Dialog 10QSB 2007 Q1 Quarterly report (small business)

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 March 31, 2007.

o 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 o

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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

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

At May 1, 2007 there were 3,773,697 shares of common stock, par value $.001 per share outstanding.

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

DIALOG GROUP, INC. AND SUBSIDIARIES

INDEX

	Page Number
Part I - Financial Information

Item 1 Financial Statements

Condensed Balance Sheets as of March 31, 2007 (unaudited)		F-1

Condensed Statements of Operations for the Three Months Ended March 31, 2007 (unaudited) and March 31, 2006 (unaudited)		F-2

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2007 (unaudited) and March 31, 2006 (unaudited)		F-3

Notes to Condensed Financial Statements (unaudited)		F-4 to F-10

Item 2. Management’s Discussion and Analysis or Plan of Operation		3 - 5

Item 3. Controls and Procedures

Part II - Other Information

Item 1 Legal Proceedings		6

Item 2 Recent Unregistered Sales of Equity Securities and Use of Proceeds		6

Item 6. Exhibits		7

DIALOG GROUP, INC.
BALANCE SHEET
MARCH 31, 2007

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	15,158
Prepaid expenses and other current assets		78,964
Total current assets		94,122

OTHER ASSETS:
Notes receivable, net		50,000
Total other assets		50,000

TOTAL ASSETS	$	144,122

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
Accounts payable	$	451,390
Accrued expenses		459,143
Payroll taxes payable		208,549
Convertible note - related parties		200,000
Due to related parties		63,102
Total current liabilities		1,382,184

STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.001 par value; 1,500,000 Authorized
Class B, 305,858 Shares Issued and Outstanding
Class E, 200 Shares Authorized,
99.5 Shares issued and Outstanding		306
Common stock, $.001 par value, 200,000,000 Shares Authorized;
3,773,445 Shares Issued and Outstanding		3,774
Additional paid-in-capital		9,761,214
Accumulated deficit		(11,003,356	)
Total stockholders' deficiency		(1,238,062	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	144,122

Reference should be made to the notes to financial statements.

F-1

DIALOG GROUP, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 and 2006

	2007			2006


REVENUES	$	-		$	-

COST OF REVENUES		-			-

GROSS PROFIT		-			-

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		89,456			349,153

LOSS FROM OPERATIONS		(89,456	)		(349,153	)

OTHER INCOME (EXPENSES):

Interest expense		(6,774	)		(54,261	)
Interest income		4,894			5,073

Total Other Income (Expenses)		(1,880	)		(49,188	)

LOSS FROM CONTINUING OPERATIONS		(91,336	)		(398,341	)

INACTIVE AND DISCONTINUED OPERATIONS
Income from operations of discontinued operations		-			351,744
Loss on disposal of discontinued operations		(77,500	)		-
Total income from inactive and discontinued operations		(77,500	)		351,744

NET LOSS	$	(168,836	)	$	(46,597	)

LOSS PER SHARE, BASIC AND DILUTED ON NET LOSS FROM CONTINUING OPERATIONS	$	(0.03	)	$	(0.20	)

EARNINGS/(LOSS) PER SHARE ON DISCONTINUED OPERATIONS, BASIC AND DILUTED		(0.02	)	$	0.18

NET LOSS PER SHARE, BASIC AND DILUTED	$	(0.05	)	$	(0.02	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED		3,625,398			1,984,827

Reference should be made to the notes to financial statements.

F-2

DIALOG GROUP, INC.

