to  share-based   payment
transactions with non-employees,  the transition from nonpublic to public entity
status, valuation methods (including assumptions such as expected volatility and
expected  term),  the accounting for certain  redeemable  financial  instruments
issued


                                      F-13
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

under  share-based  payment  arrangements,  the  classification  of compensation
expense,  non-GAAP financial measures,  first-time adoption of Statement 123R in
an interim period,  capitalization  of compensation  cost related to share-based
payment  arrangements,  the  accounting  for income tax  effects of  share-based
payment  arrangements  upon  adoption of Statement  123R,  the  modification  of
employee  share options prior to adoption of Statement  123R and  disclosures in
Management's   Discussion  and  Analysis  ("MD&A")  subsequent  to  adoption  of
Statement 123R. The Company does not expect Staff Accounting Bulletin No. 107 to
have a material effect on its financial statements.

NOTE 2- ACTUAL RESULTS OF OPERATIONS

The following set forth the Company's actual results of operations for the three
months ended June 30, 2005, with comparative actual results for the three months
ended June 30, 2004

<TABLE>
<CAPTION>
                                                  Unaudited
                                                 Three months     Three months
                                                    Ending           Ending
                                                 June 30, 2005    June 30, 2004
<S>                                              <C>              <C>
                                                 $  1,418,642     $  2,137,254
REVENUE

COST OF REVENUES                                      611,083          858,005
                                                 ------------     ------------

GROSS PROFIT                                          807,559        1,279,249
                                                 ------------

OPERATING EXPENSES:
Selling, General, and Administrative Expenses       1,269,101        1,421,929
                                                 ------------     ------------

TOTAL OPERATING EXPENSE                             1,269,101        1,421,929
                                                 ------------     ------------

INCOME (LOSS) FROM OPERATIONS                        (461,542)        (142,680)
                                                                  ------------


Other Income (Expenses):
Interest expenses                                     (86,051)         (14,052)
Other expenses                                              0          (13,385)
Other income                                                0            2,047
Forgiveness of Debt                                    18,414          161,737
                                                 ------------     ------------
Total other income (expenses)                         (67,637)         136,347

Net Income/(Loss) From Continuing Operations         (592,179)          (6,333)
                                                 ------------     ------------

Discontinued Operations                               (57,975)         (64,447)
                                                 ------------     ------------

Net Income/( Loss)                                   (587,154)         (70,870)
                                                 ============     ============
</TABLE>


                                      F-14
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

The following set forth the Company's  actual  results of operations for the six
months ended June 30, 2005, with  comparative  actual results for the six months
ended June 30, 2004

<TABLE>
<CAPTION>
                                                   Unaudited
                                                  Six months       Six months
                                                    Ending           Ending
                                                 June 30, 2005   June 30, 2004
                                                 ------------     ------------
<S>                                              <C>              <C>
REVENUE                                             3,135,358     $  4,082,685

COST OF REVENUES                                    1,303,736        1,797,975
                                                 ------------     ------------

GROSS PROFIT                                        1,831,622        2,284,710
                                                                  ------------

OPERATING EXPENSES:
Selling, General, and Administrative Expenses       2,585,139        2,812,874
                                                 ------------     ------------

TOTAL OPERATING EXPENSE                             2,585,139        2,812,874
                                                 ------------     ------------

INCOME (LOSS) FROM OPERATIONS                        (753,517)        (528,164)
                                                                  ------------

Other Income (Expenses):
Interest expenses                                    (129,387)         (32,512)
Other expenses                                              0          (13,285)
Other income                                                0            1,947
Forgiveness of Debt                                    22,164          255,400
                                                 ------------     ------------
Total other income (expenses)                        (107,223)         211,550

Net Income/(Loss) from Continuing Operations         (860,740)        (316,614)
                                                 ------------     ------------

Discontinued Operations                               (58,265)         (64,447)
                                                 ------------     ------------

Net Income/( Loss)                                   (919,005)        (381,061)
                                                 ============     ============
</TABLE>

NOTE 3- ACQUISTIONS

ACQUISITION OF ADVALIANT INC.

On June 30, 2005,  Company  finalized the  acquisition of Advaliant Inc. and the
merger was  consummated.  It became  effective June 30, 2005. The  consideration
paid by the Company for the acquisition consisted of 336,685,584 of exchangeable
shares of Advaliant Inc. for 1 share of Dialog Group,  Inc. common stock and 400
shares of class F voting  preferred stock. For purposes of determining the price
of the  Exchangeable  shares,  Management used the average weight share price of
the Company's common stock for five days before that date of the acquisition and
five days after the date of the acquisition.  The class F shares of stock do not
have a share in the equity of the Company.  They only  substitute for the voting
power of the shares to be issued for the Exchangeable  shares. As the shares are
exchanged, the Class F is cancelled. The value is strictly nominal and, together
with the Exchangeable  shares, can be converted into the stated number of Dialog
Group, Inc. common shares. The consideration also included $213,047 of estimated
transaction costs.


                                      F-15
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

The table  presented  below sets forth the  consideration  paid by the  Company,
which may be subject to certain adjustments.

Exchangeable shares (336,685,584 at $0.011 per share)       $3,636,204
Class F voting preferred stock (400 at $0.000 per share)             0
Excess allocation of net assets purchased                      258,757
Estimated transaction costs                                    213,047
                                                            ----------

Total Purchase Price                                        $4,108,008
                                                            ==========

The table presented below sets forth the preliminary  allocation of the purchase
price of Advaliant Inc. tangible and intangible  assets and liabilities  assumed
at June 30, 2005.

Cash                                         $    49,795
Accounts receivable                              230,121
Prepaid expenses and other current assets          2,822
Property and equipment                            11,961
Affiliate web platform                           252,000
Goodwill                                       4,114,765
Accounts payable                                (464,054)
Accrued expenses                                 (70,246)
Other current liabilities                        (19,154)
                                             -----------
Total                                        $ 4,108,008
                                             ===========

UNAUDITED PRO-FORMA RESULTS OF OPERATIONS

The  following  table sets forth the  Company's  results of operation  for three
months  ending  June 30,  2005 and the six  months  ending  June 30,  2005  with
comparative results operations for the three months ending June 30, 2004 and six
months ending June 30, 2004, as if the  acquisition  of Advaliant Inc. had taken
place on January 1, 2005.

<TABLE>
<CAPTION>
                                    Three             Three            Six               Six
                                    Months           Months           Months           Months
                                    Ending           Ending           Ending           Ending
                                   June 30,         June 30,         June 30,         June 30,
                                     2005             2204             2005             2004
                                 ------------     ------------     ------------     ------------
<S>                              <C>              <C>              <C>              <C>
REVENUE                          $  2,175,557     $  2,137,254     $  4,616,719     $  4,082,686

INCOME/LOSS FROM OPERATIONS          (788,583)        (142,680)      (1,007,027)        (528,164)

NET INCOME/(LOSS)                    (737,126)         (70,780)      (1,001,665)        (381,059)

PRO FORMA NET EARNINGS/(LOSS)
BASIC AND DILUTED                ($     0.005)    ($     0.001)    ($     0.007)    ($     0.005)

WEIGHTED AVERAGE NUMNER OF
COMMON SHARES OUSTANDING,
BASIC ANS DILLUTED                153,054,074       89,612,709      135,513,274       87,720,713
</TABLE>


                                      F-16
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

NOTE 4-INACTIVE AND DISCONTINUED SUBSIDARIES

For 2004, he costs directly relate to  ThinkDirectMarketing  supplier litigation
settlement  expenses and TDMI supplier  related expenses along with HCH supplier
litigation  expenses  and HCH supplier  related  expenses.  For 2005,  the costs
relate to ThinkDirectMarketing supplier litigation expenses.

NOTE 5 - 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
$9,284,787 as of June 30, 2005. These conditions raise  substantial  doubt as to
the ability of the Company to continue as a going concern.

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

LIQUIDITY

The Company continues review means of raising funds including issuing debentures
and equity  instruments.  The  Company is also  reviewing  the sale of  non-core
assets.

For the six months  ending June 30, 2005,  the Company  arranged for the payment
various goods and services  provided by employees  and suppliers in  stock-based
compensation   transactions  valued  at  approximately  $152,000.  See  Note  8,
Stock-Based Compensation for further details

In April,  2005,  the  Company  issued a 5%  convertible  note in the  amount of
$550,000 in a related party  transaction.  The Company  obtained the $500,000 in
April.  In connection  with  arranging  the sale of this note,  the Company paid
$50,000 to a company  whose  president  is a member of the board of directors of
the Company.

In April,  2005, the Company and the holder of $555,000 of convertible notes had
sold them to another related party. As part of transaction, the accrued interest
was forgiven and the warrants originally issued with the notes were cancelled. A
new note, for $555,000 was issued to replace the four notes that were cancelled.

The Company  reduced its current  obligations  of  approximately  $133,000 which
consisted  of accounts  payable,  accrued  payroll,  and accrued  vacation.  The
President and C.E.O.  along with the C.O.O. and C.F.O.  amended their employment
contacts  for  2005  with  the  Company  that  reduced  the  Company's   payroll
requirements.  Additionally,  the President and C.E.O.,  C.O.O. and C.F.O, and a
related party converted  approximately $52,000 of accrued compensation to common
stock,  while a supplier  converted  approximately  $8,000 of open  invoices  to
common stock.


                                      F-17
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

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, and the expansion of sales organization.

o     Reduce expenses through 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 6- NON-TRADE RECEIVABLE

On November 19, 2004, the Company amended a prior agreement  pursuant to which a
non-qualified  stock option had been issued.  On November 19, 2004, the optionee
executed its rights to purchase  $200,000 of Dialog Group,  Inc. common stock at
the  price of $0.06  per share  for a total of  3,333,333  immediately  upon the
registration and delivery of shares.  The Company complied with the requirements
of  Notice  of  Option  Purchase.  The  optionee,  to date,  has  provided  only
approximately  $67,000  of  the  $200,000  that  it is  committed  to pay to the
Company.  The Company has reserved for the entire unpaid balance of $132,500 due
to the uncertainty of collection.  The Company has hired an attorney In March to
pursue  collection  of the unpaid  balance.  Prior to hiring the  attorney,  the
Company was pursuing collection of the unpaid balance directly with optionee.

NOTE 7- LETTER OF CREDIT

In  connection  with a supplier  agreement  of  Healthcare  Dialog,  the Company
arranged for a Standby  Letter of Credit in the amount of $90,000 in February of
2005.  The Letter of Credit is in effect for one year from February 2005. As the
Company did not have the required  financial assets to collateralize  the Letter
of Credit, the collateral for the Letter of credit is secured by personal assets
of  the   Company's   President   and   C.E.O.   (See  Note   15-Related   Party
Transactions).The  agreement  with the supplier  requires  Healthcare  Dialog to
replenish any draws by the supplier against the Standby Letter of Credit. During
the period ending June 30, 2005, as was the case for the period ending March 31,
2005, the supplier did not draw against the Letter of Credit.  In July 2005, the
supplier  did draw  approximately  $36,000  against  the Letter of  Credit.  The
Company  replenished  the original value of the Letter of Credit with the in the
agreement with the supplier.

