Dialog Group
Dialog Group’s consolidated Revenue for the three and six month periods ended June 30, 2003 were approximately $3,024,000 and approximately $5,703,000 respectively. This is compared to approximately $2,566,000 and $5,157,000 for the same periods in 2002.
The consolidated Costs of Revenue for the same periods were approximately $1,738,000 and $3,148,000 in 2003 compared with $1,350,000 and $2,825,000 in 2002. The sources of the revenue and costs for each division are discussed below.
Operating Expenses for the second quarter and first half of 2003 were approximately $1,885,000 and $3,646,000, respectively, and $4,232,000 and $7,852,000 for the same periods in 2002 include each division’s operating costs and the Dialog Group’s central administrative costs.
Dialog Group’s central administrative costs reflect the growth of Dialog Group’s financing and management responsibilities. They were $751,000 during the second quarter of 2003 and $1,149,000 for the first six months of this year. Administrative costs for the same periods during 2002 were $756,000 and $972,000, respectively. Increases in Administration Costs included reallocation of executive costs from HealthCare Dialog, addition of accounting and financial staff, and additional expenses associated with regulatory requirements.
Losses from Operations were $599,000 and $1,091,000 for the three and six month periods ended June 30, 2003 compared with $3,016,000 and $5,520,000 for the same periods in 2002.
The Net Loss for the three months ended June 30, 2003, after Other Income of $54,000, was $545,000. This compares with a Net Loss for the three months ended June 30, 2002, after Other Income of $650,000, of $2,366,000. The three month 2002 Other Income is the net of $184,000 in interest expense and gain on debt settlements of $756,000 and other income of $78,000.
The Net Loss for the six months ended June 30, 2003, after Other Expense of $62,000, was $1,154,000 compared to a Net Loss of $4,261,000, after Other Income of $1,259,000, during the six months ended June 30, 2002. The 2003 Other Expense is a net of $135,000 in interest expense and $73,000 of other income. The 2002 Other Income is a net of $234,000 of interest expense and $831,000 of gain on debt settlements, $240,000 of gain on the sale of options, and $424,000 of other income.
Second quarter 2003 revenues included $125,000 of deferred revenue in the Data Dialog division that should have been recognized in the first quarter. In addition, that division’s other general and administrative expense for the second quarter included $60,000 of write offs that should have been taken in the first quarter. Had these revenues and expenses been recognized in the first quarter, the Net Loss for the second quarter would have been $586,000 instead of $545,000.
Healthcare Dialog
For the three and six months ended June 30, 2003, the Healthcare Dialog’s revenues were approximately $1,414,000 and $2,718,000, respectively, as compared toapproximately $1,499,000 and $3,093,000 for the same periods ended June 30, 2002, a decrease of about $85,000 and $375,000, respectively, a decline of 6 % and 12 % respectively. The reduction in Revenues during the second quarter and the first half of 2003 was due to two major marketing programs Healthcare Dialog sold to a pharmaceutical client being in the design and production stage simultaneously in 2002 That did not occur in 2003 although Healthcare Dialog has contracted with the client in 2003 to manage these programs for fixed monthly retainers. The work involved in managing is significantly less than that which was required in the design and development stages and as a result charges to the client in 2003 are less. In addition, the QD division of HealthCare was active in 2002, but produced no income in 2003. It was dissolved in the second quarter of 2003.
Healthcare Dialog’s Costs of Revenue were $1,089,000 and $1,848,000 for the three and six months ended June 30, 2003, representing 77% of Revenue in the second quarter and 68% of Revenue in the first half of 2003. This compares with Costs of Revenue of $789,000 and $1,718,000 for the same periods in 2002. The 2002 Costs of Revenue represented 53% and 56% of Revenue, respectively. In the second quarter of 2003, a greater percentage of revenues came from print products as compared with 2002, increasing Healthcare Dialog’s cost ratios.
Healthcare Dialog’s total operating expenses were approximately $329,000 and $829,000 for the three and six months ended June 30, 2003, respectively. This compares withapproximately $929,000 and $3,076,000 for the same periods ended June 30, 2002. The decrease between both periods resulted from staff reductions and office consolidations and reallocation of certain executive expenses to Dialog Group administrative cost. as well as management’s decision in the first quarter of 2002 to write down $624,859, $300,000 and $95,067 in “loss on goodwill impairment”, loss on website impairment” and “loss on fixed assets disposal” respectively which did not occur in 2003.