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

	2007			2006
Cash Flows from Operating Activities:

Loss from continuing operations	$	(91,336	)		($398,341	)
Income from discontinued operations		(77,500	)		351,744
Net loss		(168,836	)		(46,597	)

Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization		-			99,813
Bad debt expense		23,630
Changes in operating assets and liabilities
(Increase) decrease
Accounts receivable		138,804			381,631
Prepaid and other current assets		-			(9,894	)
Increase (decrease)
Accounts payable and accrued expenses		(554,059	)		(533,721	)
Cash overdraft		-			(69,306	)
Current liabilities - Due to related parties		(85,493	)		(51,276	)
Deferred revenues		-			(32,778	)
Net cash used in operating activities		(645,954	)		(262,128	)

Cash Flows from Investing Activities :
Purchase of property and equipment		-			2,207
Settlement/(Issuance) of note receivable		20,897			-
Net cash provided by investing activities		20,897			2,207

Cash Flows from Financing Activities:
Short Term Borrowing, net		-			259,921
Net cash provided by financing activities		-			259,921

Decrease in cash and cash equivalents		(625,057	)		-

Cash and cash equivalents, beginning of period		640,215			-

Cash and cash equivalents, end of period	$	15,158		$	-

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period	$	6,000		$	73,473

Reference should be made to the notes to financial statements.

F-3

Dialog Group, Inc.

Notes to Condensed Financial Statements

March 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GOING CONCERN:

As more fully described in Note 4, the Company has experienced the following negative trends:

1. Recurring operating losses

2. Working capital deficiencies,

3. Negative cash flows from operating activities and

4. Adverse key financial ratios. Additionally, the Company has a significant accumulated deficit. These factors raise substantial doubt about its ability to continue as a going concern.

ORGANIZATION AND CAPITALIZATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The preparation requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The financial statements include the accounts of the Company, Dialog Group, Inc., and its formerly wholly-owned subsidiaries; Healthcare Dialog, Inc., Mail Mogul, Inc., Data Dialog, Inc. and AdValiant USA, Inc. All significant inter-company balances and transactions have been eliminated.

Certain reclassifications have been made to the prior year financial statements in order for them to be in conformity with the current year presentation.

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.

F-4

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 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 $10,000.00 per share plus any accumulated but unpaid dividends.

On September 18, 2006, the Company's 1 for 100 common stock consolidation took effect. As a result, $191,414 was transferred from common stock to additional paid in capital.

BUSINESS ACTIVITY

Dialog Group, Inc. (DLGG) is headquartered at 257 Park Avenue South, Suite 1201, New York, New York 10010.

On January 4, 2007 the Company completed the sale of substantially all of Registrant’s operating assets to Dialog Marketing Services, Inc., a subsidiary of Redi Direct, Inc., a privately held information services company. The sale, which was effective as of December 31, 2006, was for a cash purchase price of $1,900,000. The Company retained its financial assets, including its receivables, and was relieved of the liability for its office leases. Prior to the execution of the agreement, there was no material relationship between either party and the other or the other’s affiliates. Immediately after the closing of this sale, the Company sold two of its subsidiaries, Data Dialog, Inc. and Healthcare Dialog, Inc. to unrelated parties. As a result of these sales, Dialog Group has ceased operations.

NOTE -2 DISCONTINUED OPERATIONS

Sale of Mail Mogul

On February 28, 2006 the Company sold the entire capital stock of its Mail Mogul, Inc. subsidiary which consisted of 1,000 shares of common stock to an unrelated third party. Mail Mogul results were reported in the Data Segment. The Mail Mogul business consisted of sales of data and supplies and the provision of business leads to the mail shop market. As part of its business, Mail Mogul operated the Direct Mail Quotes platform.

As consideration for the sale of Mail Mogul, the Company released approximately $296,623 of the Company's and its subsidiaries' debt to Mail Mogul. The Company paid approximately $3,000 of expenses in connection with the sale. The Company recognized a gain on the sale of Mail Mogul of approximately $208,402.

After the transaction, Mail Mogul's new owner remained in debt to one of the Company's subsidiaries, Data Dialog for about $319,100. In settlement of the debt, the new owner of Mail Mogul sold the Direct Mail Quotes platform to Data Dialog. As part of the transaction an additional consideration was made. Data Dialog assumed the existing liability of Mail Mogul to the Direct Mail Quotes customers of about $59,000.