NOTE 8- STOCK-BASED COMPENSATION

For the six months ending June 30, 2005,  the Company  entered into  stock-based
compensation transactions valued at approximately $156,000

During the period ending June 30, 2005,  the Company  entered into the following
stock-based compensation transactions.


                                      F-18
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

The Company issued 2,000,000 shares in connection with a consulting agreement to
provide the Company with investor  relations  advice.  An employee  agreed to be
paid his accrued  payroll  less  insurance  expenses in stock.  The Company will
issue 761,839 shares related to this transaction.

The table  presented  below provides  additional  information on the stock-based
compensation for the period ending June 30, 2005.

                                Number of          Value            Value
                                  Shares            Per            of the
Transaction                       Issued           Share         Transaction
-----------                       ------           -----         -----------
Employee Payroll                   761,839        $0.00475            $3,619
Consulting                       2,000,000        $0.00475            $9,500

Total 2nd quarter                2,761,839                           $13,119

The  transactions  were  recorded  during the period three month ending June 30,
2005 as,

Prepaid expense on the Balance Sheet                 $    9,500
Operating expenses on the Statement of Operations         3,619
                                                     ----------

Total                                                $   13,119
                                                     ==========

The value of the  transaction  is based  upon the price per share of the  common
stock on the date of the transaction along with a valuation  factor,  reflecting
the trading restrictions placed upon the stock and size of the block relative to
the average daily trading  volume of the stock during  immediate  thirty trading
days prior to date the stock is issued  along with trading  restrictions  placed
upon the stock

During the period ending March 31, 2005, the Company  entered into the following
stock-based compensation transactions.

As consideration for personally guaranteeing certain obligations of the Company,
the Board of  Directors  authorized  the  Company to issue  4,750,000  shares of
common stock worth  $23,750 the President  and C.E.O.  for 4,750,000  shares and
350,000 shares of common stock worth $1,750 to the C.O.O. and C.F.O.

In connection with amending their employment  contracts with the Company for the
balance  of 2005,  the  President  and  C.E.O  agreed to a salary  reduction  of
$100,000,  while the C.O.O.  and C.F.O agreed to a salary  reduction of $65,000,
the Board of Directors  authorized  10,000,000  and  6,500,000  shares of common
stock to be issued to the  President  and C.E.O  and to the  C.O.O.  and  C.F.O,
respectively.

For  performing  additional  services  that are not  included in his  employment
contract,  the Company  agreed to issue  2,000,000  shares of common stock worth
$10,000, to the Secretary of the Corporation.

The Company  amended one  existing  consulting  services  agreement to limit its
obligation  to  1,456,398  shares  and  entered  into  new  consulting  services
agreement for 1,000,000 shares,


                                      F-19
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

worth $13,835 and $7,000,  respectively.  The consultants will, or have provided
general investor relations and marketing services.

The Company offered two employees with potential stock awards.  The Company will
provide  350,000  shares valued at $3,500.  To receive the award,  the employees
must be employed at the Company at December  31,  2005.  The Company have issued
the shares but placed them with an escrow agent.  The Company  accounted for the
transactions in accordance with FASB 123R as issued in December 2004.

The table  presented  below provides  additional  information on the stock-based
compensation for the period ending March 31, 2005.

<TABLE>
<CAPTION>
                                                           Number of           Value            Value
                                                            Shares              Per             of the
Transaction                                                 Issued             Share         Transaction
-----------                                                 ------             -----         -----------
<S>                                                        <C>               <C>               <C>
Consulting                                                 1,456,398         $0.010            $13,836
Employee stock awards                                        350,000          0.010              3,500
Consulting                                                 1,000,000          0.007              7,000
Employee compensation                                      2,000,000          0.005             10,000
Guarantee and credit extension by President/C.E.O.         4,750,000          0.005             23,750
Guarantee and credit extension by C.O.O./C.F.O               350,000          0.005              1,750
Employment contract reduction by President/C.E.O.         10,000,000          0.005             50,000

Employment contract  reduction by C.O.O./C.F.O             6,500,000          0.005             32,500

Total 1st quarter                                         26,406,398                          $142,336
</TABLE>

At the end of the three  months  ending  March 31, 2005,  the  transactions  are
recorded as,

Prepaid expenses on the Balance Sheet                $   71,500
Operating expenses on the Statement of Operations        70,836
                                                     ----------

Total                                                $  142,336
                                                     ==========

The value of the  transaction  is based  upon the price per share of the  common
stock on the date of the transaction  along with a valuation factor for the size
of the block of stock  relative to the average daily trading volume of the stock
during  immediate  thirty  trading  days prior to date the stock is issued along
with trading restrictions placed upon the stock

NOTE 9- ACCRUED LIABILITES

As of June 30, 2005, accrued liabilities consisted of the following:

      Accrued professional fees and other expenses    $  177,613
      Accrued payroll and payroll taxes                  477,443
      Accrued interest                                    15,915
      Accrued settlements and contingencies              412,835
                                                      ----------
      Total                                           $1,083,805
                                                      ==========

See Note  16-Litigation  for the  specific  items that  comprise the $412,835 in
Accrued settlements and contingencies.


                                      F-20
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

NOTE 10 - EQUITY

COMMON STOCK

EXCHANGEABLE SHARES

On June 30, 2005,  Company  finalized the  acquisition of Advaliant Inc. and the
merger was  consummated.  It became  effective June 30, 2005. The  consideration
paid by the Company for the acquisition consisted of 336,685,584 of exchangeable
shares of Advaliant Inc. for 1 share of Dialog Group, Inc. common stock.

During the period ending June 30, 2005, the Company issued  2,000,000  shares in
connection  with a consulting  agreement  to provide the Company  with  investor
relations advice.

During the period ending March 31, 2005, the Company issued  2,839,076 shares in
connection with the payment of the series E Preferred Stock dividends accrued in
2004.  As a result of non  completion  of an agreement  in the 1st quarter,  the
Company cancelled 799,999 shares.

PREFERRED STOCK

CLASS F VOTING PREFERRED STOCK

In connection  with the  acquisition  of Advaliant  Inc., the Company issued 400
shares of class F. The class F shares of stock do not have a share in the equity
of the Company.  They only  substitute  for the voting power of the shares to be
issued for the Exchangeable shares. As the shares are exchanged,  the Class F is
cancelled.  The value is strictly  nominal and,  together with the  Exchangeable
shares,  can be converted  into the stated number of Dialog Group,  Inc.  common
shares.

CLASS B AND B-1 PREFERRED STOCK

Each  share of the  Company's  Class B and  Class  B-1  Preferred  Stock  can be
converted  into 40 shares of Common  Stock and each  share of the Class E Common
Stock can be converted  into 83,333 shares of Common Stock.  Each Class B or B-1
share  casts 40 votes for the  election of  directors  and one vote on all other
matters.  Each Class E share casts one vote for each share of Common  Stock into
which it could be converted.  The preferred stock does not contain unconditional
obligations  requiring  the Company to redeem the  instruments  by  transferring
assets at a specified or determinable date or upon an event to occur.

During the six months ending June 30 2005, no debt was converted  into preferred
stock.

STOCK OPTIONS

For the three month period  ending June 30, 2005,  the Company did not grant any
stock options, while no stock options were exercised or forfeited.

For the three month period ending March 31, 2005,  the Company  granted  100,000
stock options to an unrelated party, while no options were exercised.


                                      F-21
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

STOCK WARRANTS

In connection  with issuance of a $45,000  convertible  note,  convertible  into
common stock at price of $0.025 per share,  warrants provide holders to purchase
the common  stock at the price of $0.025.  Warrants to purchase  540,000  shares
have been  issued to the  holder of this  convertible  note.  The  warrants  are
exercisable until September 30, 2009.  Warrants to purchase a total of 6,381,865
shares have been issued to all convertible note holders. Pursuant to discussions
in April 2005 with the convertible  note holders,  they agreed that all warrants
are cancelled.

CLASS E PREFERRED STOCK DIVIDENDS

The dividends accrue at the rate of $400 per share per quarter.  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, may be paid in lieu of cash.

During the period ending June 30, 2005, quarterly dividends accrued on its Class
E Preferred  Stock at the rate of $400 per share,  per  quarter,  for a total of
$39,800 accrued and unpaid.  At June 30, 2005 the cumulative  amount accrued and
unpaid dividends is $79,600.

During the period  ending March 31,  2005,  quarterly  dividends  accrued on its
Class E Preferred Stock at the rate of $400 per share, per quarter,  for a total
of $39,800 accrued and unpaid for at March 31, 2005.

CONVERSION OF PREFERRED STOCK INTO COMMON STOCK

During the period ending June 30, 2005, no conversions took place.

During the period  ending March 31, 2005,  247,120  shares of series B Preferred
stock was converted into 3,086,196 shares of common stock.

CONVERSION OF DEBT

During the six months  ending  June 30, 2005  approximately  $67,000 of debt and
accrued expenses are converted into common stock.

During the three month period ending June 30, 2005, approximately $7,300 of debt
and accrued expenses were converted into common stock. The table presented below
provides  additional  information related to conversion of debt during the three
month period ending June 30, 2005
<TABLE>
<CAPTION>
                                               Number of         Price            Amount
                                                 Shares           Per             of the
Transaction                                      Issued          Share          Conversion
-----------                                      ------          -----          ----------
<S>                                             <C>            <C>               <C>
Conversion of payroll- employee/non related     761,839        $0.00495          $3,618.74

Total 2nd quarter                               761,839                          $3,618.74
</TABLE>


                                      F-22
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

The  transactions  for the three month period  ending June 30, 2005 are recorded
as,

Equity on the Balance Sheet                           $    3,319
Forgiveness of debt on the Statement of Operations         3,681
Operating expenses on the Statement of Operations          7,730
Total                                                      3,619
                                                      ==========

The value of the  transaction  is based  upon the price per share of the  common
stock on the date of the transaction  along with a valuation  factor abed on the
trading  restrictions  placed  upon the stock and the size of the block of stock
relative to the average daily trading  volume of the stock along with during the
immediate  thirty  trading  days  prior to date the stock is issued  along  with
trading restrictions placed upon the stock.

