UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 -------------------
FORM 10-QSB | This Amendment |
(Amendment Number 1) | corrects Item 3 |
-------------------
(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, 2006.
|_| Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from to .
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Commission File No. 000-30294
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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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| 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 August 7, 2006 there were 198,482,755 shares of common stock, par value
$.001 per share outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
DIALOG GROUP, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I - Financial Information
Item 1 Financial Statements
F-1 Condensed Consolidated Balance Sheets as of June 30, 2006
(unaudited)
F-2 Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Six and Three Months Ended June 30,
2006 (unaudited) and June 30, 2005 (unaudited)
F-3 Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2006 (unaudited) and June 30,
2005 (unaudited)
F- 4 to
F- 21 Notes to Condensed Consolidated Financial Statements
(unaudited)
3 - 8 Item 2. Management's Discussion and Analysis or Plan of
Operation
9 Item 3. Controls and Procedures
Part II - Other Information
10 Item 1 Legal Proceedings
11 Item 2 Recent Unregistered Sales of Equity Securities and
Use of Proceeds
13 Item 6. Exhibits
DIALOG GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30,
2006
------------
ASSETS
CURRENT ASSETS
Cash $ --
Accounts receivable (net) 357,226
Notes receivable, current portion 43,703
Prepaid expenses and other current assets 68,205
------------
Total current assets 469,134
------------
PROPERTY AND EQUIPMENT, NET 22,086
------------
OTHER ASSETS:
Data Assets (Net) 226,062
Website (Net) 39,917
Security Deposits 55,080
Note Receivable (Net) 111,297
------------
Total other assets 432,356
------------
TOTAL ASSETS $ 923,576
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 186,311
Accounts payable 1,357,493
Accrued expenses 1,139,173
Deferred revenue 243,827
Notes and Loans Payable 265,688
Due to officer 73,102
Pearl Street Holdings Convertible Notes - Related Party 1,105,000
Convertible Notes - Related Parties 244,045
Other current liabilities 47,300
------------
Total current liabilities 4,661,939
------------
LONG TERM DEBT
Convertible Debentures 479,778
Loans Payable - Commadore 330,531
------------
TOTAL LONG TERM DEBT 810,309
------------
TOTAL LIABILITIES 5,472,248
------------
Commitments and contingencies
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;
198,482,755 shares issued and outstanding 198,483
Additional paid-in-capital 8,022,757
Accumulated deficit (12,770,218)
------------
Total stockholders' deficiency (4,548,672)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 923,576
============
The accompanying notes are an integral part of these condensed consolidated
financial statements
DIALOG GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
Six Months Ended June 30, Three Months Ended June 30,
------------------------------ ------------------------------
2006 2005 2006 2005
---- ---- ---- ----
REVENUES $ 1,902,353 $ 2,283,514 $ 939,107 $ 1,088,284
COST OF REVENUES 641,987 981,774 332,610 513,346
------------- ------------- ------------- -------------
GROSS PROFIT 1,260,366 1,301,740 606,497 574,938
OPERATING EXPENSES
Selling, general and administrative expenses 1,827,859 2,043,958 908,726 963,503
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (567,493) (742,218) (302,229) (388,565)
OTHER INCOME (EXPENSES)
Interest income 9,938 -- 4,865 --
Interest expense (157,606) (127,724) (84,133) (85,830)
Forgiveness of debt -- 22,164 -- 18,414
------------- ------------- ------------- -------------
Net Other Income (Expenses) (147,668) (105,560) (79,268) (67,416)
------------- ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (715,161) (847,778) (381,497) (455,981)
INACTIVE & DISCONTINUED OPERATIONS
Income (loss) from discontinued operations 210,894 (71,227) (76,173) (131,173)
------------- ------------- ------------- -------------
NET LOSS $ (504,267) $ (919,005) $ (457,670) $ (587,154)
============= ============= ============= =============
EARNINGS/( LOSS) PER SHARE, BASIC AND
DILUTED ON NET INCOME/(LOSS) ($ 0.004) ($ 0.006) ($ 0.002) ($ 0.003)
FROM CONTINUING OPERATIONS
EARNINGS/(LOSS) PER SHARE ON
DISCONTINUED OPERATIONS, BASIC AND
DILUTED 0.001 (0.001) (0.000) (0.001)
------------- ------------- ------------- -------------
NET EARNINGS/( LOSS) PER SHARE, BASIC
AND DILUTED ($ 0.003) ($ 0.007) ($ 0.002) ($ 0.004)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 196,581,774 135,513,274 198,482,755 153,054,074
============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
DIALOG GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDING JUNE 30, 2006 AND 2005
2006 2005
----------- -----------
Cash Flows from Operating Activities:
Net Loss form continuing operations $ (715,161) $ (847,778)
Gain from discontinued operations 210,894 (71,227)
----------- -----------
Loss from Operations (504,267) (919,005)
Adjustments to reconcile net loss
to net cash used in operating activities of continuing operations:
Gain on debt settlement -- (22,530)
Depreciation and amortization 167,900 200,176
Bad debt (recovery) expense (44,958) 14,888
Common stock, warrants and stock options issued for services -- 102,655
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 513,366 (116,859)
(Increase) decrease in prepaid and other current assets 36,311 (215,137)
(Increase) decrease in security deposits -- 16,018
Increase (decrease) in accounts payable and accrued expenses (104,065) 246,232
Increase (decrease) in other current liabilities (18,012) 79,007
Increase (decrease) in deferred revenues (99,466) (276,591)
----------- -----------
Net Cash Used in Operating Activities (53,191) (891,146)
----------- -----------
Cash Flows from Investing Activities of Continuing Operations:
Purchase of property and equipment -- (2,846)
Purchase of database -- (78,704)
Loss of property and equipment -- 1,566
Net cash acquired in acquisition of Advaliant -- 49,795
Purchase of website -- (17,000)
----------- -----------
Net cash used in investing activities -- (47,189)
----------- -----------
Cash Flows from Financing Activities of Continuing Operations:
Bank overdraft (37,451) 25,783
Short Term Borrowing, net (212,238) 42,668
Current liabilities - due to related parties 23,102 111,989
Proceeds from issuance of convertible debt to related parties -- 576,000
Proceeds from issuance of convertible debt to employees 279,778 100,000
----------- -----------
Net Cash Provided by Financing Activities 53,191 856,440
----------- -----------
Decrease in cash -- (81,895)
Cash at Beginning of Period -- 131,690
----------- -----------
Cash at Period End $ -- $ 49,795
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid During the Period $ 146,946 $ 129,387
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of Accounts Payable to Common Stock $ -- $ 7,500
=========== ===========
Conversion of Accrued Expenses to Common Stock $ -- $ 59,624
=========== ===========
Exchangeable shares issued in acquisition of Advaliant $ -- $ 3,663,204
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Dialog Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2006
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 consolidated 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
six month period ended June 30, 2006 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2006.