F-5

Revenue and net income for discontinued operation is as follows:

	Three Months ended		Three Months ended
	March 31, 2007		March 31, 2006

Total revenues	$	-	$	113,645

Pre-tax income (loss) from discontinued operations		-		208,402

Income tax benefit		-		0

Income from discontinued operations, net of income taxes	$	-	$	208,402

Sale of Dialog Group Operating Assets

On January 4, 2007 the Company completed the sale of substantially all of Registrant’s operating assets to Dialog Marketing Services, Inc., a subsidiary of Redi Direct, Inc., a privately held information services company at a gain of $1,814,748. The sale, which was effective as of December 31, 2006, was for a cash purchase price of $1,900,000. The Company retained its financial assets, including its receivables, and was relieved of the liability for its office leases. Prior to the execution of the agreement, there was no material relationship between either party and the other or the other’s affiliates. Immediately after the closing of this sale, the Company sold two of its subsidiaries, Data Dialog, Inc. and Healthcare Dialog, Inc. to unrelated parties. Post closing activity resulted in a loss of $77,500 for the three months ended March 31, 2007.

Revenue and net income for discontinued operation is as follows:

	Three Months ended		Three Months ended
	March 31, 2007		March 31, 2006

Total revenues	$	-	$	963,246

Pre-tax income (loss) from discontinued operations		-		143,342

Income tax benefit		-		0

Income (Loss) from discontinued operations, net of income taxes	$	-	$	143,342

NOTE 3 - GOING CONCERN CONSIDERATIONS

The accompanying 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 $11,003,356 as of March 31, 2007. These conditions raise substantial doubt as to the ability of the Company to continue as a going concern.

F-6

On January 4, 2007 the Company completed the sale of substantially all of it’s operating assets to Dialog Marketing Services, Inc., a subsidiary of Redi Direct, Inc., a privately held information services company. Immediately after the closing of this sale, the Company sold two of its subsidiaries, Data Dialog, Inc. and Healthcare Dialog, Inc. to unrelated parties. As a result of these sales, Dialog Group has ceased operations.

The Company will be required to rely on management's skill, experience and judgment, both in regard to selectivity, and in any final decision to pursue another business venture, as well as the form of business combination, should an agreement be reached at some point to acquire or combine.

There would be no particular type of business or industry that the Company would be concentrating on at this time. The management would look at any potential acquisition that would best serve the interests and maximize shareholder value in the future. The Company would not confine its search for any particular business or business venture to any geographical area.

Members of the Company's management, through their various business contacts, would search for potential business partners whom they feel are deemed to be likely targets for a business combination with the Company.

Material factors that management would consider before acquiring a business or entering into a business venture would be the strength of the management team of the new business and its corporate governance procedures and policies. The potential transaction would be evaluated with the intent of maximizing shareholder value in the future. Any acquisition would likely be financed by the issuance of the Company's stock to the owners of the acquired entity.

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

NOTE 4- ACCRUED LIABILITES

As of March 31, 2007, accrued liabilities consisted of the following:

Accrued professional fees and other expenses	$	47,258
Accrued payroll and payroll taxes		349,885
Accrued settlements and contingencies		62,000

	$	459,143

NOTE 5 - EQUITY

On September 18, 2006, the Company's 1 for 100 common stock consolidation took effect. As a result, $191,414 was transferred from common stock to additional paid in capital. All 2005 common stock and per share disclosures have been restated to reflect this consolidation.

In January 2007 the Company converted $1,349,045 of debt and $114,987 of unpaid interest into 1,464,033 shares of common stock. The largest bloc, about 1,200,000 shares, went to Pearl Street Holdings, as they held $1,105,000 of the debt. About 225,000 shares went to directors or retirement funds for the benefit of a director.

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, can be paid in lieu of cash.