During the three month period  ending March 31, 2005,  approximately  $60,000 of
debt and accrued  expenses were converted into common stock. The table presented
below provides  additional  information related to conversion of debt during the
period ending March 31, 2005

<TABLE>
<CAPTION>
                                                                  Number of          Price          Amount
                                                                    Shares            Per           of the
Transaction                                                         Issued           Share        Conversion
-----------                                                         ------           -----        ----------
<S>                                                                <C>               <C>          <C>
Conversion of accrued vacation- President/C.E.O                    2,403,846         $0.010       $24,038.46
Conversion of accrued vacation- C.O.O./C.F.O                       1,422,308          0.010       $14,223.08
Conversion of accrued payroll-employee, related party              1,406,249          0.010       $14,062.49
Conversion of accounts payable                                       750,000          0.010        $7,500.00

Total 1st quarter                                                  5,982,403                       59,824.03
</TABLE>

The  transactions  for the three month period ending March 31, 2005 are recorded
as,

Equity on the Balance Sheet                           $   56,074
Forgiveness of debt on the Statement of Operations         3,750
                                                      ----------

Total                                                     59,824
                                                      ==========


The value of the  transaction  is based  upon the price per share of the  common
stock on the date of the transaction  along with a valuation factor for the size
of the block of stock  relative to the average daily trading volume of the stock
along with during the immediate  thirty  trading days prior to date the stock is
issued along with trading restrictions placed upon the stock

NOTE 11 - 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 intrinsic  value method under the provisions of APB No. 25 "Accounting
for Stock Issued to Employees". Upon adoption of FAS 148, the Company changed to
the fair value  method and elected to  recognize  stock-based  compensation  for
awards granted after January 1, 2003 under the prospective method.

During the three month period  ending June 30,  2005,  the Company did not grant
any stock options.


                                      F-23
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

Stock  options  activity  for 2005 for the six month  ending June 30, 2005 is as
follows:

                                             Number   Weighted Average
                                           Of Shares   Exercise Price
Options Outstanding, December 31, 2004     3,366,898     $    0.121

Options Granted                              100,000          0.012
Options Forfeited                             (9,502)         3.000

Options Expired                                    0              0
Options Exercised                                  0              0
                                          ----------     ----------
Options outstanding, June 30, 2005         3,457,396          0.112
                                          ==========     ==========

During the three months  ending June 30, 2005,  1,040,032  options  vested for a
total of 1,220,932  options  vesting during the six months ending June 30, 2005.
Total  number of options  vested at June 30, 2005 is  2,874,060,  while  583,336
options are non-vested.

During the quarter  ended March 31, 2005,  100,000 stock options were granted to
employees,  non-employee directors, officers, or consultants with an exercise of
$0.012 per common share and is immediately exercisable on the date of the grant,
March 30, 2005.  180,900  options  vested in the three  months  ending March 31,
2005,  while 9,504  options are forfeited by former  employees  during the first
quarter of 2005.

The table presented below provides  additional  information on the options based
compensation for the period ending March 31, 2005.

                          Number of        Value             Value
                           Shares           Per             of the
Transaction                Issued          Share          Transaction
-----------                ------          -----          -----------
Consulting                 100,000        $0.012               $1,200

Total 1st quarter          100,000                              1,200

The transaction was recorded to operating  expense  included in the Statement of
Operations.

The value of the  transaction  is based  upon the price per share of the  common
stock on the date of the transaction  along with a valuation factor for the size
of the block of stock  relative to the average daily trading volume of the stock
along with during the immediate  thirty  trading days prior to date the stock is
issued along with trading restrictions placed upon the stock

NOTE 12- COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company has entered into five lease  obligations for office space along with
a corporate  apartment in New York City.  The offices are located in California,
Florida, New York, and Texas.


                                      F-24
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

California Lease

The  California  lease was executed on June 19,  2003.  The term of the lease is
from August 1, 2003 through  October 31, 2006.  The lease contains an option for
the Company to extend the lease for an additional three-year period.

Florida Lease

The Florida lease was executed on April 15, 2003.  The term of the lease is from
May 1, 2003 through April 30, 2008. The lease includes in addition to the office
space, various office furniture remaining from a prior lessee.

New York

The New York lease was  executed on June 8, 2004.  The term of the lease is from
June 1, 2004 through May 31, 2007.

The  corporate  apartment in New York City lease was renewed on January 1, 2005.
The term of the lease is from  January 1, 2005 through  December  31, 2007.  The
rent is paid on a month-to-month basis until new lease is negotiated.

Texas Lease

The lease was amended on September 1, 2003 to extend the lease agreement  period
to September 30, 2006. As a result of  non-payment of the monthly lease payments
by the Company,  the Landlord  terminated the lease on June 28, 2005. The assets
at the office  site were not moved to  another  Company  location.  The net book
value of the assets was zero.

EMPLOYMENT CONTRACTS

The Company has employment  contracts with four employees.  Employment contracts
at June 30, 2005 are as follows.
                                                       Annual
Position                                           Compensation
--------                                           ------------
President and C.E.O                                  $250,000
C.O.O. and C.F.O.                                    $150,000
Administrative Head of Healthcare Dialog             $150,000

The employment contracts for the President and C.E.O, C.O.O. and C.F.O., and the
Administrative  Head of  Healthcare  Dialog are for one year,  with initial term
ending  March  31,  2005,  extendable  for  successive  one year  terms,  unless
terminated  at the end of the term by either  party  upon  ninety  days  written
notice to the other party.  Annual increases at the first of every year shall be
at least the percentage of the prior year's C.P.I. In negotiations with Company,
the  employees  agreed to waiving  this clause for  2005.If for any reason,  the
employee is not paid the  employee's  base salary for the year,  the  difference
between the base salary and the amount paid shall be paid to the employee  prior
to  payment  of any  year-end  bonus to any other  employee.  Employee  shall be
entitled to not less than five (5) weeks paid  vacation  for each full  calendar
year  prorated for any partial  year.  Employee  shall accrue  earned and unused
vacation.  Employee  shall  receive all benefits  and fringes made  available to
other employees and officers of the Company including pension,  medical, dental,
life,  and  disability  insurance and other similar  plans.  Employee and spouse
shall receive these benefits fully paid


                                      F-25
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

by the Company. Health insurance for the employee and family will be provided by
the Company.  Health club  memberships  for the employee will be paid for by the
company.  Life  insurance at a cost of at least $1,000 per month will be paid by
the Company.  Long and short term disability  insurance for the employee will be
paid by the Company.  The employee is entitled to a monthly automobile allowance
of $1,500 per month.

The employment  agreement with the Corporate Secretary is effective June 1, 2004
to May 31, 2005. It does not contain a renewal  clause.  If for any reason,  the
employee is not paid the  employee's  base salary for the year,  the  difference
between the base salary and the amount paid shall be paid to the employee  prior
to payment of any year-end bonus to any other employee. Health insurance for the
employee  is paid by the  Company.  Employee  shall  accrue  earned  and  unused
vacation. Employee shall receive all benefits and fringes made available to

him from time to time by the  Company.  The  agreement  was not  renewed at this
time, but is under negotiation.

NOTE 13 - SEGMENT DISCLOSURES

The Company's reportable operating segments are categorized in three components:
(1) Healthcare; which includes Healthcare Dialog, 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  direct  marketing  and
customer  relationship  management  products  and  services  for the  healthcare
industry.

      Revenues are generated by Strategic and Creative Services:
      ----------------------------------------------------------
      o     direct mail campaigns
      o     creation of sales representative training materials
      o     creation and dissemination of patient and professional education
            materials
      o     consumer advertising
      o     creation and management of websites
      o     to place internet advertising
      o     for the  use of our healthcare database

+ Media  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.

      Revenues are generated from
      ---------------------------
      o     data from data dialog master database
      o     mail room supplies
      o     membership in "RFQ" an online marketplace for quoting direct mail
            jobs
      o     sale of licensed databases and database products and services
      o     data updating services


                                      F-26
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

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.

      Revenues are generated from
      ----------------------------
      o     data from the Dialog Group  databases
      o     Data Dialog  Digital,  a product that  automatically  appends
            names and addresses to telephone  numbers on inbound calls to
            telephone service centers.
      o     direct mail campaigns

CORPORATE

This is comprised of general and administrative  functions and related expenses.
These costs are  retained at  corporate  and are not  allocated  to the business
segments.  Costs  that are  specifically  attributable  to a  business  unit are
charged to that unit. Management's philosophy is charging the units for specific
attributable costs, such as I.T services, rent, and depreciation or amortization
of assets  owned by  Corporate  that have a benefit  to the  business  unit more
accurately  reflects  the  operating  costs of  Corporate  and the  matching  of
revenues and costs of the respective business unit.

SIGNIFICANT CUSTOMERS

For the three month  ending June 30, 2005 along with the six months  ending June
30, 2005, two customers of the Healthcare  segment account for approximately 11%
each of the consolidated revenues, while no customer of the Data segment account
for more than 4% of the consolidated  revenues.  This compares with one customer
of the Healthcare  segment accounting for approximately 39% and 16% respectively
for the three month period ending June 30, 2004 and the six months period ending
June 30, 2004, respectively.  No customer in the Data segment accounted for more
than 1% in either period in 2004.

Management is not aware of any known  trends,  uncertainties,  or  circumstances
that  are  reasonably  likely  to  have a  material  effect  on  composition  or
percentages of significant customers for the balance of 2005.

          Three months ended June 30, 2005   Actual Unaudited Results

<TABLE>
<CAPTION>
                                                                                                   Consolidated
                                                 Corporate        Healthcare          Data             Total
<S>                                             <C>              <C>              <C>              <C>
REVENUE                                         $          0     $    715,811     $    702,831     $  1,418,642

COST OF REVENUES                                           0         446,2857          164,796          611,083
                                                ------------     ------------     ------------     ------------

GROSS  PROFIT                                              0          269,524          538,035          807,559

OPERATING EXPENSES:

Selling, General and Administration Expenses         410,122          273,703          561,791        1,269,101
                                                ------------     ------------     ------------     ------------

TOTAL OPERATING EXPENSE                              410,122          273,703          561,791        1,269,101
                                                ------------     ------------     ------------     ------------

INCOME (LOSS) FROM OPERATIONS                       (410,122)          (4,179)         (23,756)        (461,542)

Other Income(Expenses)
</TABLE>


                                      F-27
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                                                   Consolidated
                                                 Corporate        Healthcare          Data             Total
<S>                                             <C>              <C>              <C>              <C>
Interest income
Interest expense                                     (64,620)         (19,199)          (2,232)         (86,051)
Other (expense)
Other income
Forgiveness of debt                                   18,414                0                0           18,414
                                                ------------     ------------     ------------     ------------

Total other income(expenses)                         (46,206)         (19,199)          (2,32)          (67,637)
                                                                                  ------------

Income/(Loss) From Continuing Operations            (456,328)         (23,378)         (25,988)        (529,179)

Inactive Operations
Discontinued operations                              (57,975)               0                0          (57,975)
                                                ------------     ------------     ------------     ------------

Net Income/(Loss)                                   (514,303)         (23,378)         (25,988)        (587,154)
                                                ============     ============     ============     ============