For the three months ended June 30, 2003, Healthcare Dialog’s consolidated net loss from operations were approximately $3,000, an improvement from the $219,000 loss during the second quarter of 2002. The six month consolidated net gain for the six months ended June 2003 of approximately $42,000 represents an improvement from net losses of about $1,701,000 in the same period ending in 2002. While sales during both periods were lower, the write down of assets in 2002 combined with reduced marketing and administrative expenses during 2003 combined to improve the bottom line by over $200,000 during the second quarter and $1.7 million for 2003 to date.
Data Dialog:
Data Dialog’s revenues were approximately $1,213,000 and $2,126,000, respectively for the three and six months ended June 30, 2003 as compared toapproximately $797,000 and $1,574,000 for the same periods ended June 30, 2002, an increase of about $416,000 (52%) and $552,000 (35%) for the three and six month periods. The improved results are due to new customers as well as increased revenues from existing customers and the introduction and rollout of the batch version of Data Dialog’s DigitalData service. These improvements were mitigated by the costs of a disruption to sales caused by the relocation of Data Dialog’s sales offices and the integration of new assets during both periods.
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Back to IndexReported sales for the second quarter include approximately $125,000 of recognition of revenue from sales of one product which had not been realized in the first quarter of 2003. However, the remaining $1,088,000 in sales for the quarter compares favorably to the $797,000 for the second quarter of 2002.
Data Dialog’s Costs of Revenue were $500,000 and $976,000 for the three and six months ended June 30, 2003, representing 41% of Revenue in the second quarter and 46% of Revenue in the first half of 2003. This compares with Costs of Revenue of $520,000 and $968,000 for the same periods in 2002. The 2002 Costs of Revenue represented 65% and 63% of Revenue, respectively. In the second quarter Data Dialog’s efforts to source data from supplies that offer higher margins and to offer data from recently acquired assets began to reduce the Costs of revenue.
Data Dialog’s consolidated total operating expenses were approximately $509,000 for the three months ended June 30, 2003. This compares withapproximately $901,000 for the same period in 2002. For the six month periods, expenses were $1,077,000 in 2003 and $1,895,000 in 2002. These decreases between both periods was accomplished by a reduction of executive positions, consolidation of staff, specifically technology and management staffing, and closure of offices.
For the three months ended June 30, 2003, Data Dialog had Net Income from Operations of approximately $205,000; the Net Income for the six months ended June 30, 2003 was almost $73,000. These represent improvements from net losses of about $624,000 and $1,308,000 for the comparable periods ending June 30, 2002. Increased sales during both periods combined with reduced salary, marketing, and administrative expenses combined to improve the profitability of this division.
Software Dialog:
For the three months ended June 30, 2003, the Software Dialog’s net revenues were approximately $397,000 as compared to $269,000 for the second quarter in 2002. For the first half of 2003, net revenues totaled $859,000 as compared with $491,000 for the six months ended June 30, 2002. These increases for both periods are attributable to opening up new sales routes and the continuing expansion of channel sales through resellers and distributors.
Software Dialog’s Costs of Revenue were $150,000 and $325,000 for the three and six months ended June 30, 2003, representing 38% of Revenue in the second quarter and 38% of Revenue in the first half of 2003. This compares with Costs of Revenue of $41,000 and $121,000 for the same periods in 2002. The 2002 Costs of Revenue represented 15% and 25% of Revenue, respectively.
The Software’s total operating expenses were approximately $297,000 and $592,000 for the three and six months ended June 30, 2003 compared with $1,646,000 and $1,908,000 for same periods in 2002. The 2002 results for both 2002 periods include a loss on goodwill impairment of $1,102,000. Excluding the impairment, both periods still show a reduction of ongoing costs during the period. In addition, operating expenses in 2003 were increased by the release of extraordinary provisions and creditor accruals made in prior periods.
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Back to IndexSoftware’s net loss from operations for the three months ended June 30, 2003 was reduced to approximately $50,000 from $1,417,000 for the three months ended June 30, 2002. For the six months ended June 30, the losses in 2003 were reduced to $58,000 from $1,539,000 in 2003 as a result of increased revenue, the changes in the commission system, and control of overhead.
Liquidity & Capital Resources
Dialog Group had a consolidated working capital deficit of approximately $4,207,000 on June 30, 2003 as compared to a deficit of approximately $3,121,000 at December 31, 2002. The year end deficit did not include the December 31, 2002 working capital deficits of the two acquired companies, HealthCare and IP2M. Their working capital deficits as year end were approximately $908,000 and $1,379,000, respectively. During the quarter ended June 2003, Dialog Group raised over $500,000 through the sale of its stock.