F-7

CLASS F PREFERRED STOCK

As part of the AdValiant acquisition, a new class of Voting Preferred, Class F, was created to provide appropriate voting power to the holders of the AdValiant Exchangeable shares. When AdValiant was sold back to its original owners, all Class F shares were surrendered for cancellation and were cancelled. The class itself was abolished during 2006.

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.

STOCK WARRANTS

In connection with the issuance of the Class E Preferred Shares, each purchaser received a warrant to purchase 25,000 shares of common stock for a price of $.16 per share. Warrants to purchase a total of 2,487,500 shares have been issued to the Class E shareholders. The warrants are exercisable until September 30, 2008. At the time of the issuance of the Class E Preferred Shares, Sept. 30, 2003, common shares were trading between $.10 and $.12 per share. No value was assigned to the warrants in that there was no intrinsic value at the date of issuance.

In connection with issuance of convertible notes, the warrants provide the holders the opportunity to purchase the common stock for a price of $0.075 per share, or convert the face value of the notes along with accrued interest into common stock at $0.06 per share. Warrants to purchase a total of 3,140,225 shares have been issued to the convertible note holders. The warrants are exercisable until September 30, 2009.

NOTE 6 - STOCK OPTIONS

A total of 100,000 and 100,000 stock options were granted to employees, non-employee directors, officers, or consultants during the years ended December 31, 2006 and 2005, respectively,. No options vested in the twelve months ending December 31, 2006 and 2005, while 0 and 648,235 options were forfeited by former employees during 2006 and 2005, respectively.

At December 31, 2004, the Company had one stock based compensation plan, which is described below. The Company accounts for the fair value of its grants under this plan in accordance with FASB 123 and FASB 148. The compensation cost that has been charged against income for this plan is $1,200 for 2005.

Under the 2002 Employee stock Option Plan, the Company may grant options to its employees for up to 10 million shares of common stock.

Under this plan, the exercise price of each option equals the market price of the Company's stock on the date of grant and an option's maximum term is 10 years. Options are granted on various dates and vest in one third increments commencing at the grant date with subsequent vesting at approximately the first and second anniversary of the options grant date.

The fair value of each option grant is estimated on the date of the grant using the prospective method of transition as prescribed by FASB Statement No. 148.

F-8

A summary of the status of the Company's stock option plans as of March 31, 2007 and changes during the three months ended March 31, 2007 is presented below:

	Shares		Price
Options outstanding, January 1, 2006		2,914,035	$	0.001
Options Granted		0	$	0.00
Options Forfeited		0		0.00
Options Expired		0	$	0.00
Options Exercised		0		0.00
Options Outstanding, December 31, 2006		2,914,035	$	0.001
Options Granted		0		0.00
Options Forfeited		0		0.00
Options Expired		0		0.00
Options Exercised		0		0.00
Options Outstanding, March 31, 2007		2,914,035	$	0.001

Stock options outstanding and exercisable at March 31, 2007 are as follows

			Options Outstanding
			Weighted Average		Weighted Average
Range of Exercise Price	Shares Outstanding		Exercise Price		Remaining Life
$3.00 to $4.00		19,800	$	3.120		7.00
$0.17 to $0.25		1,194,195	$	0.174		8.00
$.036 to $0.05		1,700,040	$	0.037		10.00
		2,914,035	$	0.154		8.34

NOTE 7- INCOME TAXES

As of March 31, 2007, the Company had federal and state net operating losses of approximately $11,000,000 that are subject to annual limitations through 2025.

The temporary differences that give rise to deferred tax asset and liability at March 31, 2007 and 2006 are as follows:

	2007
Net operating losses	$	3,850,000
Less valuation allowance		(3,850,000	)

Net deferred tax asset	$	0

In assessing the amount of deferred tax asset to be recognized, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. It is not possible at this time to determine that the deferred tax asset is more likely to be realized than not. Accordingly, a full valuation allowance has been established for all periods presented.