Total Net Assets                                     679,354          691,577          255,329        1,626,260
                                                ============     ============     ============     ============
Gross Fixed and Other Assets                       1,138,265           12,752          259,306        1,410,323
                                                ============     ============     ============     ============
Depreciation and Amortization Expense                 80,264                0           20,690          100,954
                                                ============     ============     ============     ============
Accumulated Depreciation and Amortization            598,490                0          143,607          742,097
                                                ============     ============     ============     ============
</TABLE>

         Three months ended June 30, 2004   Actual Unaudited Results

<TABLE>
<CAPTION>
                                                                                                   Consolidated
                                                 Corporate        Healthcare          Data             Total
<S>                                             <C>              <C>              <C>              <C>
REVENUE                                         $          0     $  1,002,153     $  1,135,101     $  2,137,254

COST OF REVENUES                                                      413,905          444,100          858,005
                                                                 ------------     ------------     ------------

GROSS  PROFIT                                                         588,248          691,001        1,279,249

OPERATING EXPENSES:

Selling, General and Administration Expenses         543,214          143,285          735,430        1,421,929
                                                ------------     ------------     ------------     ------------

TOTAL OPERATING EXPENSE                              543,214          143,285          735,430        1,421,929
                                                ------------     ------------     ------------     ------------

INCOME (LOSS) FROM OPERATIONS                       (543,214)         444,963          (44,429)        (142,680)

Other Income(Expenses)
Interest income
Interest expense                                      (5,570)          (8,459)             (23)         (14,052)
Other (expense)                                       (2,704)         (10,581)            (100)         (13,385)
Other income                                                            2,047                             2,047
Forgiveness of debt                                    9,888          109,014           42,835          161,737
                                                ------------                      ------------     ------------

Total other income(expenses)                           1,614           92,021           42,712          163,784

Income/(Loss) From Continuing Operations            (541,600)         536,984           (1,717)          (6,333)
                                                ------------     ------------     ------------     ------------
</TABLE>


                                      F-28
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

<TABLE>
<CAPTION>
                                                                                                   Consolidated
                                                 Corporate        Healthcare          Data             Total
<S>                                             <C>              <C>              <C>              <C>
Inactive Operations

Discontinued operations                              (39,025)         (25,422)                          (64,447)
                                                ------------     ------------                      ------------

Net Income/(Loss)                                   (580,625          511,562           (1,717)         (70,780)
                                                ============     ============     ============     ============

Total Net Assets                                     726,529          584,812          419,344        1,730,685
                                                ============     ============     ============     ============
Gross Fixed and Other Assets                         851,363           28,495          483,016        1,362,874
                                                ============     ============     ============     ============
Depreciation and Amortization Expense                 68,134                0           15,293           83,427
                                                ============     ============     ============     ============
Accumulated Depreciation and Amortization            295,477                0           63,672          359,149
                                                ============     ============     ============     ============
</TABLE>

          Six months ended June 30, 2005   Actual Unaudited Results

<TABLE>
<CAPTION>
                                                                                                   Consolidated
                                                 Corporate        Healthcare          Data             Total
<S>                                             <C>              <C>              <C>              <C>
REVENUE                                         $          0     $  1,519,009     $  1,616,349     $  3,135,358

COST OF SALES                                              0          799,930          503,806        1,303,736
                                                ------------     ------------     ------------     ------------

GROSS  PROFIT                                              0          719,930        1,112,543        1,831,622

OPERATING EXPENSES:

Selling, General and Administration Expenses         863,316          590,074        1,095,921        2,585,139
                                                ------------     ------------     ------------     ------------

TOTAL OPERATING EXPENSE                              863,316          590,074        1,095,921        2,585,139
                                                ------------     ------------     ------------     ------------

INCOME (LOSS) FROM OPERATIONS                       (863,316)         129,005           16,622         (753,517)

Other Income(Expenses)

Interest income
Interest expense                                     (89,176)         (35,062)          (5,149)        (129,387)
Other (expense)
Other income
Forgiveness of debt                                   22,164                0                0           22,164
                                                ------------     ------------     ------------     ------------

Total other income(expenses)                         (67,012)         (35,062)          (5,149)        (107,223)
                                                                                  ------------

Income/(Loss) From Continuing Operations            (930,328)          93,943           11,473         (860,740)

Inactive Operations                                        0             (290)               0             (290)
Discontinued operations                              (57,975)               0                0          (57,975)
                                                ------------     ------------     ------------     ------------

Net Income/(Loss)                                   (988,303)          93,653           11,473         (919,005)
                                                ============     ============     ============     ============

Total Net Assets                                     679,354          691,577          255,329        1,626,260
                                                ============     ============     ============     ============
Gross Fixed and Other Assets                       1,138,265           12,752          259,306        1,140,323
                                                ============     ============     ============     ============
Depreciation and Amortization Expense                158,797                0           41,379          200,176
                                                ============     ============     ============     ============
Accumulaed Depreciation and Amortization             598,490                0          143,607          742,097
                                                ============     ============     ============     ============
</TABLE>


                                      F-29
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

         Six months ended June 30, 2004   Actual Unaudited Results

<TABLE>
<CAPTION>
                                                                                                   Consolidated
                                                 Corporate        Healthcare          Data             Total
<S>                                             <C>              <C>              <C>              <C>
REVENUE                                                          $  1,935,970     $  2,146,715     $  4,082,685

COST OF SALES                                                         863,223          934,752        1,797,975
                                                                 ------------     ------------     ------------

GROSS  PROFIT                                                       1,072,747        1,211,963        2,284,710

OPERATING EXPENSES:

Selling, General and Administration Expenses       1,148,500          342,431        1,321,943        2,812,874
                                                ------------     ------------     ------------     ------------

TOTAL OPERATING EXPENSE                            1,148,500          342,431        1,321,943        2,812,874
                                                ------------     ------------     ------------     ------------

INCOME (LOSS) FROM OPERATIONS                     (1,148,500)         730,316         (109,980)        (528,164)

Other Income(Expenses)
Interest income
Interest expense                                     (15,864)         (16,625)             (23)         (32,512)
Other (expense)                                       (2,704)         (10,581)                          (13,285)
Other income                                                                              1947            1,947
Forgiveness of debt                                  102,151          109,114           44,135          255,400
                                                                 ------------     ------------     ------------

Total other income(expenses)                          83,583           83,855           44,112          211,550

Income/(Loss) From Continuing Operations          (1,064,917)         814,171          (65,868)        (316,614)
                                                ------------     ------------     ------------     ------------

Inactive Operations

Discontinued operations                              (39,025)         (25,422)                          (64,447)
                                                ------------     ------------                      ------------

Net Income/(Loss)                                 (1,103,942)         788,749          (65,868)        (381,061)
                                                ============     ============     ============     ============

Total Net Assets                                     726,529          584,812          419,344        1,730,685
                                                ============     ============     ============     ============
Gross Fixed and Other Assets                         851,363           28,495          483,016        1,362,874
                                                ============     ============     ============     ============
Depreciation and Amortization Expense                136,160                0           30,261          166,421
                                                ============     ============     ============     ============
Accumulated Depreciation and Amortization            295,477                0           63,672          359,149
                                                ============     ============     ============     ============
</TABLE>

NOTE 14 - LOANS AND NOTES PAYABLE

Loans and notes payable due to non-related parties consisted of the following as
of June 30, 2005.

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


                                      F-30
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

<TABLE>
<S>                                                                                  <C>
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  credit  agreement with a commercial bank matured on October
13,  2004.The  line of credit  bears  interest at prime plus 2% per annum and is
personally  guaranteed by the Company's  President  and C.E.O.  The  outstanding
balance was paid from the net proceeds  from the sale of a $555,000  convertible
note to a related party.  The credit agreement with this bank was not renewed by
the Company.                                                                         $         0

Small business loan assumed upon the purchase of Azimuth Target  Marketing.  The
loan bears interest at prime plus 2 1/4 % per annum,  due in equal  installments
over 36 months, maturing during 2006.                                                $     1,209

$350,000 line of credit with commercial  asset-backed  lender with a term of two
years beginning  August 2004. The line of credit bears interest at prime plus 4%
per  annum  plus  on-going  fees.  It  is  secured  by  the  Company's  accounts
receivables,  equipment, inventory, and up to $150,000 of the debt is personally
guaranteed by the President and C.E.O. of the Company and his spouse.                $   243,374
                                                                                     -----------

Total loans and notes payable                                                        $   269,583

Less: Current maturities                                                             $  (269,583)
                                                                                     -----------

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

Please  see Note 15-  Related  Party  Transactions  Due to Related  Parties  for
information about additional Company debt.

NOTE 15 - RELATED PARTY TRANSACTIONS

CONVERTIBLE NOTES DUE TO RELATED PARTIES

During 2004,  the Company began issuing a Convertible  Note.  The notes all bear
interest at the rate of five (5%)  percent per annum when  initially  issued and
were to mature on May 31, 2006. The holders of the notes could convert them into
Company common stock at a price of $0.06 per share.  After the Company's  shares
close over $0.12 per share for twenty  trading days,  the Company can compel the
holders to convert  their notes and all accrued  interest  into shares of common
stock at the conversion price.

As a result of  negotiations  in April 2005 with the holders of the  convertible
notes,  the  Company  along with the note  holders  agreed to amend the notes as
such, all accrued interest up that date was forgiven,  the related warrants were
cancelled,  the conversion price was lowered $0.06 per common share to $0.01 per
share, and extended the maturity date to February 1, 2007.
</TABLE>


                                      F-31
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

<TABLE>
<S>                                                                                  <C>
Convertible  Notes in the  aggregate  amount  of  $118,045  were  issued  to the
President and C.E.O, the C.O.O. and C.F.O.,  along with two employees for unpaid
payroll at December  31,  2004.  In April 2005,  were also  amended as set forth
above.

During the period ending June 30, 2005,  the  President  and C.E.O.  provided an
additional $100,000 of funds which is secured by a Convertible Note.

Subtotal- convertible notes related parties-employees                                $   218,045

Three notes, in the initial principal amounts of $250,000,  $135,000,  $125,000,
and  $45,000  were  issued  to a  fund  through  the  efforts  of an  affiliated
broker-dealer.  The Company  paid an  aggregate  of  approximately  $55,000 to a
company whose president is a member of the board of directors of the Company for
arranging the sale of these notes.  The  aggregate of these notes,  $555,000 was
sold by one related party to another.

In April 2005,  one note was issued in the  principle  amount of $550,000 to the
related party that purchase purchased the four notes listed above. In connection
with transaction, the Company, paid $50,000 to an affiliated broker-dealer whose
president is a member of the board of directors of the Company.

In  December  2004,  a group of  individuals,  including  a  member  of board of
directors  provided  approximately  $113,000  directly to a supplier  for unpaid
invoices.  The advance is non-interest  bearing and due on demand. In January of
2005, the Company paid $87,000, leaving a balance of $26,000.

This amount of $26,000 was converted in April 2005 by a company  controlled by a
member of the board of directors of the Company into a convertible note with the
same terms and conditions as the other convertible notes.