The condensed consolidated financial statements include the accounts of the
Company, Dialog Group, Inc., and its wholly-owned subsidiaries; Mail Mogul,
Inc., Healthcare Dialog, Inc., Data Dialog, Inc. and AdValiant USA, Inc. All
significant inter-company balances and transactions have been eliminated in
consolidation.
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.
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.
BUSINESS ACTIVITY
Dialog Group, Inc. (DLGG) is a publicly traded corporation, headquartered at 257
Park Avenue South, Suite 1201, New York, New York 10010, with an administrative
and sales office in Sunrise, Florida. The company's two Segments, Data and
Communications, provide a broad spectrum of proprietary and exclusive databases
for healthcare, consumer and business-to-business market clients. The company
also provides a combination of traditional customer relationship management
support applications such as advertising and marketing services (Internet-based
promotional venues).
Description of the Segments
Both of Dialog Group's Segments each currently market its product and service
offerings through branded product lines. The Data Segment products are Data
Dialog Marketing, Data Dialog Data Management and Adialogin. The Communications
Segments are Healthcare Dialog Communications and MyMedCenter.
Data Segment
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 the distribution
of data. Data Dialog Marketing offers a host of data-related services, such as
targeted marketing lists, lead generation, turnkey direct mail programs, and
data cleansing to multiple market segments including insurance, financial
planning, real estate, auto dealerships, printers, letter shops 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 user.
Data Dialog Data Management serves the database needs of list brokers and
managers marketing nearly 200 different lists created from both licensed and
proprietary databases. Data Dialog Management provides access to this list via
its branded online platform; Access Dialog. Access Dialog is designed for use by
both our internal sales force and list professionals and requires registration
and training. It also promotes and markets list products via
DataDialogDataManagement.com where list and marketing professionals can learn
about its products and run counts and purchase list online after qualifying.
Adialogin is a consumer and business data integration product that automatically
appends name and address information, as well as demographic, financial and
lifestyle information, to telephone numbers on calls made by consumer and
business customers to CTI Platforms. Adialogin initially marketed its products
executively to call centers and Interactive Voice Response system users
operating in-bound and blended call centers with 5 to 500 seats. Adialogin
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. In 2005 and the first quarter of 2006 Adialogin developed a web
application for its technology which was introduced during the second quarter of
2006.
Communications Segment
Healthcare Dialog Communications 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 Healthcare Dialog Communications' 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.
MyMedCenter 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
thousands of unique health information seekers per day to the broadcast
stations' Web sites for a combined US household penetration of 75%. On these
sites 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.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
"Share-Based Payment." SFAS No. 123R is a revision of SFAS No. 123 and
supersedes APB 25. SFAS No. 123R eliminates the use of the intrinsic value
method of accounting, and requires companies to recognize the cost of employee
services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards. On April 14, 2005, the Securities and
Exchange Commission adopted a new rule that amended the compliance date to adopt
SFAS 123R, effective January 1, 2006. SFAS No. 123R permits companies to adopt
its requirements using either a "modified prospective" method or a "modified
retrospective" method. Under the "modified prospective" method, compensation
cost is recognized in the financial statements beginning with the effective
date, based on the requirements of SFAS No. 123R for all share-based payments
granted after that date, and, based on the requirements of SFAS No. 123R, for
all unvested awards granted prior to the effective date of SFAS No. 123R. Under
the "modified retrospective" method, the requirements are the same as under the
"modified prospective" method, except that entities also are allowed to restate
financial statements of previous periods based on pro forma disclosures made in
accordance with SFAS No. 123. The Company has chosen to use the "modified
prospective" method as explained in Note 7 to these unaudited condensed
consolidated financial statements.
In June 2006, the Financial Accounting Standards Board issued Interpretation No.
48 "Accounting for Uncertainty in Income Taxes--an interpretation of FASB
Statement No. 109". The Interpretation clarifies the accounting for uncertainty
in income taxes and prescribes recognition thresholds and derecognition guidance
for the measurement of tax positions and interest penalties, accounting in
interim periods, disclosure and transition. Additionally this Interpretation
establishes a consistent threshold for recognizing current and deferred taxes.
This Interpreation requires evaluation of a Company's tax positions as to
whether they are more-likely-than-not i) to be sustained under tax audit and
ultimate settlement in related appeals or litigation and ii) to be measured at a
50% likelihood for quantification when realized. This Interpretation is
effective for fiscal years beginning after December 15, 2006. The Company is
evaluating the effect, if any, adoption will have on our unaudited condensed
consolidated financial statements.
In May 2005, Financial Accounting Standards Board issued Statement No. 154
"Accounting Changes and Error Corrections--a replacement of APB Opinion No. 20
and FASB Statement No. 3". This Statement replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements for the accounting
for and reporting of a change in accounting principle. This Statement applies to
all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed. This Statement requires retrospective application to prior periods'
financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. This Statement defines retrospective application of a
different accounting principle to prior accounting periods as if that principle
had always been used or of the adjustment of previously issued financial
statements to reflect a change in the reporting entity. This Statement also
redefines restatement as the revising of previously issued financial statements
to reflect the correction of an error. This Interpretation is effective for
years beginning after December 31, 2005. Adoption of FAS No 154 has not had a
material effect on our unaudited consolidated financial statements.
NOTE 3 - DISPOSITION OF SUBSIDIARY
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
enjoyed a gain on the sale of Mail Mogul of approximately $210,894.