The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change", as defined by the Internal Revenue Code. Federal and state net operating losses are subject to limitations as a result of these restrictions. The Company experienced a substantial change in ownership exceeding 50%. As a result, the Company's ability to utilize its net operating losses against future income has been significantly reduced.

F-9

The effective tax rate for the periods ended March 31, 2007 are as follows:

U.S. statutory tax rate	35	%
State and local taxes	4
Less valuation reserve	(39	)
Effective tax rate	0

NOTE 8 - RELATED PARTY TRANSACTIONS

CONVERTIBLE NOTES DUE TO RELATED PARTIES

All of these convertible notes bear interest at the rate of five (5%) percent per annum and mature on February 1, 2007. The holders of the notes can convert them into Company common stock at a price of $0.01 per share. After the Company's shares close over $0.04 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. In January 2007 the Company converted $1,349,045 of this debt and $114,987 of unpaid interest into 1,464,033 shares of common stock. The largest bloc, about 1,200,000 shares, went to Pearl Street Holdings, as they held $1,105,000 of the debt. About 225,000 shares went to directors or retirement funds for the benefit of a director.

DUE TO RELATED PARTIES

An officer and director provided approximately $63,102 at 8% per annum which amount is due on demand.

NOTE 9 -LITIGATION

In 2003 Acxiom Corporation commenced an action against Dialog Group and its then ThinkDirectMarketing subsidiary in the Circuit Court of Faulkner County, Arkansas. The action was for a breach of written contracts, including a promissory note and a Data License Agreement. Acxiom sought $400,000 on the note and $295,415 for unpaid data usage, and $1,250,000 for unused minimum usage requirements for 2003 and 2004. In January 2006 the Company settled with Acxiom for Ninety Thousand ($90,000.00) Dollars to be paid over forty-two months. As of the date of this filing, the company is behind in payments on the unpaid balance of $85,000. This amount has been accrued and is included in accrued expenses.

In April 2004 USA Direct obtained a default judgment for $39,025 against Dialog Group in the Common Pleas Court of the State of Pennsylvania, York County. The Company has agreed to settle the claim for $20,000. As of this filing the balance remaining was $15,000. This amount has been accrued and is included in accrued expenses.

Except as specified above, there are no material presently pending legal proceedings to which Dialog Group is a party, or to which any of its properties or assets are subject.

F-10

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

General

As a result of the sale of its assets and subsidiaries, Dialog Group has ceased operations.

During the first quarter of 2007, Dialog Group searched for a new line of business to acquire. Administrative costs were deeply cut compared to the same quarter last year.

Sale of Assets and Subsidiaries

On January 4, 2007, the Registrant completed the sale of substantially all of Registrant’s operating assets to Dialog Marketing Services, Inc., a subsidiary of Redi Direct, Inc., a privately held information services company. The sale, which was effective as of December 31, 2006, was for a cash purchase price of $1,900,000. Registrant retained its financial assets, including its receivables, and was relieved of the liability for its office leases. Prior to the execution of the agreement, there was no material relationship between either party and the other or the other’s affiliates. As a result of this transaction, all of the Company's operations are now classified as discontinued operations. The Management Discussion below only covers the operations of the central management office.

Immediately after the closing of this sale, Registrant sold two of its subsidiaries, Data Dialog, Inc. and Healthcare Dialog, Inc. to unrelated parties.

The results of operations set forth below reflect only the central administrative expenses and carrying charges because all of the income and expense related to the divisions have been allocated to discontinued operations because of the sale.

Results of Operations for the Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006

Operating expenses for the three months ended March 31, 2007 were $89,456 compared with $349,153 for the three months ended March 31, 2006. This represents a decrease of $259,697 from 2006.

Because there is no continuing income, the losses from operations were equal to the expenses.

Net other income/expense was an expense of $1,880 for the three months ended March 31, 2007 of which $6,774 is attributed to interest payments, compared with net other expense of $49,188 for the three months ended March 31, 2006, an increase of $47,308. Last year’s included interest expense of $54,261.