Subtotal convertible notes-related parties-non employees                             $ 1,131,000

DUE TO RELATED PARTIES

In conjunction with the Company  obtaining a Letter of Credit for the benefit of
a supplier of Healthcare Dialog (see Note-7 Letter of Credit), the President and
C.E.O.  of the  Company  personally  secured  the  Letter of Credit by  pledging
personal  assets in the amount of the  Letter.  Unless,  the Letter of Credit is
drawn down on, no amount is due. The balance at June 30, 2005 is $90,000.

The  President  and C.E.O.  of Company  provided the Company with an  additional
$100,000   during  the  three  months  ending  June  30,  2005  of   short-term,
interest-free, unsecured debt.
</TABLE>


                                      F-32
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

<TABLE>
<S>                                                                                  <C>
As the  President  and C.E.O.  had to borrow  funds in his name in the amount of
$325,000 in order to provide the amount that the Company  required,  the Company
has reimbursed him the $1,261 of interest  charged by his lender.  Additionally,
the Company has accrued  approximately $1,000 for estimated accrued interest for
May and June. The balance at June 30, 2005 is $135,000.

Subtotal other current liabilities-related parties                                   $   225,000

Total loans and notes payable due to related parties                                 $ 1,574,045

Less: Current maturities                                                             $ (225,000)
                                                                                     -----------

Long Term Debt due to related parties                                                $ 1,349,045
                                                                                     ===========
</TABLE>

CONVERSION OF DEBT DUE TO RELATED PARTIES

No  conversions  of debt took place in the three  month  period  ending June 30,
2005.

During  the  period  ending  March,   31,  2005,   related   parties   converted
approximately $53,000 of debt, or accrued expenses into equity of the Company.

RENT TO RELATED PARTIES

The Company leases an apartment  from January 1, 2005 through  December 31, 2007
from a company controlled by the C.O.O. and C.F.O. of the Company.  Rent expense
paid to the company  controlled  by the related  parties  amounted to $6,000 for
three  months  ended June 30, 2005 and $12,000 for the six months ended June 30,
2005. The Company  continues to pay the rent on a  month-to-month  basis until a
new lease is negotiated.

NOTE 16 -LITIGATION

SUPPLIERS

In July,  2005 the  Company  received a letter  from the  attorney  representing
American Student List, a supplier of Mail Mogul,  Inc.  requesting  $5,672.25 of
unpaid invoices.  This amount is fully recorded in the accounts payables of Mail
Mogul, Inc.

In July,  2005 the Company has from the  collection  agency  representing  Metro
Label, a supplier of Mail Mogul, Inc. requesting payment of unpaid invoices. The
Company has recorded $18,480 of invoices on the accounts payables of Mail Mogul,
Inc.

In July,  2005,  the Company  received a letter from the  attorney  representing
Courtenay Communications  Corporation, a supplier of Mail Mogul, Inc. requesting
payment  of unpaid  invoices.  The  amount of the  request,  $4,200.00  is fully
recorded in the accounts payable of the Company.

In July, 2005, the Company received  correspondence from attorneys  representing
the landlord for the Florida lease requesting  payment for unpaid rent and other
charges.  The Company has not paid the June rent,  a portion of the May rent and
additional charges for 2004. The Company


                                      F-33
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

disputes the charges for 2004 that relate to charges for common area maintenance
adjustments from 2004. The amount  requested in the letter,  including July rent
is  $34,426.23.  This amount is fully  recorded in the accounts  payables of the
Company.  To settle the dispute,  the Company the  requested  amount by check in
July 2005.

In late June 2005, the Company  received a copy of the action filed in early May
2005 by Brimar  Industries,  Inc.,  a supplier of Mail Mogul,  Inc.,  for unpaid
invoices,  interest,  reasonable  attorney's  fees,  costs of the suit, and such
other  relief the Court deems just and  equitable  under the  circumstances  The
amount of the claim,  for unpaid invoices of $25,105.74 is fully recorded in the
accounts  payable  of the  Company.  During  May  and  June,  The  Company  paid
approximately  $7,800 by check towards the unpaid invoices.  The balance at June
30, 2005 is $17,286.72.

The New York State  Department of Taxation in December 2004 provided a letter to
QD  Corporation,  a  discontinued  unit  that  the  Department  claims  that  QD
Corporation owes $7,936 in taxes and interest for corporate income taxes for the
period ending December 31, 2002.

After reviewing the consolidated  tax return,  QD Corporation is not required to
file a separate  return.  This  information  has been provided to New York State
Department of Taxation in response to its December  2004 letter.  As the Company
believes it has properly reported the taxes to the State of New York, no accrual
for additional taxes and charges are recorded.

Collins Ink, in June 2004,  obtained a judgment of $92,347 for unpaid  invoices.
The full amount is recorded in the accounts  payable of the Company.  During the
six month ending June 30, 2005 the Company has paid $10,000 by checks toward the
balance of unpaid invoices. The balance at June 30, 2005 is $33,109.

Label Source, in June 2004, obtained a judgment of $121,037 for unpaid invoices.
The full amount is recorded in the accounts payable of the Company.  In May, the
Company signed a settlement  agreement with this supplier.  The payment schedule
is  seventeen  payments  of $5,000 and one payment of  $5,118.83  for a total of
$90,118.83. The Company has made two payment of $5,000 for a total of $10,000 by
check  during the period  ending June 30,  2005.The  balance at June 30, 2005 is
$80,119.

USA Direct,  in April 2004 obtained a $39,025 judgment related to a discontinued
operation of the Company. This amount is recorded in the accounts payable of the
Company.  In December  2004,  the Company and USA Direct reached an agreement of
$20,000 and a payment plan. The balance at June 30, 2005 is $10,000.

Wells Fargo  Financial  Leasing,  Inc.  filed an action  against the Company for
non-payment  of equipment  lease  commitments  made by Healthcare  Dialog,  Inc.
Subsequent to year-end,  a settlement was reached and both parties  executed the
agreement. The amount is fully recorded in the accounts payables of the Company.
At June 30, 2005, balance is paid in full. The payments were made by check.

During  July  of  2003,   Axiom   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 that was sold in December 2003. This litigation
is still in the preliminary  stages.  As the  obligations,  if any, are those of
ThinkDirectMarketing, Inc., a discontinued subsidiary sold in December 2003 and


                                      F-34
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

Dialog  Group,  Inc. is highly  confident  that no legal basis exists that would
hold Dialog  Group,  Inc.  responsibly,  no amounts  have been  recorded for the
amounts  listed in the action.  In June, the Company  accrued  $30,000 for legal
expenses related to this action. The balance of this accrual at June 30, 2005 is
$28,960.  The amount is fully  accrued for in the  financial  statements  of the
Company. It is included in accrued settlements and contingencies in note 9.

EMPLOYEES

In July 2005,  two former  employees of Mail Mogul,  Inc.  filed claims with the
California  Labor  Commission for unpaid wages. The first claim is in the amount
of $6,187 for unpaid  commissions,  bonus,  and vacation  pay. A settlement  was
reached in the amount of $4,824  with a payment  schedule  one payment of $2,500
and the second of $2,324.  The payments are to be made by September 6, 2005. The
amount of the  settlement  is recorded in July 2005. No payments have been made.
The second claim,  also filed with California  Labor Commission is in the amount
of $10,031 for unpaid  commissions.  The Company presented its case in a hearing
in the Commissioner's  office on July 19, 2005. It is awaiting the response from
the Commission. No amount has been recorded or payments made for this claim.

In April  2003,  two former  TDMI  employees  commenced  arbitration  proceeding
against the Company relating to their  termination of employment.  The employees
seek  damages  totaling  $375,789.  TDMI,  a  discontinued  subsidiary,  accrued
$147,000  against  this  potential  liability.   The  Company  has  accrued  for
additional  legal fees to contest  the  claims.  In January  2005,  the  Company
received notice from the American Arbitration Association Employment Arbitration
Tribunal  that  reviewed the claims.  Its decision was to award the  claimants a
total of  approximately  $478,000  including fees. In April, the Company and the
two former  employees of TDMI executed a settlement  agreement for $501,872 that
includes  a  schedule  of  payments  over  two  and  half  years  that  includes
approximately  $25,000 of  interest.  The  settlement  agreement's  payment plan
stated  the  former  employees  be paid an initial  amount of  $100,000  and the
balance over the next thirty months.  The $100,000  payment was made by check in
April 2005. An additional payment of $25,000 was paid made by check in June. The
balance at June 30,  2005 is  $376,872.  The amount is fully  accrued for in the
financial  statements of the Company.  It is included in accrued settlements and
contingencies in note 9.

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 $45,000 during 2003 and 2004. The balance at March 31,
2005,  is $2000 and  recorded  as an accrual on the books of the  Company.  This
amount is  included  in  accrued  settlements  and  contingencies  in Note 9.The
balance was paid in April, 2005 by check.

The Company  reached a settlement  with a former  employee for claims against an
employment contract. It was settled by conversion to series E preferred stock in
2004.The Company accrued for a liability sufficient to cover the settlement. The
balance at June 30, 2005 is $7,003 and is included  in accrued  settlements  and
contingencies in Note 9.

NOTE 17-FORGIVENESS OF DEBT

For the six months ending June 30, 2005,  Management has arranged  approximately
$24,500 in forgiveness of debt recorded in the Statement of Operations.


                                      F-35
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

During the period  ending June 30, 2005,  Management  entered into  negotiations
with holders of the Company's convertible notes to amend the notes to cancel the
accrued and future interest,  the attached  warrants,  and reduce the conversion
price from $0.06 to $0.01 per common share.

The  related  party  note  holders  agreed  to amend  the  notes.  In doing  so,
Management arranged for approximately $14,700 in forgiveness of debt recorded in
the Statement of Operations.

In June,  2005,  an employee  agreed to convert his payroll and accrued  payroll
into shares of common stock. This transaction  resulted in approximately  $6,100
in forgiveness of debt.

The table presented below provides additional  information on the forgiveness of
debt for the three month period ending June 30, 2005.

<TABLE>
<CAPTION>
                                           Number of          Value              Value
                                            Shares             Per              of the
Transaction                                 Issued            Share           Transaction
-----------                                 ------            -----           -----------
<S>                                         <C>             <C>                <C>
Accrued interest-employee notes               N/A              N/A             $ 1,918.06
Accrued interest-related party notes          N/A              N/A             $12,815.05
Employee payroll conversion to stock        761,839         $0.00475           $ 3,618.74

Total 2nd quarter                           761,839                            $18,351.85
</TABLE>

The transactions during the three month period ending June 30, 2005 are recorded
as,

Forgiveness of debt on the Statement of Operation               $20,835
Operating expenses on the Statement of Operations                 3,619

The value of the accrued interest  transaction is the amount of accrued interest
based upon the terms of the  convertible  notes at April 30, 2005,  the date the
Company and note holders agreed to amend the notes.