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.
Revenue and net income for discontinued operation is as follows:
Six months ended Three months ended
June 30, June 30,
-------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Total Revenues $ 113,644 $ 851,844 $ -- $ 330,358
--------- --------- --------- ---------
Pre-tax income (loss) from discontinued operations 210,894 (71,227) (76,173) (131,173)
Income tax benefit -- -- -- --
--------- --------- --------- ---------
Income (Loss) from discontinued operations, net of income taxes $ 210,894 $ (71,227) $ (76,173) $(131,173)
--------- --------- --------- ---------
NOTE 4 - GOING CONCERN CONSIDERATIONS
LIQUIDITY
In the first quarter of 2006 the company raised funds through the private sale
of approximately $280,000 of convertible debentures to a group of investors
associated with Midtown Partners. & Co. LLC. The Company continues to review
means of raising funds including issuing additional debentures and other or
equity instruments securities. If unsuccessful the Company may not be able to
meet its short-term capital needs.
The Company continues to review other means of raising funds including issuing
debentures and equity instruments. The Company is also reviewing the sale of
non-core assets.
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 the expansion of sales
organization.
o Reduce expenses through improved labor utilization and the reducing of
leasehold expenses.
o Enter into strategic relationships with data suppliers that will return higher
levels of match rate with a better quality of data.
o Reduce operating costs through improved procurement procedures.
Presently, the Company cannot ascertain the eventual success of management's
plans with any degree of certainty. The accompanying condensed consolidated
financial statements do not include any adjustments that might result from the
eventual outcome of the risks and uncertainty described above.
NOTE 5 - ACCRUED LIABILITES
As of June 30, 2006, accrued liabilities consisted of the following:
Accrued professional fees and other expenses $118,471
Accrued payroll and payroll taxes 590,275
Accrued interest 94,607
Accrued settlements and contingencies 250,092
Other 85,728
-----------
$1,139,173
===========
NOTE 6 - EQUITY
DEBT CONVERSION
In May of 2006 Peter DeCrescenzo, the company's president and Vincent
DeCrescenzo, Sr. the company's executive vice president agreed that each would
convert $100,000 of past due salary and vacation into convertible debentures.
The debentures mature in 2008 and bear interest at the rate of 12% per annum.
The principal and any unpaid interest is convertible, at the holder's election,
into common stock at the rate of one share of common stock for each $0.01 of
principal or interest converted. No compensation was paid with respect to this
transaction.
Peter DeCrescenzo and Vincent DeCrescenzo are both officers of the company and
accredited investors who are purchasing the debentures and warrants and any
shares issued upon their conversion or exercise, respectively, for their own
investment and not for resale. They agreed in writing 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) and 4(6).
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.
During the six months ended June 30, 2006, quarterly dividends accrued on its
Class E Preferred Stock at the rate of $400 per share, per quarter, for a total
of $79,600. During the first quarter of 2006, 5,135,486 shares were issued to
settle $119,400 of dividends due from dividends accrued and not paid in 2005.
NOTE 7 - STOCK OPTIONS
We account for option issues according to FASB Statement No. 123R, "Share-Based
Payment, an amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R
requires companies to recognize in the statement of operations the grant-date
fair value of stock options and other equity-based compensation issued to
employees beginning January 1, 2006. During the six months ended June 30, 2006,
the Company did not issue any employee stock options nor did any employee stock
options vest.
At June 30, 2006, the Company had one stock based compensation plan, which is
described below. There was no compensation cost that has been charged against
income for this plan for the six months ended June 30, 2006.
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.
Pro forma information regarding option grants made for compensation expense is
based on specified valuation techniques that produce estimated compensation
charges. The following table reflects the pro forma information:
Six months ended June 30, Three months ended June 30,
-------------------------------------- -----------------------------------------
2006 2005 2006 2005
---------------- ------------------ ------------------ -------------------
Compensation expense related to
stock option plans, net of tax:
- As reported - $ 1,200 - $ 1,200
- Proforma - $ 1,200 - $ 1,200
Net income
- As reported $(504,267) $ (919,005) $ (457,670) $ (587,154)
- Proforma $(504,267) $ (919,005) $ (457,670) $ (587,154)
Basic earnings per share
- As reported $ 0.003 $ (0.001) $ (0.002) $ (0.001)
- Proforma $ 0.003 $ (0.001) $ (0.002) $ (0.001)
Dilluted earnings per share
- As reported $ 0.003 $ (0.001) $ (0.002) $ (0.001)
- Proforma $ 0.003 $ (0.001) $ (0.002) $ (0.001)
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. 123R.
A summary of the status of the Company's stock option plans as of June 30, 2006
and changes during the period ending on that dates is presented below:
Stock options activity for period ending June 30th is as follows:
Options Outstanding, January 1, 2006 2,914,034 $ 0.18
Options Granted 0 0
Options Forfeited 0 0
Options Expired 0 0
Options Exercised 0 0
--------- ----------
Options outstanding, June 30, 2006 2,914,034 $ 0.18
--------- ----------
NOTE 8 - INCOME TAXES
As of June 30, 2006, the Company had federal and state net operating losses of
approximately $12,770,000 that are subject to annual limitations through 2025.
The losses are available to offset future taxable income.
The temporary differences that give rise to the deferred tax asset at June 30,
2006 are as follows:
Deferred tax asset:
Net operating losses $ 4,469,500
Less valuation allowance (4,469,500)
-----------
Net deferred tax asset $ 0
-----------
In assessing the amount of the 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.
The effective tax rate for the periods ended June 30, 2006 and 2005 are as
follows:
U.S. statutory tax rate 35%
State and local taxes 4
Less valuation reserve (39)
---
Effective tax rate 0%
===
NOTE 9 - SEGMENT DISCLOSURES
The Company's reportable operating segments are categorized in three components:
(1) Communications, which includes Healthcare Dialog, Inc., (2) Data, which
includes Data Dialog, Inc., and AdValiant USA and (3) Corporate which is Dialog
Group, Inc.