The net loss for the three months ended March 31, 2007 was $168,836, compared with a net loss of $46,597 in the three months ended March 31, 2006, representing an decrease of $122,239. This decrease can be attributed to the gain from discontinued operations of $77,500 compared to a gain from discontinued operations of $351,744 for 2006, a decrease of $429,244.

Liquidity & Capital Resources

DGI had a working capital deficit of approximately ($1,288,062) on March 31, 2007. The deficit is the result of accounts payable, accrued expenses and short-term borrowings due to the sale of it’s two previously owned subsidiaries in excess of available current assets.

Going Concern Concerns

Inflation

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

Off-Balance Sheet Transactions

At no time during the first quarter of 2007 did the Company have any relationships with unconsolidated entities or financial partnerships, including as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Internal Control Issues

The Company’s Chief Executive Officer, Chief Financial Officer, and the outside accounting consultant have evaluated the effectiveness of the design and operation of its disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act) means controls and other procedures of a company that are designed to ensure that this information is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon their evaluation of its disclosure controls and procedures, the Company's chief executive officer, chief financial officer, and the accounting consultant have concluded that, as of March 31, 2007 and as of the date of filing, the controls, and procedures were designed to be and were effective at a reasonable assurance level and will continue to operate as designed.

The Company maintains certain internal controls over financial reporting that are appropriate, consistent with cost-benefit considerations, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The retention of the accounting consultant, which occurred during the fiscal quarter ended June 30, 2006, has materially affected, and is reasonably likely to continue to affect, the Company’s internal control over financial reporting in a positive manner. There were no changes affecting the Company’s internal controls occurred during the first quarter of 2007.

Part II. Other Information

Item 1. Legal Proceedings

Suppliers

Except as specified above, there are no material presently pending legal proceedings to which Dialog Group is a party, or to which any of its properties or assets are subject.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

On January 5, 2007 the Company converted all of its Convertible Notes due February 1, 2007 into common stock. A total principal of $1,349,045 and accrued interest of $114,987 was converted into 1,464,033 shares of common stock pursuant to the provisions of the Convertible Notes. This transaction was exempt from registration under Section 3(a) (9) of the Securities Act of 1933 because the Notes were exchanged by their holders for Dialog Group common stock exclusively and no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange.

Peter DeCrescenzo, the Company’s CEO, and Vincent DeCrescenzo, Sr., its CFO, received 162,760 and 32,552 shares of common stock, respectively.

As a result of this transaction, Pearl Street Holdings plc, now holds almost 1,200,000, shares of common stock. Pearl and the Company have agreed that, so long as Pearl held more that 25% of the fully diluted equity of the Company, the Company’s directors would nominate a person recommended by Pearl to its Board of Directors. Therefore, Pearl, and its principal officers, Stephen Dean and Vince Nicholls, may now be considered control persons of Dialog Group.

Items 3, 4 and 5 are omitted, as there is no information to report there under.

Item 6. Exhibits

Exhibits

Exhibit
Number	Description	Page
2.1	Third Amended Plan of Reorganization - Incorporated by reference from Report on Form 8-K filed on October 12, 2001	X

2.2	Amendment dated February 27, 2003 to an Agreement for Merger by and among IMX Pharmaceuticals, Inc., a Utah corporation (“IMX”) (for itself and for Dialog Group, Inc., its successor by merger), HCD Acquisition, Inc. ("HCD Acquisition"), a Delaware corporation, Healthcare Dialog, Inc., a Delaware corporation (“HCD”), and Peter V. DeCrescenzo, Vincent DeCrescenzo, Sr., and Cindy Lanzendoen, each an individual, (collectively, the “Shareholders”) and Cater Barnard, plc, an a corporation of England and Wales (“CB”) - Incorporated by reference from Report on Form 8-K filed on March 15, 2003	X