The value of the employee payroll  conversion to stock transaction is based upon
the price per share of the  common  stock on the date of the  transaction  along
with a  valuation  factor  for the size of the  block of stock  relative  to the
average daily trading volume of the stock along with during the immediate thirty
trading days prior to date the stock is issued  along with trading  restrictions
placed upon the stock

During the period ending March 31, 2005,  Management  arranged the settlement of
accounts  payable and other  obligations  resulting in  approximately  $3,800 in
forgiveness of debt recorded in the Statement of Operations. The table presented
below provides additional  information on the forgiveness of debt for the period
ending March 31, 2005.

<TABLE>
<CAPTION>
                                                        Number of          Value           Value
                                                         Shares             Per            of the
Transaction                                              Issued            Share        Transaction
-----------                                              ------            -----        -----------
<S>                                                      <C>              <C>            <C>
Conversion of accrued vacation- President/C.E.O          2,403,846        $0.005         $12,019.23
Conversion of accrued vacation- C.O.O./C.F.O             1,422,308         0.005          $7,111.54
Conversion of accrued payroll-employee, related party    1,406,249         0.005          $7,031.25
Conversion of accounts payable                             750,000         0.005          $3,750.00

Total 1st quarter                                        5,982,403                        $29,912.02
</TABLE>


                                      F-36
<PAGE>

                       DIALOG GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONCOLODATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005

The  transactions  during  the three  month  period  ending  March 31,  2005 are
recorded as,

Equity on the Balance Sheet                                   $29,912
Forgiveness of debt on the Statement of Operations              3,750

The value of the  transaction  is based  upon the price per share of the  common
stock on the date of the transaction  along with a valuation factor for the size
of the block of stock  relative to the average daily trading volume of the stock
along with during the immediate  thirty  trading days prior to date the stock is
issued along with trading restrictions placed upon the stock.


                                      F-37
<PAGE>

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

General

      Dialog Group, Inc. (DLGG) is a publicly traded corporation,  headquartered
at 257 Park Avenue South,  Suite 1201, New York, New York 10010, with offices in
Valencia,  California;  Sunrise,  Florida  and,  as of the  end of the  quarter,
Toronto,  Canada.  (See below:  Recent  Acquisition)  The company's two existing
divisions,  Data  Dialog and  Healthcare  Dialog,  provide a broad  spectrum  of
proprietary and exclusive databases for healthcare, pharmaceutical, consumer and
business-to-business  market clients. The company also provides a combination of
traditional  customer  relationship  management  support  applications  such  as
advertising (print, broadcast) and marketing services (broadcast, new media, and
Internet-based  promotional venues).  Dialog Group maintains exclusive contracts
with leading multinational  pharmaceutical  companies to operate,  maintain, and
provide content for their consumer-directed Web sites.

      Recent Acquisition

      As of the end of the second quarter of 2005, Dialog Group acquired control
of AdValiant  Inc. a Canadian based company.  The exact  financial  terms of the
transaction  are set forth in the  Current  Report  on Form 8-K  filed  with the
Commission  on July  5th,  2005 and the  amendment  filed  on July  11th and the
Current Report on Form 8-K filed on August 12, 2005. The assets of AdValiant are
included  in the  Balance  Sheet as of June 30,  2005,  while the results of its
operations  during the periods before June 30th, 2005 are not included in either
the three or six month statements.

      AdValiant  Inc. is a provider of affiliate  marketing and lead  generation
services  based on the  cost-per-action  and  cost-per-lead  model.  With  their
in-house,  proprietary  tracking  technology,  AdValiant  provides  a  suite  of
advertising and marketing tools for both  advertisers and publishers.  AdValiant
offers  advertisers fast direct marketing results and return on investment.  For
publishers,  AdValiant offers top performing  campaigns that maximize  inventory
earnings.

      AdValiant has several different revenue streams, including co-registration
lead generation,  direct marketing, media buying, and search engine optimization
services.

Description of the Divisions

      The analysis of the reports for the periods ending June 30th, 2005 reflect
Dialog  Group's  then  division  in to two  business  reporting  segments,  each
currently   marketing  its  products  and  services   through  branded  business
organizations. The Data Dialog Division's are Data Dialog Marketing, Data Dialog
Digital,  Data  Dialog  Management,   and  Mail  Mogul.  The  Healthcare  Dialog
Division's are nFusion, +Media, and iData.

      Beginning  in  the  third  quarter,  in  response  to the  acquisition  of
AdValiant,  the Company was reorganized into three divisions to best reflect the
fit between the Dialog Group and AdValiant.


<PAGE>

      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,  provide  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  subscription-based  product  featuring
limited selections of 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 name and address  information,  as well as  demographic &
sociographic  information,  to  telephone  numbers on calls made by consumer and
business  customers to CTI Platforms.  Data Dialog Digital primarily markets its
products to call centers and  Interactive  Voice Response system users operating
in-bound  and blended  call  centers  with 5 to 500 seats.  Data Dialog  Digital
currently  has  contracts  and  sub-contracts  with 27 businesses 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.

      Mail Mogul brings  one-stop  shopping to the small- to  medium-sized  mail
shop industry.  Mail Mogul helps mail shops improve their business opportunities
through a total-business-solutions  approach. Proprietary and external lists are
sold at  competitive  prices  both on and off  line  to  mail  shops  for  their
customers.  In addition,  list  hygiene  services are offered to mail shops that
have  customer  lists  which need to be updated  and or  standardized.  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  offers  consumable
supplies to its customers for their  equipment and to round out its offerings of
products to mail shops.

Healthcare Dialog Division

      iData   uses   proprietary   technologies   to  support   healthcare   and
pharmaceutical  clients  in  their  direct  marketing  efforts,  clinical  trial
recruitment,  and  consumer/patient  market research  efforts.  It offers unique
healthcare data on almost 2 million households, and 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.

      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.


<PAGE>

      +Media's platform provides, maintains, and delivers healthcare, beauty and
pet content across a national network of 87 local affiliate TV and radio station
Web sites. The content, which includes over 15,000 text articles,  attracts over
a million unique health information  seekers per day to the broadcast  stations'
Web sites for a combined US household  penetration of 75%.  Here,  client public
relations,  promotional  material,  and educational  material are blended into a
seamless presentation for maximum viewer impact. To maintain repeat traffic, all
features are refreshed daily.

Results of Operations

Three Months Ended June 30, 2005

      Dialog Group

     Income Statement Item        Second Quarter 2005      Second Quarter 2004
     ---------------------        -------------------      -------------------
     Revenue                             $ 1,418,642               $ 2,137,254
     Cost of Revenue                         611,083                   858,005
     Operating Expenses                    1,269,101                 1,421,929
     Result of Operations                  (461,542)                 (142,680)
     Net Other Income                       (67,637)                   136,347
     Net Result                            (587,154)                  (70,780)

      Revenues for the quarter ended June 30, 2005 were $1,419,000 compared with
$2,137,000  for the quarter  ended June 30, 2004.  This  represents a decline of
$719,000  from the same period a year ago.  Sales were  divided  almost  equally
between the Healthcare business and Data business.  Revenue will be discussed by
business unit in more detail.

      Costs of Revenues  for the quarter  ended June 30, 2005 were $61  slightly
less than 1,083,000,  some 43% of sales, compared with $858,005 or approximately
40% of sales in the  quarter  ended June 30,  2004.  The  sources of the Cost of
Revenues  for each  division  are  discussed  by company in the  sections  which
follow.

      Operating  Expenses  for the quarter  ended June 30, 2005 were  $1,269,000
compared with  $1,422,000 for the quarter ended June 30, 2004. This represents a
reduction of about $152,800 from the same quarter of 2004.  Dialog Group in 2005
is allocating some  administrative and IT expenses to the divisions which it did
not do in 2004,  the details of which are  explained in the  individual  company
comments.

      Losses from  Operations were $462,000 for the quarter ended June 30, 2005,
compared with $143,000 for the quarter ended June 30, 2004.

      Net Other  Income/Expense  was an expense of $68,000 for the quarter ended
June 30,  2005,  compared  with Net Other  Income/Expense  which  was  income of
$136,000 for the quarter ended June 30, 2004. The company's Other Income/Expense
for this year  included  interest  expenses of  approximately  $86,000 and Other
Income of $18,000, arising from a gain on forgiveness of debt.


<PAGE>

      The Net Loss for the  quarter  ended June 30, 2005 was  $587,154  compared
with a Net Loss $71,000 for the same period in 2004.

      Data Dialog Division:

<TABLE>
<CAPTION>
     Income Statement Item            Second Quarter 2005                Second Quarter 2004
     ---------------------            -------------------                -------------------
                                  Data Dialog       Mail Mogul       Data Dialog         Mail Mogul
<S>                                <C>              <C>               <C>              <C>
     Revenue                       $ 372,473        $ 330,358         $ 279,838        $ 855,263
     Cost of Revenue                  67,059           97,737           110,083          334,017
     Operating Expenses              287,693          305,598           318,414          440,516
     Result of Operations             17,721         (72,977)         (148,659)           80,730
     Net Other Income                (2,011)            (221)             (100)           42,812
     Net Result                       15,710         (73,198)         (148,759)          123,642
</TABLE>

      Data Dialog had Sales of about  $372,000  for the quarter  ending June 30,
2005,  compared to  approximately  $280,000 for the second quarter of 2004. Data
Dialog  Marketing  which  sells  data and  marketing  services  to small and mid
sized-end users,  accounted for approximately  $248,000 of the total Data Dialog
Sales for the period ending June 30, 2005. In its second year of operation sales
in this  business  have  improved as a result of the maturing of the sales staff
and the  ability  to  benefit  from new  customers  and  incremental  sales from
existing customers.

      Mail Mogul's  Revenues  were $330,000 for the quarter ended June 30, 2005,
compared  with  $855,263 for the same period ended June 30, 2004.  The quarter's
weak sales resulting from fewer  experienced sales people on staff and increased
competition.  In  addition  the mail shop supply  classification  because of its
lower margins and larger cash  requirements  was not supported during the second
quarter of 2005. A key data supplier changed its pricing and marketing  approach
to Mail Mogul and other  brokers.  Until new pricing was set and a new  contract
signed,  data from this key suppler  was not  available  at prices Mail  Mogul's
customers  were willing to pay and at margins at which Mail Mogul was willing to
sell.  This  situation  is now  corrected.  In  addition  the US Postal  Service
discontinued  an  affiliate  program  on the USPS  national  website  which  had
produced  numerous leads for the Mail Mogul Request for Quote Hot Leads program.
Finally, the platform utilized for online sales was down for a period during the
quarter, requiring all sales to be handled manually.

      Data  Dialog's  Costs of Revenue for the second  three months of 2005 were
$67,000 or 18% of Sales,  compared with $110,000,  or 39% of sales in the second
quarter  of  2004.  The  lower  Cost  of  Revenues  resulted  from  the  greater
utilization of company data assets and the company's ability to negotiate better
costs from outside data suppliers.