Communications
Healthcare Dialog designs, develops and distributes products and services that
automate and streamline direct marketing and customer relationship management
processes to 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
MyMedCenter provides, maintains and delivers healthcare information over the
internet and television station websites.
DATA
Data Dialog provides online marketing lists, 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 Data Dialog master database
o "Adialogin" A product that automatically appends
names and addresses to telephone numbers on inbound
calls to telephone service centers or on the web.
o direct mail campaigns
o membership and bidding in Request for Quotes "RFQ" an
online marketplace for quoting direct mail jobs
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.
SIGNIFICANT CUSTOMERS
Two customers in the Healthcare segment accounted for approximately 60% of the
Company's consolidated revenues for 2006, while one customer in the Healthcare
segment accounted for approximately 40% of the consolidated revenues for 2005.
In January 2006 a major pharmaceutical company advised Heathcare that in June
2006 it would be discontinuing a program that began in 2003. No customer in the
Data segment accounted for more than 2% of the consolidated revenues of the
Company in either 2006 or in 2005.
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.
Six months ended June 30, 2006
Corporate Communications Data Totals
REVENUE $ 0 $ 630,305 $1,272,048 $1,902,353
COST OF SALES 0 281,939 360,048 641,987
---------- -------------- ---------- ----------
GROSS PROFIT 0 348,366 912,000 1,260,366
---------- -------------- ---------- ----------
TOTAL OPERATING EXPENSES 641,502 265,713 920,644 1,827,859
---------- -------------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (641,502) 82,653 (8,644) (567,493)
---------- -------------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest income 9,938 0 0 9,938
Interest expense (128,373) (20,534) (8,699) (157,606)
---------- -------------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) (118,435) (20,534) (8,699) (147,668)
---------- -------------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS (759,937) 62,119 (17,343) (715,161)
Income (loss) from discontinued
operations 0 210,894 210,894
---------- -------------- ---------- ----------
NET INCOME/(LOSS) $ (759,937) $ 62,119 $ 193,551 $ (504,267)
================================= ========== ============== ========== ==========
Six months ended June 30, 2005
Corporate Communications Data Totals
REVENUE $ 0 $ 1,519,009 $ 764,505 $2,283,514
COST OF SALES 0 799,930 181,844 981,774
----------- -------------- ---------- ----------
GROSS PROFIT 0 719,079 582,661 1,301,740
TOTAL OPERATING EXPENSE 899,144 590,074 554,740 2,043,958
----------- -------------- ---------- ----------
INCOME (LOSS) FROM OPERATION (899,144) 129,005 27,921 (742,218)
----------- -------------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest expense (89,176) (35,062) (3,486) (127,724)
Gain on debt settlements 22,164 0 0 22,164
----------- -------------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) (67,012) (35,062) (3,486) (105,560)
----------- -------------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING OPERATIONS (966,156) 93,943 24,435 (847,778)
----------- -------------- ---------- ----------
(Loss) from discontinued operations (57,975) (290) (12,962) (71,227)
----------- -------------- ---------- ----------
NET INCOME/(LOSS) $(1,024,131) $ 93,653 $ 11,473 $ (919,005)
=========== ============== ========== ==========
NOTE 9 - RELATED PARTY TRANSACTIONS
CONVERTIBLE NOTES DUE TO RELATED PARTIES
During 2005, the Company's issued a convertible note of $100,000 to an officer
and director. In addition the Company issued a convertible note of $26,000 to a
company controlled by a director. Convertible notes in the aggregate amount of
$118,045 were issued to four employees for unpaid wages at December 31, 2004.
Pearl Street Holdings has convertible notes which consist of $510,000 and
$595,000. The $595,000 notes were taken over from a non-related party during
2005. 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 May of 2006 Peter DeCrescenzo, the company's president and Vincent
DeCrescenzo, Sr. the company's executive vice president converted $100,000 of
past due salary and vacation into convertible debentures. The debentures mature
in 2008 and bear interest at the rate of 12% per annum. The principal and any
unpaid interest is convertible, at the holder's election, into common stock at
the rate of one share of common stock for each $0.01 of principal or interest
converted. No compensation was paid with respect to this transaction during the
six months ended June 20, 2006.
DUE TO OFFICER
In December 2005, an officer and director provided approximately $50,000 at 8%
per annum and due on demand. This loan was made directly to the Company to help
in the financing of other loans.
RENT TO RELATED PARTIES
The Company leases two apartments from January 1, 2006 through December 31, 2007
from a company controlled by the President and C.E.O. along with the C.O.O. and
C.F.O. Rent expense to these related parties amounted to $24,000 for the six
months ended June 30, 2006.
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 an administrative and sales office in Sunrise, Florida. The company's two
Segments, Data and Communications, provide a broad spectrum of proprietary and
exclusive databases for healthcare, consumer and business-to-business market
clients. The company also provides a combination of traditional customer
relationship management support applications such as advertising and marketing
services (Internet-based promotional venues).
Sale of Mail Mogul
On February 28, 2006 the Company sold the entire capital stock of its
Mail Mogul, Inc. subsidiary to an unrelated third party. 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.
In consideration of the release of approximately $296,623 of the
Company's and its subsidiaries' debt to Mail Mogul, the Company delivered the
stock to the buyer and paid approximately $3,000 of expenses in connection with
the sale. The Company enjoyed a gain of approximately $210,894 on the sale of
Mail Mogul.
After the transaction, Mail Mogul's new owner remained in debt to the
Company's Data Dialog subsidiary for about $319,000. In settlement of the debt,
the new owner of Mail Mogul sold the Direct Mail Quotes platform to Data Dialog.
As additional consideration, Data Dialog assumed Mail Mogul's existing liability
to the Direct Mail Quotes customers of about $59,000.
Description of the Segments
Both of Dialog Group's Segments each currently market its product and
service offerings through branded product lines. The Data Segment products are
Data Dialog Marketing, Data Dialog Data Management and Adialogin. The
Communications Segments are Healthcare Dialog Communications and MyMedCenter.
Data Segment
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 the distribution
of data. Data Dialog Marketing offers a host of data-related services, such as
targeted marketing lists, lead generation, turnkey direct mail programs, and
data cleansing to multiple market segments including insurance, financial
planning, real estate, auto dealerships, printers, letter shops 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 user.