Inflation
Inflation rates in the United States have not had a significant impact on operating results for the periods presented.
Currency exchange risk
Software Dialog sells its products, pays its expenses, and keeps its records in British Pounds Sterling. Although currency fluctuations do not represent and economic risk to Software Dialog, changes in exchange rates between the US Dollar and the British Pound can cause changes in the dollar value of assets and liabilities on Dialog Group’s balance sheet and may make period results not strictly comparable.
Item 3. Controls and Procedures
During the second quarter of 2003, Dialog Group’s disclosure controls and internal control over financial reporting were central concerns of management and the Board of Directors. Accounting operations at all United States offices were centralized in New York and Florida and a professional accounting and control staff has been appointed. At the Annual Meeting in May, Dialog Group’s first independent directors were elected and an audit committee was appointed.
As Dialog Group has consolidated financial operations, they can still be under the direct supervision of the Chief Financial Officer. Management believes that much progress towards integrating the operations of its acquisitions, but the need for extensions of time to file financial reports shows that progress is still required.
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Back to Index| | |
| Part II. | Other Information |
Items 3 and 5 are omitted as they are either not applicable or have been included in Part I.
On June 13, 2003 Demkin Printing Incorporated commenced an action against “Healthcare Dialogue, Inc. a/k/a PVD+Partners”, a subsidiary, in the Supreme Court of the State of New York, New York County. The complaint seeks $85,076.27 for printing services and attorney’s fees. An answer was filed, but Dialog Group is seeking to resolve the matter without additional litigation expense.
On July 25, 2003 Acxiom Corporation commenced an action against Dialog Group and its ThinkDirectMarketing subsidiary. The complaint seeks $400,000 on a note and $295,414.67 for unpaid data usage, and $1,250,000 for unused minimum usage requirements for 2003 and 2004. Dialog Group and its subsidiary have appeared in the proceeding and plans to vigorously contest the claims.
| Item 2(c) | Recent Sales of Unregistered Securities |
Acquisition Transactions
As of April 18, 2003 Dialog Group issued 5,307,392 shares of common stock and 32,336 shares of class B-1 preferred stock to four individuals to acquire the remaining shares of Healthcare Horizons, Inc and the assets of Azimuth Targeted Marketing, Inc. Each share of the class B-1 preferred stock is convertible into 40 shares of common stock. This transaction is exempt from the registration requirements of Section 5 of the Securities Act under Section 4(2) of the Securities Act it did not involve a public distribution of Dialog Group's securities. Each certificate carries a restrictive legend and a stop transfer order has been placed with the transfer agent.
As a result of this acquisition, an additional 589,710 shares of common stock and 3,593 shares of class B-1 preferred stock were issued to the IP2M shareholders. All these shares join those in escrow to secure the accuracy of IP2M’s representations in connection with its acquisition.
Regulation S Transactions
On October 4, 2002 Dialog Group authorized Starz Investments Limited to sell up to 10,000,000 shares of its Common Stock to investors located outside of the United States. The shares were offered pursuant to an exemption from registration afforded by Regulation S to the Securities Act of 1933. Shares sold pursuant to Regulation S are deemed restricted and may not be sold to any U.S. Person (as that term is defined in the Regulation) for a period of one (1) year from date of sale. During the quarter, 3,502,050 shares were issued for a total consideration of $252,589 at an average price of $0.072. Dialog Group paid $25,259 to Burnham Securities as a commission in connection with this placement.
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Back to IndexOn March 28, 2003 Dialog Group authorized Californian Securities S.A to sell up to 4,000,000 shares of its Common Stock outside the United States, also pursuant to Regulation S, at a price of $0.06 per share. During the second quarter, 4,016,570 shares were issued for a total consideration of $247,196. Dialog Group paid $5,889 to Burnham Securities as a commission in connection with this placement.
Related Purchases
The acquisition agreement relating to HCD required Dialog Group to reimburse Cater Barnard for the services of any director appointed by it in the amount of £2,000 per month f6r each month in 2003. In lieu of this approximately $40,000 Cater Barnard agreed to accept 288,000 shares of common stock at a per share price of $0.139. This transaction is exempt from registration under the Securities Act pursuant to section 4(2) because was a private sale with no intention to redistribute the securities. A restrictive legend was placed on the certificate and a stop order was placed with Dialog Group’s transfer agent.