      Mail Mogul's Costs of Revenues were $98,000 for the quarter ended June 30,
2005,  representing 30% of revenues,  compared with $334,000, or 39% of revenues
for the quarter ended June 30, 2004. Change in the mix of Revenue was one reason
for the  reduction in the Cost of Revenue  percent in the second  quarter.  Mail
Mogul can now  produce  sales from Dialog  Group's  low cost Access  Dialog data
platform  which was not  available  a year ago.  Fewer  sales from a higher cost
outside data suppler  were made because of that  supplier's  change in marketing
strategy.


<PAGE>

         Data Dialog's  Operating Expenses for the three month period ended June
30, 2005 were $288,000,  an improvement of  approximately  $30,000 from the same
period a year ago when the figure was  $318,000.  Operating  Expenses  decreased
from the  second  quarter of 2004 to the second  quarter  of 2005,  while  sales
improved during the same period,  contributing to the overall profit improvement
of this business.  Certain data expenses paid exclusively by Data Dialog in 2004
are being shared with Mail Mogul in 2005.

         Mail Mogul's Operating  Expenses of $306,000 for the quarter ended June
30, 2005 compared favorably with $441,000 for the quarter ended June 30, 2004, a
net  reduction  of  $135,000.  This  reduction  resulted  from lower  salary and
commissions as a result of fewer sales people on staff.

         Data  Dialog's  Net Income from  Operations  was $18,000 for the second
quarter of 2005,  compared to a loss of  approximately  $149,000  for the second
quarter of 2004.  The  improvement of over $166,000 in the quarter more than off
set results from the Mail Mogul division.

         Mail Mogul's Net Loss from  Operations  for the quarter  ended June 30,
2005 was $73,000,  compared  with Net Income from  Operations  of  approximately
$81,000 for the same quarter in 2004..  The decline in Operating Income from the
second  quarter of 2004 to 2005 of about  $154,000  was less than the  Operating
Profit improvement of $166,000 from Mail Mogul's sister company, Data Dialog.

      Healthcare Dialog Division

      Income Statement Item     Second Quarter 2005      Second Quarter 2004
      ---------------------     -------------------      -------------------
      Revenue                            $ 715,811              $ 1,002,153
      Cost of Revenue                      438,272                  413,905
      Operating Expenses                   273,703                  143,285
      Result of Operations                   3,836                  444,963
      Net Other Income                    (19,199)                   92,021
      Net Result                          (15,363)                  511,562

      Total Revenue for Healthcare Dialog was $716,000 for the second quarter of
2005 compared to $1,002,000 for the same period a year ago. A  metamorphosis  of
Dialog Group into a company with  products  that are  broader-based  and include
clients other than pharmaceutical companies is taking place. The company is less
dependent on a few large pharmaceutical clients than in the past.

      Sales in  nFusion  for the three  months  ended  June 30,  2005 were about
$385,000,  or about 54% of the total  Healthcare  Dialog  business in the second
quarter of 2005. This healthcare-focused  marketing business is still the single
largest segment of Healthcare Dialog. Sales of nFusion for the second quarter of
2004 were $684,000.


<PAGE>

      +Media  produced  sales of about  $192,000 for the period  ending June 30,
2005, which was also below the 2004 level of $312,000 for the same period.

      The remaining healthcare segment,  iData, which conducts telephone surveys
primarily for healthcare  companies,  had Revenue for the second quarter of 2005
of $139,000.  This  compares  favorably to the same period a year ago when Sales
were about $5,000.

      Healthcare  Dialog's  Costs of Revenue was $438,000 for the quarter  ended
June 30, 2005,  or 61% of revenue  compared with $414,000 and 41% of revenue for
the quarter ended June 30, 2004.

      The  Healthcare  Dialog's   consolidated  Total  Operating  Expenses  were
approximately  $274,000 for the three  months  ended June 30, 2005,  compared to
$143,000  for the  same  period  a year  ago.  Management  moved  expenses  into
Healthcare  that  were  part of  corporate  in 2004 to more  accurately  reflect
expenses by business.

      For the three months ended June 30, 2005, Healthcare Dialog's consolidated
Net Income from Operations was approximately  $4,000 compared to $445,000 in the
second  quarter of 2004.  The results of the second  quarter  had a  significant
impact on the YTD and will be discussed in more detail when the Healthcare  YTD.
Results are discussed

Six Months Ended June 30, 2005

Dialog Group

      Income Statement Item     First Half Year 2005    First Half Year 2004
      ---------------------     --------------------    --------------------
      Revenue                           $ 3,135,358             $ 4,082,685
      Cost of Revenue                     1,303,736               1,797,975
      Operating Expenses                  2,585,139               2,812,874
      Result of Operations                (753,517)               (528,164)
      Net Other Income                    (107,223)                 211,550
      Net Result                          (919,005)               (381,061)

      Revenues for the six months ended June 30, 2005 were  $3,135,000  compared
with  $4,083,000  for the six months  ended June 30,  2004.  This  represents  a
decline of about $948,000 or 23% from the same period a year ago. Sales from the
high margin data companies were $1,616,300 or 52% of total. With the addition of
iData sales,  which are reported in the Healthcare  Dialog total through the end
of June, data sales were $1,879,000 or 60% of total Revenue. Revenue for each of
the companies and some of the products will be addressed in more detail below.


<PAGE>

      Costs of Revenues  for the half year ended June 30, 2005 were  $1,304,000,
some 42% of sales, compared with $1,798,000 or approximately 44% of sales in the
six months ended June 30, 2004. The decline in Revenue of $948,000 was partially
offset by the  $494,000  decline in Cost of Revenue from a year ago for the same
period. Improved terms from a major data supplier and the greater utilization of
company data assets rather than relying on external  sources and a change in the
mix of  Revenue  drove  down Cost of  Revenue in the first half of 2005 from the
same period of the prior year. The costs for each division are discussed in more
detail by company in the sections which follow.

      Operating  Expenses for the six months ended June 30, 2005 were $2,585,000
compared with $2,813,000 for the six months ended June 30, 2004. This represents
a reduction of $228,000 from the first six months of 2004. .Some $150,000 of the
reduction can be attributed to the reduction in employee  related  expenses from
the Mail Mogul business compared to the same period a year ago.

      Losses from  Operations  were  $754,000  for the six months ended June 30,
2005, compared with $528,000 for the six months ended June 30, 2004, an increase
of approximately $226,000. Details we be discussed by operating unit.

      Net Other  Income/Expense  was an expense of  $107,000  for the six months
ended June 30, 2005,  compared  with income in that category of $212,000 for the
six months  ended June 30,  2004,  a total  difference  of about  $319,000.  The
company's  other  income/expense  for this year  included  interest  expenses of
approximately $129,000 and income of $22,000 arising from gain on forgiveness of
debt. Last year included interest expense of $33,000, Other Expenses of $13,000,
and other income of $257,000 that arose primarily from forgiveness of debt.

      The Net Loss for the six months ended June 30, 2005 was $919,000, compared
with a Net Loss $381,000 in the six months ended June 30, 2004,  representing an
increased loss of $538,000.

      Data Dialog Division:

<TABLE>
<CAPTION>
     Income Statement Item            First Half Year 2005               First Half Year 2004
     ---------------------            --------------------               --------------------
                                     Data Dialog       Mail Mogul       Data Dialog      Mail Mogul
<S>                                   <C>              <C>               <C>            <C>
     Revenue                          $ 764,505        $ 851,844         $ 477,718      $ 1,669,000
     Cost of Revenue                    181,844          321,962           162,626          772,126
     Operating Expenses                 617,740          541,181           713,263          657,681
     Result of Operations              (35,079)         (11,299)         (398,173)          239,193
     Net Other Income                   (3,486)          (1,663)             1,300           42,812
     Net Result                        (38,565)         (12,962)         (396,873)          282,005
</TABLE>

Data Dialog had Sales of $765,000 for the period ending June 30, 2005,  compared
to  approximately  $478,000  for the  first  six  months  of 2004.  Data  Dialog
Marketing,  which sells data and marketing  services to small- and mid sized-end
users,  accounted for approximately  $510,000 of total Data Dialog Sales for the
period  ending June 30, 2005.  Of this figure about  $240,000 of the Revenue was
derived from the company's data subscription products. The company's Data Dialog
Digital  call  center  reverse  append  product was the second  largest  revenue
producer  for the second six  months,  contributing  $224,000 in Revenue in 2005
which is up from the 2004 Revenue of  $131,758.  Data Dialog  Management,  which
sells data to large end users and brokers, produced the balance..


<PAGE>

      Mail  Mogul's  Revenues  were  $852,000  for the six months ended June 30,
2005, compared with $1,669,000 for the same period ended June 30, 2004. The year
began with weak sales resulting from fewer experienced sales people on staff and
increased  competition.  In addition,  the mail shop supply  business  (with its
lower margins and larger cash requirements) was not supported during the period.
Supply  sales  for the year to date  were off by over  $175,000  from  2004.  In
addition,  a key data supplier  changed its pricing and market  approach to Mail
Mogul and other brokers of its data.  Until new pricing and a new contract could
be worked out,  data from this key  supplier  was not  available  at prices Mail
Mogul's customers were willing to pay. This is now corrected, but the impact was
a reduction of almost  $300,000 of revenue from this supplier from the first six
months level of 2004..

      Data  Dialog's  Costs of  Revenue  for the first  six  months of 2005 were
$182,000 or 24% of Sales,  compared with $163,000,  or 34% of sales in the first
six months of 2004.  The change in Cost of Revenues  percent  resulted from more
favorable terms from one of Data Dialog's data vendors. In addition more Revenue
was realized from the company's  Data Dialog  Digital phone append product which
has a lower cost of Revenue than the average.  Cost of Revenue by product varied
from 14% of sales to 44% of sales.

      Mail Mogul's  Costs of Revenue were $322,000 for the six months ended June
30,  2005,  representing  38% of revenue,  compared  with  $772,000  and 46 % of
revenue for the six months ended June 30,  2004.  The mix of the Revenue was the
major reason for the reduction in the Cost of Revenues  percent in the first six
months..   Sales  of  low  margin  mail  shop  consumable   supplies  were  down
significantly from a year ago the same period, while sales of higher margin data
made up a greater percentage of the total Revenue for the period. The Mail Mogul
sales staff began  utilizing the Data Dialog Access Dialog data  platform,  with
its lower cost products to satisfy  customer  needs,  in the first half of 2005.
This  platform  was not  available  in first half of 2004 Mail  Mogul's  Cost of
Revenue  reduction of  approximately  $450,000 helped to offset the reduction in
Revenue during the first half of 2005.