Data Dialog Data Management serves the database needs of list brokers
and managers marketing nearly 200 different lists created from both licensed and
proprietary databases. Data Dialog Management provides access to these lists via
its branded online platform: Access Dialog. Access Dialog is designed for use by
both our internal sales force and list professionals and requires registration
and training. It also promotes and markets list products via
DataDialogDataManagement.com where list and marketing professionals can learn
about its products and run counts and purchase list online after qualifying.
Adialogin is a consumer and business data integration product that
automatically appends name and address information, as well as demographic,
financial and lifestyle information, to telephone numbers on calls made by
consumer and business customers to CTI Platforms. Adialogin initially marketed
its products executively to call centers and Interactive Voice Response system
users operating in-bound and blended call centers with 5 to 500 seats. Adialogin
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 to speed up their promotional efforts and improve customer
service. In 2005 and the first quarter of 2006 Adialogin developed a web
application for its technology which was introduced during the second quarter of
2006.
Communications Segment
Healthcare Dialog Communications 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 Healthcare Dialog Communications' 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.
MyMedCenter 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 thousands of unique health information seekers per day to the broadcast
stations' Web sites for a combined US household penetration of 75%. On these
sites client public relations, promotional material, and educational material
are blended into a seamless presentation for maximum viewer impact. To maintain
repeat traffic, some features are refreshed daily.
Results of Operations for the Three Months Ended June 30, 2006 compared to the
Three Months Ended June 30, 2005
Dialog Group
Income Statement Item Second Quarter 2006 Second Quarter 2005
----------------------- ------------------- -------------------
Revenue $939,107 $1,088,284
----------------------- ------------------- -------------------
Cost of Revenue 332,610 513,346
----------------------- ------------------- -------------------
Operating Expenses 908,726 963,503
----------------------- ------------------- -------------------
Result of Operations (302,229) (388,565)
----------------------- ------------------- -------------------
Net Other Expenses (79,268) (67,416)
----------------------- ------------------- -------------------
Discontinued Operations (76,173) (131,173)
----------------------- ------------------- -------------------
Net Result $(457,670) $(587,154)
----------------------- ------------------- -------------------
Management continued to evaluate the margins of some of the products
offered and focused more on profit improvement and not revenue alone. Revenues
for the quarter ended June 30, 2006 were $939,107 compared with $1,088,284 for
the quarter ended June 30, 2005. This represents a decrease of $149,177 or about
16% from the same period a year ago. Revenue from the high margin data segment
was $659,048 or 70% of total revenue. Data revenues in total for the first half
of 2006 are ahead of the first half of 2005. Revenue for each of the segments
and some of the products will be addressed in more detail below.
Costs of revenues for the quarter ended June 30, 2006 were $332,610,
some 35% of revenues, compared with $513,346 or approximately 47% of revenues in
the quarter ended June 30, 2005. The decline in revenue of $149,177 was some
what offset by the $180,736 decline in cost of revenue from a year ago for the
same period. The sources of the revenue and costs for each segment are discussed
in more detail in the sections which follow.
Operating expenses for the quarter ended June 30, 2006 were $908,726
compared with $963,503 for the quarter ended June 30, 2005. This represents a
reduction of $54,777 from 2005. Management plans to continue to reduce overhead
in the quarters ahead while continuing to increase the amount spent on
marketing.
Losses from operations were $302,229 for the quarter ended June 30,
2006, compared with $388,565 for the quarter ended June 30, 2005, an improvement
of approximately $86,336 from the same period a year ago. The positive results
can be attributed to lower cost of revenue resulting from higher margin
businesses making up a greater percentage of total revenues in the first half of
2006 than for the comparable period in 2005. A reduction of operating expenses
also contributed to the improved results. "Reduce Overhead" has and will
continue to be the Dialog Group credo.
Net other income/expense was an expense of $79,268 for the quarter
ended June 30, 2006 all of which is attributed to interest payments, compared
with net other income/expense which was an expense of $67,416 for the quarter
ended June 30, 2005, an increase of $11,852. Last year included interest expense
of $85,830.
The net loss for the quarter ended June 30, 2006 was $457,670, compared
with a net loss of $587,154 in the quarter ended June 30, 2005, representing an
improvement of $129,484. This improvement can be attributed to the loss from
discontinued operations of $76,173 compared to the loss from discontinued
operations of $131,173 for 2005, an improvement of $55,000 and the overall
improvement on operations.
Data Segment:
Income Statement Item Second Quarter 2006 Second Quarter 2005
----------------------- ------------------- --------------------
Revenue $ 659,048 $ $372,473
----------------------- ------------------- --------------------
Cost of Revenue 216,881 67,059
----------------------- ------------------- --------------------
Operating Expenses 493,620 256,193
----------------------- ------------------- --------------------
Result of Operations (51,453) 49,221
----------------------- ------------------- --------------------
Net Other Income (1,441) (2,011)
----------------------- ------------------- --------------------
Discontinued Operations (76,173) (73,198)
----------------------- ------------------- --------------------
Net Result $ ( 129,067) $ (25,988)
----------------------- ------------------- --------------------
Data Dialog Marketing, Data Dialog Management and Adialogin revenues
totaled about $659,048 for the quarter ending June 30, 2006, compared to
approximately $372,473 for the first quarter of 2005. The revenue improvement of
$286,575 can be attributed to all product lines producing revenues above their
respective 2005 levels. Of particular note are the improvements in revenue
levels at Data Dialog Management and from the Adialogin call center product.
Data costs of revenue for the second three months of 2006 were $216,881
or 33% of revenues, compared with $67,059 or 18% of revenues in the first half
of 2005. The degradation in the rate resulted from a change in product mix.
Data operating expenses for the three-month period ended June 30, 2006
were $493,620. In the first quarter of 2005 the comparable figure was $256,193,
about $237,427 less than this year. Approximately $299,804 of the $493,620 was
spent on selling and marketing. In the first half of 2006 Data operating
expenses were 75% of revenues which compares to the 69% rate for the second
quarter of 2005.