2.3	Agreement for Merger dated February 24, 2003 among Dialog Group, Inc., a Delaware corporation (“DGI”), IP2M Acquisition Corp. ("Acquisition"), a Delaware corporation, IP2M, Inc., a Delaware corporation (“IP2M”), and Robin Smith, William Donovan, Five Don, Ltd. (a/k/a 5 Don Ltd.), Cameron Bevis, and Art Sadin - Incorporated by reference from Report on Form 8-K filed on March 15, 2003	X

3(i).1	Amended and Restated Articles of Incorporation - Incorporated by reference from Interim Report on Form 8-K filed on March 14, 2003	X

3(i).2	Certificate of Designation of Class C-1 Preferred Stock - Incorporated by reference from the initial filing of registration statement file number 333-106490	X

3(i).3	Certificate of Designation of Class C-2 Preferred Stock - Incorporated by reference from the initial filing of registration statement file number 333-106490	X

3(i).4	Certificate of Designation of Class C-3 Preferred Stock - Incorporated by reference from the initial filing of registration statement file number 333-106490	X

3(i).5	Certificate of Cancellation of Class C and Class D Preferred Stock - Incorporated by reference from the initial filing of registration statement file number 333-106490	X

3(i).6	Certificate of Amendment for Increased Shares - Incorporated by reference from the initial filing of registration statement file number 333-106490	X

3(i).7	Certificate of Designation of Class E Preferred Stock Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

3(i).8	Certificate of Elimination of Classes C-1, C-1, and C-3 Preferred Stock Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

3(i).9	Certificate of Amendment for Increased Shares Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

3(ii).1	By-laws - Incorporated by reference from Interim Report on Form 8-K filed on March 14, 2003	X

4.1	Instruments defining the rights of security holders - Incorporated by reference from Exhibit 3(i).1 through Exhibit 3(i).10.	X

4.2	Convertible Debenture - Incorporated by reference from the Current Report on Form 8-K filed March 27, 2007.	X

4.3	Warrant - Incorporated by reference from the Current Report on Form 8-K filed March 27, 2007.	X

10	Material contracts

10.1	Employment Agreement for Peter V. DeCrescenzo Incorporated by reference from the Annual Report on Form 10-KSB filed on April 14, 2003	X

10.2	Employment Agreement for Vincent DeCrescenzo Incorporated by reference from the Annual Report on Form 10-KSB filed on April 14, 2003	X

10.3	Employment Agreement for Cindy Lanzendoen Incorporated by reference from the Annual Report on Form 10-KSB filed on April 14, 2003	X

10.5	2002 Stock Option Plan, as amended- Incorporated by reference from the initial filing of registration statement file number 333-106490	X

10.6	Amendment to Employment Agreement for Peter V. DeCrescenzo. Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

10.7	Amendment to Employment Agreement for Vincent DeCrescenzo, Sr. Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

10.8	Guarantee Agreement with Peter DeCrescenzo Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

10.9	Guarantee Agreement with Vincent DeCrescenzo Incorporated by reference from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3, 2006.	X

21.1	Subsidiaries of the registrant	X

31(i)	302 Certification of Chief Executive Officer	47

31(ii)	302 Certification of Chief Financial Officer	49

32(i)	906 Certification of Chief Executive Officer	51

32(ii)	906 Certification of Chief Financial Officer	51

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: May 15, 2007	By:	/s/ Peter V. DeCrescenzo
		Peter V. DeCrescenzo, President and Chief Executive Officer

Signature	Title	Date
/s/ Peter V. DeCrescenzo Peter V. DeCrescenzo	Chief Executive Officer	May 15, 2007
/s/ Vincent DeCrescenzo Vincent DeCrescenzo	Chief Financial and Accounting Officer	May 15, 2007

INDEX TO EXHIBITS

Exhibit	Page
Number	Number	Description

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

Dialog (DLGO) Inactive 10QSB2007 Q1 Quarterly report (small business)