      Data Dialog's  Operating  Expenses for the six month period ended June 30,
2005 were $618,000, an improvement of approximately $95,000 from the same period
a year ago when the figure was $713,000.  Operating  Expenses decreased from the
first half of 2004 to the first six months of 2005, while sales increased during
the same period, contributing to the overall profit improvement of this company.
Certain data expenses,  amounting to $35,000 paid  exclusively by Data Dialog in
2004 are  being  shared  with  Mail  Mogul  in 2005.  In  addition,  $50,000  of
inter-company   cost   allocations   were   assigned  to  other   divisions  and
approximately $38,000 was saved by the transfer of employees from Data Dialog.

      Mail Mogul's  Operating  Expenses  were  $541,000 for the six months ended
June 30, 2005 compared with $658,000 for the six months ended June 30, 2004. The
reduction is due  primarily to reduced  wages and  commissions  paid to a larger
sales force in 2004 than in 2005.


<PAGE>

      Data Dialog's Net Loss from  Operations  was $35,000 for the first half of
2005,  compared to a loss of approximately  $398,000 for the first six months of
2004. Investments made in the sales staff and an online platform for Data Dialog
Marketing is having a positive impact on Data Dialog. In addition, approximately
$123,000 of cost allocations to other divisions added to the  improvement.  This
made it possible for the data group to show an overall improvement for the first
six month of 2005 when compared to the same period of 2004.

      Mail  Mogul's Net Loss from  Operations  for the six months ended June 30,
2005 was $11,000,  compared with a net income of approximately  $239,000 for the
same six months in 2004. Management believes the results of the first six months
were attributed to the turnover of experienced sales people, a key data supplier
changing its marketing approach, and a conscious effort to divert resources away
from lower margin categories.

      Healthcare Dialog Division

         Income Statement Item     First Half Year 2005    First Half Year 2004
         ---------------------     --------------------    --------------------
         Revenue                           $ 1,519,009            $ 1,935,970
         Cost of Revenue                       799,930                814,223
         Operating Expenses                    590,074                342,431
         Result of Operations                  129,005                730,316
         Net Other Income                     (35,062)                 83,855
         Net Result                            120,825                788,749

      Total Revenue for  Healthcare  Dialog was $1,519,000 for the first half of
2005 compared to $1,936,000 for the same period a year ago. A  metamorphosis  of
Dialog Group into a company with  products  that are  broader-based  and include
clients other than pharmaceutical companies is taking place. The company is less
dependent on a few large pharmaceutical clients than in the past.

      Sales in nFusion for the six months ended June 30, 2005 were $903,000,  or
about 60% of the total  Healthcare  Dialog  business  in the first six months of
2005. This  healthcare-focused  marketing business is the single largest segment
of  Healthcare  Dialog.  Sales  of  nFusion  for the  first  half  of 2004  were
$1,156,000.  A major pharmaceutical client assigned fewer projects to nFusion in
the first six months of 2005 than it did for the same period of 2004.

      +Media  produced  sales of $352,000  for the period  ending June 30, 2005,
which was below the 2004 level of $774,000 for the same period.  The majority of
the  decline  in  Revenue   resulted  from  one   advertising   agency   placing
significantly  less online  advertising with +Media in 2005 than it did in 2004.
In addition a local Houston  hospital,  which was a client in 2004 no longer fit
the profile of a national client in 2005 and dropped off the platform.  Finally,
an allergy client and a diet client which both utilized +Media in the first half
of 2004 place no advertising in 2005


<PAGE>

      The remaining healthcare segment,  iData, which conducts telephone surveys
primarily for healthcare companies, had Revenue for the first six months of 2005
of $263,000.  This  compares  favorably to the same period a year ago when Sales
were about $6,000.

      Healthcare Dialog's Costs of Revenue was $773,000 for the six months ended
June 30, 2005, or 51% of revenue compared with $863,000,  and 45% of revenue for
the six months ended June 30, 2004. Cost of Revenue ranged from a low of 17% for
iData, 54% for nFusion and 68% for +Media.

      The  Healthcare  Dialog's   consolidated  Total  Operating  Expenses  were
approximately  $590,000  for the six months  ended June 30,  2005,  compared  to
$342,000  for the same  period a year  ago.  In the  first  six  months of 2005,
expenses included allocation of approximately $144,000 for IT and administration
that were not  included  in 2004 along with  approximately  $117,000  related to
transfers of employees to  Healthcare  Dialog from other  divisions.  Management
believes the new approach more accurately  presents  operating  results for each
business  unit.  Operating  expense  for  nFusion in the first half of 2005 were
about $280,000 or 31% of sales, iData for the same period had Operating Expenses
of about  $93,000  some 35% of Revenue  and for the same time  frame  +Media had
Operating Expenses of $89,000 or 25% of revenue.

      For the six months ended June 30, 2005,  Healthcare Dialog's  consolidated
Net Income from Operations was  approximately  $156,000  compared to $763,000 in
the  first  half of 2004.  The  results  for the  first  half of 2005 were a Net
Operating  profit of $125,326 from nFusion,  an Operating profit of $55,931 from
iData for the same period and a Net  Operating  loss of $60,383  from +Media for
the first half of 2005.

Liquidity & Capital Resources

      DGI  had  a  consolidated   working  capital   deficit  of   approximately
($3,145,000)  on June  30,  2005  as  compared  to a  deficit  of  approximately
($2,854,000) at December 31, 2004. The increase of approximately $291,000 is the
result of  increases  in accrued  expenses  and  short-term  borrowing  due to a
reduced level of sales in the first six months that did not provide the level of
accounts receivable required to fund operations.

      On June 30, 2005 the  Healthcare  Dialog  Division's  financial  condition
included a working capital deficit, of about ($845,000) as compared to a deficit
of  approximately  ($909,000)  at  December  31,  2004.  This is a result  of an
increase in accounts receivable along with a decrease in deferred revenue.

      At the end of June, the Data Dialog Division had a working capital deficit
of  approximately  ($771,000)  as compared to a deficit of about  ($665,000)  on
December 31, 2004.  This is the result of current assets  essentially  remaining
unchanged while accounts payable and other current liabilities increased.

Inflation

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


<PAGE>

Item 2 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
Management  continues to evaluate and test  present  measures  while at the same
time reviewing areas that require improvement.


<PAGE>

Part II. Other Information

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

Item 1. Legal Proceedings

      Suppliers

      During  July of  2003,  Axiom  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.  This litigation is still in the preliminary
stages and no amounts have been accrued.

      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. The balance at June 30, 2005 is $33,109.

      Label  Source,  in June 2004,  obtained a judgment of $121,037  for unpaid
invoices.  The full  amount  is  recorded  in the  financial  statements  of the
Company.  The  balance at June 30,  2005 is $80,119 As  payments  are behind the
payment plan schedule, the Company was informed that plaintiff obtained a lawyer
in New York.  Direct Mail agreed to pay Label Source $5,000.00 to be received on
or before the 16th day of each month until the full amount is paid.

      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 December  2004,  the Company and USA
Direct  reached an agreement of $20,000 and a payment plan.  The balance at June
30, 2005 is $10,000.

      In late June 2005,  the  Company  received  a copy of the action  filed in
early  May 2005 in the New  Jersey  Superior  Court,  Bergen  County  by  Brimar
Industries, Inc., a supplier of Mail Mogul, Inc., for unpaid invoices, interest,
reasonable  attorney's  fees, costs of the suit, and such other relief the Court
deems just and equitable under the  circumstances  The amount of the claim,  for
unpaid invoices of $25,105.74,  is fully recorded in the accounts payable of the
Company.  During May and June,  the Company paid  approximately  $7,800 by check
towards the unpaid invoices. The balance at June 30, 2005 is $17,286.72.

      Employees.

      In April 2003, two former TDMI employees commenced arbitration  proceeding
against the Company relating to their  termination of employment.  The employees
seek  damages  totaling  $375,789.  TDMI,  a  discontinued  subsidiary,  accrued
$147,000  against  this  potential  liability.   The  Company  has  accrued  for
additional  legal fees to contest  the  claims.  In January  2005,  the  Company
received notice from the American Arbitration Association Employment Arbitration
Tribunal  that  reviewed the claims.  Its decision was to award the  claimants a
total of approximately  $478,000 including fees. The amount is fully accrued for
in the financial  statements of the Company.  In April,  the Company and the two
former  employees of TDMI  executed a  settlement  agreement  for $501,872  that
includes  a  schedule  of  payments  over  two  and  half  years  that  includes
approximately  $25,000  of  interest.  $125,000  was paid by June  30,  2005 and
$25,000 was paid during July and the first half of August.


<PAGE>

On November 11, 2004 former Mail Mogul employee  Cortines S. Nila filed with the
Labor   Commissioner,   State  of  California  claiming  unpaid  commissions  of
$10,031.19.  On July 19,2005 the company  presented its case at a hearing before
the Commissioners office and we are awaiting the out come at this time.

      Others

      The New York State  Department  of Taxation in  December  2004  provided a
letter to QD Corporation, a discontinued unit that the Department claims that QD
Corporation owes $7,936 in taxes and interest for corporate income taxes for the
period ending December 31, 2002. After reviewing the consolidated tax return, QD
Corporation is not required to file a separate return. This information has been
provided to New York State  Department  of Taxation in response to its  December
2004 letter.  As the Company believes it has properly  reported the taxes to the
State of New York, no additional taxes and charges are recorded.


Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

      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  three
quarters 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  January  a total of
2,839,076  shares were issued to settle  $109,000 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).

      Consultants

      In May the Company issued  2,000,000 shares of common stock to Chris Knapp
in  connection  with  consulting  services  related to  communications  with the
investment community. These shares were valued at $9,500.

      Also in May, a consultant to the Company  agreed to accept  761,839 shares
of common  stock with an agreed  value of  approximately  $3,600.  Mr.  Freymuth
provided marketing services.

      Both  consultants  are accredited  investors who accepted those shares 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).

      Other issues

      See Current  Report on Form 8-K,  filed July 5th, 2005, as amended on July
11th for details of other recent sales of securities relating to the acquisition
of AdValiant Inc..

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


<PAGE>

Item 6.      Exhibits

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
 ------      --------------------------------------------


<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.

                                        DIALOG GROUP, INC.
Date: August 12, 2005
                                        By: /s/ Peter V. DeCrescenzo
                                            -----------------------------------
                                        Peter V. DeCrescenzo, President and
                                        Chief Executive Officer

      In accordance with the Exchange Act, this report has been signed bellow by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


Signature                                Title                      Date
---------                                -----                      ----

/s/ Peter V. DeCrescenzo        Chief Executive Officer       August 12, 2005
 ------------------------
Peter V. DeCrescenzo

/s/ Vincent DeCrescenzo         Chief Financial               August 12, 2005
-------------------------       and Accounting Officer
Vincent DeCrescenzo


<PAGE>

                                INDEX TO EXHIBITS

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

31(i)      19       302 Certification of Chief Executive Officer
31(ii)     21       302 Certification of Chief Financial Officer
32(i)      23       906 Certification of Chief Executive Officer
32(ii)     23       906 Certification of Chief Financial Officer