Data Segment's loss from operations for the second quarter of 2006 was
$51,453, compared to income of approximately $49,221 for the second quarter of
2005. This decrease is a result of increases spending on sales and marketing
support.
Data net loss for the second quarter of 2006 was $129,067 compared to a
loss of $25,988 for the comparable quarter. In the first quarter of 2006 the
Company sold its Mail Mogul business. The 2005 segment information has been
reclassified to eliminate these operations
Communications Segment:
Income Statement Item Second Quarter 2006 Second Quarter 2005
------------------------ ------------------- -------------------
Revenue $280,060 $715,811
------------------------ ------------------- -------------------
Cost of Revenue 115,729 446,287
------------------------ ------------------- -------------------
Operating Expenses 131,394 273,703
------------------------ ------------------- -------------------
Result of Operations 32,936 (4,179)
------------------------ ------------------- -------------------
Net Other Income (8,580) (19,199)
------------------------ ------------------- -------------------
Discontinued Operations 0 0
------------------------ ------------------- -------------------
Net Result $24,356 (23,378)
------------------------ ------------------- -------------------
Total revenue from the communications segment was $280,060 for the
second quarter of 2006, well below the $715,811 revenue figure for the same
period a year ago. A metamorphosis of the communications segment away from a
strict focus on healthcare is taking place. It is less dependent on a few large
pharmaceutical clients than in the past. In the first half of 2006 a major
pharmaceutical company did not renew a program that had been running for the
past several years with Healthcare Dialog Communications. This accounted for a
significant portion of the decline in revenue for this segment from year to
year. MyMedCenter revenues were below the 2005 level in the second quarter of
2006 because clients did not participate in the MyMedCenter program in the
second quarter of 2006 because of the inability of our website partner to
deliver contracted traffic during the fourth quarter of 2005. Finally the iData
product which was offered in 2005 was not offered in 2006
The communications segments costs of revenue was $115,726 for the
quarter ended June 30, 2006, or 41% of revenue compared with $446,287, and 62%
of Revenue for the quarter ended June 30, 2005.
Communications total operating expenses were approximately $131,394 for
the three months ended June 30, 2006, compared to $273,703 for the same period a
year ago. The rate of expenses to revenue for the three months ended June 30,
2005 was about 47% compared to 38% for the comparable quarter. This decrease is
attributed to the degradation in the revenue base.
For the three months ended June 30, 2006, communications net income
from operations was approximately $24,356 compared to a loss of $23,378 in the
second quarter 2005. Communications experienced a decline in volume in the first
half of 2006, compared to the same period a year ago, but remained profitable as
a result of expense reductions.
Results of Operations for the Six Months Ended June 30, 2006 Compared to the Six
Months Ended June 30, 2005
Dialog Group
Income Statement Item First Half 2006 First Half 2005
----------------------- ---------------- -----------------
Revenue $1,902,353 $2,283,514
----------------------- ---------------- -----------------
Cost of Revenue 641,987 981,774
----------------------- ---------------- -----------------
Operating Expenses 1,827,859 2,043,958
----------------------- ---------------- -----------------
Result of Operations (567,493) (742,218)
----------------------- ---------------- -----------------
Net Other Income (147,668) (105,560)
----------------------- ---------------- -----------------
Discontinued Operations 210,894 (71,227)
----------------------- ---------------- -----------------
Net Result $(504,267) $(919,005)
----------------------- ---------------- -----------------
Management continued to evaluate the margins of some of the products
offered and focused more on profit improvement and not revenue alone. Revenues
for the first half ended June 30, 2006 were $1,902,353 compared with $2,283,514
for the first half ended June 30, 2005. This represents a decline of $381,161 or
about 20% from the same period a year ago. Revenue from the high margin data
segment was $1,272,048 or 67% of total revenue. Data revenues in total for the
first half of 2006 are ahead of the first half of 2005. Revenue for each of the
segments and some of the products will be addressed in more detail below.
Costs of revenues for the half ended June 30, 2006 were $641,987 some
34% of revenues, compared with $981,774 or approximately 43% of Revenues in the
half ended June 30, 2005. The decline in Revenue of $381,161 was some what
offset by the $339,787 decline in cost of revenue from a year ago for the same
period. Improved terms from data suppliers 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 as a percentage in the first half of
2006 compared with the same period of the prior year. The sources of the revenue
and costs for each segment are discussed in more detail in the sections which
follow.
Operating expenses for the half ended June 30, 2006 were $1,827,859
compared with $2,043,958 for the half ended June 30, 2005. This represents a
reduction of $216,099 from the first half of 2005. Management plans to continue
to reduce overhead in the quarters ahead while continuing to increase the amount
spent on marketing.
Losses from operations were $567,493 for the half ended June 30, 2006,
compared with $742,218 for the half ended June 30, 2005, an improvement of
approximately $174,725 from the same period a year ago. The positive results can
be attributed to lower cost of revenue resulting from higher margin businesses
making up a greater percentage of total revenues in the first half of 2006 than
for the comparable period in 2005. A reduction of operating expenses also
contributed to the improved results. "Reduce Overhead" has and will continue to
be the Dialog Group credo.
Net other income/expense was an expense of $147,668 for the first half
ended June 30, 2006 the overwhelming majority of which is attributed to interest
payments, compared with net other income/expense which was an expense of
$105,560 for the first half ended June 30, 2005, an increase of $42,108. Last
year included interest expense of $127,724 and a forgiveness of debt of $22,164.
The net loss for the first half ended June 30, 2006 was $504,267,
compared with a net loss of $919,005 in the first half ended June 30, 2005,
representing an improvement of $414,738. This significant improvement can be
attributed to the gain from discontinued operations of $210,894 in 2006 compared
to a loss from discontinued operations in 2005 of $71,227.