Bridge Loan Transaction
In connection with a bridge loan associated with the closing of the HCD and IP2M acquisition during the first quarter of 2003, Dialog Group issued 1,100,000 shares of its Common Stock to Californian Securities, S.A. and granted A Street Capital Corp. a warrant to purchase 350,000 of its shares at a price of $0.05 per share.
Other issuances
On June 4, 2003, 69,000 additional shares were issued to nine investors. These were issued without additional compensation because Dialog Group had not complied with its obligation to register shares previously sold to these holders. Each holder had previously represented himself in writing to be an accredited investor who was purchasing their shares for investment. A restriction on resale has been placed with the Dialog Group’s transfer agent and a legend has been placed on each certificate. Because of these factors, this sale is exempt from registration under the Securities Act as not involving a public distribution under section 4(2).
62,000 shares were issued to Kuma Consulting, Inc during the second quarter. On November 1, 2002 Dialog Group entered into consulting agreements with Kuma. Under these agreements Dialog Group agreed to pay Kuma $47,500 and to issue a total of 400,000 shares of its common stock for Kuma’s consulting services. $47,500 has been paid and 338,000 shares had been issued to Kuma or its designees during previous periods. The shares issued to Kuma are exempt from registration under section 4(2) of the Securities Act as private transactions because they were acquired for investment and are subject to stop orders and restrictive legends.
On February 12th, 2003 Dialog Group agreed to issue 200,000 shares to Knightsbridge Capital for consulting services. During this quarter, the first 67,600 shares were issued to Knightsbridge’s Capital’s designees pursuant to this agreement. The issuance of these shares is exempt from registration under section 4(2) of the Securities Act as a private transaction because the shares were acquired for investment and each certificate bears restrictive legends and is subject to a stop transfer order. Issuance of the additional shares is still pending.
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Back to IndexThe proceeds of all shares issued for cash were used for general business purposes.
Conversions
During this quarter, Cater Barnard converted all its 142,810 shares of Class B Preferred Stock into 5,712,400 shares of Common Stock. One former ThinkDirectMarketing shareholder converted 343 shares of Class B Preferred Stock into 13,720 shares of Common Stock. All the certificates issued upon conversion bore Securities Act legends and stop orders have been recorded with the transfer agent. These transactions were exempt from registration under Section 3(a)(9) of the Securities Act of 1933 because they were exchanged by Dialog Group with the holders of its existing preferred stock exclusively and no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange.
| Item 4. | Submission of Matters to a Vote of Security Holders |
Dialog Group held its Annual Meeting of Stockholders on May 28, 2003. Peter DeCrescenzo, Vincent DeCrescenzo, Adrian Stecyk, Richard Kundrat, and James Christodoulou were all elected as Directors for a one year term. These are all of Dialog Group’s Directors.
In addition, at the meeting, amendments to the 2002 Employee Stock Option Plan and the increase of the number of authorized shares of common stock to 175,000,000 and the number of authorized shares of preferred stock to 1,500,000 were approved.
The vote for each director totaled 42,565,972 common shares and 152,923 preferred shares. The same number of votes was cast in favor of both proposals. There were no abstentions or broker non-votes.
| Item 6. | Exhibits and Reports on Form 8-K |
| | Exhibit
Number | Description |
| | | |
| | None | |
A report on Form 8-K/A (items 2 and 7) containing the financial statements required by the acquisition of Healthcare Dialog, Inc. and IP2M, Inc. (initially reported on a Form 8-K filed on March 14, 2003) was filed on May 15, 2003.
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Back to IndexSIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this quarterly report on Form 10-QSB to be signed in its behalf by the undersigned thereunto duly authorized on the 19th day of August 2003.
| | Dialog Group, INC |
| | | |
| | By: | /s/ PETER V. DECRESCENZO |
| | | Peter V. DeCrescenzo, Chairman, President & CEO |
CERTIFICATIONS
Chief Executive Officer
I, Peter V. DeCrescenzo, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Dialog Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
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Back to Index5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: August 19, 2003
| | /s/ PETER V. DECRESCENZO |
| | Peter V. DeCrescenzo, CEO |
Chief Financial Officer
I, Vincent DeCrescenzo, Sr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Dialog Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
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Back to Indexa) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: August 19, 2003
| | VINCENT DECRESCENZO |
| | Vincent DeCrescenzo, Sr. CFO |
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