Data Segment:
Income Statement Item First Half 2006 First Half 2005
----------------------- ----------------- -----------------
Revenue $1,272,048 $764,505
----------------------- ----------------- -----------------
Cost of Revenue 360,048 181,844
----------------------- ----------------- -----------------
Operating Expenses 920,644 554,740
----------------------- ----------------- -----------------
Result of Operations (8,644) 27,921
----------------------- ----------------- -----------------
Net Other Income (8,699) (3,486)
----------------------- ----------------- -----------------
Discontinued Operations 210,894 (12,962)
----------------------- ----------------- -----------------
Net Result $193,551 $ 11,473
----------------------- ----------------- -----------------
Data Dialog Marketing, Data Dialog Management and Adialogin revenues
totaled about $1,272,048 for the period ending June 30, 2006, compared to
approximately $764,505 for the first half of 2005. The revenue improvement of
$507,543 can be attributed to all product lines producing revenues above their
respective 2005 first half levels. Of particular note are the improvements in
revenue levels at Data Dialog Management and from the Adialogin call center
product.
Data costs of revenue for the six months of 2006 were $360,048 or 28%
of revenues, compared with $181,844 or 24% of revenues in the first half of
2005. The improvement in the rate resulted from a greater percentage of data
sales being filled from company-owned data assets.
Data operating expenses for the six-month period ended June 30, 2006
were $920,644. In the first half of 2005 the comparable figure was $554,740,
about $365,904 less than this year. Approximately $299,804 of the $554,740 was
spent on selling and marketing. In the first half of 2006 Data operating
expenses were 72% of revenues which compares to the 73% rate for the first half
of 2005.
Data Segment's Income from Operations for the first half of 2006 was a
loss of $8,644, compared to income of approximately $27,921 for the first half
of 2005.
Data Net Income for the first half of 2006 was a loss of $193,551
compared to income of $11,473. In the first quarter of 2006 the Company sold its
Mail Mogul business. The 2005 segment information has been reclassified to
eliminate these operations
Communications Segment:
Income Statement Item First Half 2006 First Half 2005
----------------------- ----------------- -----------------
Revenue $630,306 $1,519,009
----------------------- ----------------- -----------------
Cost of Revenue 281,939 799,930
----------------------- ----------------- -----------------
Operating Expenses 265,713 590,074
----------------------- ----------------- -----------------
Result of Operations 82,653 129,005
----------------------- ----------------- -----------------
Net Other (Loss) (20,534) (35,062)
----------------------- ----------------- -----------------
Discontinued Operations 0 (290)
----------------------- ----------------- -----------------
Net Result $62,119 $93,653
----------------------- ----------------- -----------------
Total revenue from the communications segment was $630,306 for the
first half of 2006, well below the $1,519,009 revenue figure for the same period
a year ago. A metamorphosis of the communications segment away from a strict
focus on healthcare is taking place. It is less dependent on a few large
pharmaceutical clients than in the past. In the first half of 2006 a major
pharmaceutical company did not renew a program that had been running for the
past several years with Healthcare Dialog Communications. This accounted for a
substantial portion of the decline in revenue for this segment from year to
year. MyMedCenter Revenues were below the 2005 level in the first half of 2006
because clients did not participate in the MyMedCenter program in the first half
of 2006 because of the inability of our website partner to deliver contracted
for traffic during the fourth quarter of 2005. Finally the iData product which
was offered in 2005 was not offered in 2006
The communications segments costs of revenue was $281,939 for the six
months ended June 30, 2006, or 45% of Revenue compared with $799,930, and 53% of
revenue for the quarter ended June 30, 2005.
Communications total operating expenses were approximately $265,713 for
the six months ended June 30, 2006, compared to $590,074 for the same period a
year ago. The rate of expenses to revenue for the six months ended June 30, 2006
was about 42% compared to 39% for the six months ended June 30, 2005.
For the six months ended June 30, 2006, communications net income from
operations was approximately $62,119 compared to $93,653 in the first half of
2005. Communications experienced a decline in volume in the first half of 2006,
compared to the same period a year ago, but remained profitable as a result of
expense reductions.
Significant Customers
Two customers in the Healthcare segment accounted for approximately 56%
of the Company's consolidated revenues for 2006, while one customer in the
Healthcare segment accounted for approximately 44% of the consolidated revenues
for 2005. No customer in the Data segment accounted for more than 2% of the
consolidated revenues of the Company in either 2006 or in 2005.
Management is not aware of any known trends, uncertainties, or
circumstances that are reasonably likely to have material effect on composition
or percentages of significant customers.
Liquidity & Capital Resources
DGI had a consolidated working capital deficit of approximately
($4,149,000) on June 30, 2006 as compared to a deficit of approximately
($2,854,000) at December 31, 2005. The increase of approximately $1,295,000 is
the result of an increase in accounts payable, accrued expenses and short-term
borrowings due a reduced level of sales in the first half that did not provide
the level of accounts receivable required to fund operations. An additional
reason for the increase is that the convertible notes are now included in the
short term liabilities.
Going Concern
In the first quarter of 2006 the company raised funds through the
private sale of approximately $280,000 of convertible debentures to a group of
investors associated with Midtown Partners & Co. LLC. In the second quarter,
Peter V. DeCrescenzo and Vincent DeCrescenzo, Sr. each completed the conversion
of $100,000 in salary to the debenture as well. The Company continues to review
means of raising funds including issuing additional debentures or equity
securities. If unsuccessful the Company may not be able to meet its short-term
capital needs.
In the past suppliers were prepared to extend the company payments
terms for larger dollars amounts over longer periods. As a result of the
company's poor payment history fewer suppliers than in the past are willing to
give the company the kind of payment terms it needs. In the past members of
management lent the company money.
In the past members of management have used their personal credit cards
to pay for company expenses, but there is no reason to believe they will do so
in the future. In the past employees have been willing to work for reduced wages
and or convert wages to shares of the company, but there is no reason to believe
they will do so in the future.
Inflation
Inflation rates in the United States have not had a significant impact
on operating results for the periods presented.
Item 3. Controls and Procedures.
The Company evaluated, under the supervision and with the participation
of the Company's management (including its chief executive and chief financial
officers), 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 and chief financial officers had
concluded as of March 31, 2006, that the controls, as a result of the
resignation of the controller and one bookkeeper, did not operate as designed
and did not alert them on a timely basis to all material information relating to
the Company required to be included in the Company's periodic SEC filings. Based
on the evaluation of the disclosure controls and procedures as of June 30, 2006,
the chief executive and chief financial officers concluded that, as of the end
of the second quarter, the revised disclosure controls and procedures were
effective at a reasonable assurance level.
Management continues its focus on the issue of internal control in
particular. To that end, in 2005 management centralized the accounting function.
In May of 2006 an accounting firm was hired to work with management to improve
controls. Management will continue to evaluate and test present and new measures
while at the same time reviewing areas that may require improvement.
Additionally, it continues the process of hiring persons with the skill sets
appropriate to fill the Company's needs as they have evolved as a result of the
sale of subsidiaries in 2005 and 2006.
The Company's chief executive and chief financial officers have
concluded that, as of June 30, 2006, as a result of the retention of the CPA
firm, the controls now operate as designed and will alert them on a timely basis
to any material information relating to the Company required to be included in
the Company's periodic SEC filings.
Dialog Group 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. No change in our internal control
over financial reporting, other that the retention of the accounting firm,
occurred during the fiscal quarter ended June 30, 2006 that has materially
affected, or is reasonably likely to affect, the Company's internal control over
financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Suppliers
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
June 30 2006, the company is behind in payments on the unpaid balance of
$85,000.
Also in January 2006 Healthcare Dialog was contacted by an attorney for
CBS Market Watch concerning their claim for $45,510 for content. The claim was
initially settled for $36,408. As of March 31, 2006 the balance remaining was
$31,408. The company has been unable to make additional payments and in June the
attorney did attempt to bring the case to court.
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 June
30, 2006 the balance remaining was $15,000.
Former Subsidiaries
In April 2003, Dean Eaker and Bruce Biegel commenced an arbitration
proceeding against Dialog Group and its former subsidiary, TDMI, relating to the
termination of their employment before the American Arbitration Association in
New York City. On January 17, 2005, the arbitration panel awarded $313,764 to
Dean Eaker and $160,133 to Bruce Biegel. The full amount of the award has been
accrued on the Dialog Group books and charged to loss on discontinued operation
On April 17, 2005 the company settled with both Eaker and Biegel for a series of
payments aggregating $473,898. As of June 30, 2006 the company is behind on the
remaining balance be paid $176,092.
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
Conversion of Salary and Debt
On March 24, 2006 Peter DeCrescenzo, the Company's president agreed
that he would convert $100,000 of and past due 2005 and 2006 accrued salary and
unpaid vacation pay into convertible debentures on the same terms as the Midtown
Partners investors. In addition, on the same day, Vincent DeCrescenzo, Sr. the
company's executive vice president agreed that he would convert $100,000 of past
due 2005 and 2006 accrued salary and unpaid vacation pay into convertible
debentures on the same terms as the Midtown Partners investors. However, no
compensation was paid with respect to these transactions.
The transaction was consummated in May 2006
Peter DeCrescenzo and Vincent DeCrescenzo are both officers of the
company and accredited investors who are purchasing the debentures and warrants
and any shares issued upon their conversion or exercise, respectively, for their
own investment and not for resale. They agreed in writing 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) and 4(6).
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 X
Report on Form 8-K filed on October 12, 2001
2.2 Amendment dated February 27, 2003 to an Agreement for Merger by and X
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
2.3 Agreement for Merger dated February 24, 2003 among Dialog Group, Inc., X
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
3(i).1 Amended and Restated Articles of Incorporation - Incorporated by X
reference from Interim Report on Form 8-K filed on March 14, 2003
3(i).2 Certificate of Designation of Class C-1 Preferred Stock - Incorporated X
by reference from the initial filing of registration statement file
number 333-106490
3(i).3 Certificate of Designation of Class C-2 Preferred Stock - Incorporated X
by reference from the initial filing of registration statement file
number 333-106490
3(i).4 Certificate of Designation of Class C-3 Preferred Stock - Incorporated X
by reference from the initial filing of registration statement file
number 333-106490
3(i).5 Certificate of Cancellation of Class C and Class D Preferred Stock - X
Incorporated by reference from the initial filing of registration
statement file number 333-106490
3(i).6 Certificate of Amendment for Increased Shares - Incorporated by X
reference from the initial filing of registration statement file number
333-106490
3(i).7 Certificate of Designation of Class E Preferred Stock Incorporated by X
reference from Amendment No.1 to Annual Report on Form 10-KSB filed on
October 3, 2005.
3(i).8 Certificate of Elimination of Classes C-1, C-1, and C-3 Preferred Stock X
Incorporated by reference from Amendment No.1 to Annual Report on Form
10-KSB filed on October 3, 2005.
3(i).9 Certificate of Amendment for Increased Shares Incorporated by reference X
from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3,
2005.
3(ii).1 By-laws - Incorporated by reference from Interim Report on Form 8-K X
filed on March 14, 2003
4.1 Instruments defining the rights of security holders - Incorporated by X
reference from Exhibit 3(i).1 through Exhibit 3(i).10.
4.2 Convertible Debenture - Incorporated by reference from the Current X
Report on Form 8-K filed March 27, 2006.
4.3 Warrant - Incorporated by reference from the Current Report on Form 8-K X
filed March 27, 2006.
10 Material contracts
10.1 Employment Agreement for Peter V. DeCrescenzo Incorporated by reference X
from the Annual Report on Form 10-KSB filed on April 14, 2003
10.2 Employment Agreement for Vincent DeCrescenzo Incorporated by reference X
from the Annual Report on Form 10-KSB filed on April 14, 2003
10.3 Employment Agreement for Cindy Lanzendoen Incorporated by reference X
from the Annual Report on Form 10-KSB filed on April 14, 2003
10.5 2002 Stock Option Plan, as amended- Incorporated by reference from the X
initial filing of registration statement file number 333-106490
10.6 Amendment to Employment Agreement for Peter V. DeCrescenzo. X
Incorporated by reference from Amendment No.1 to Annual Report on Form
10-KSB filed on October 3, 2005.
10.7 Amendment to Employment Agreement for Vincent DeCrescenzo, Sr. X
Incorporated by reference from Amendment No.1 to Annual Report on Form
10-KSB filed on October 3, 2005.
10.8 Guarantee Agreement with Peter DeCrescenzo Incorporated by reference X
from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3,
2005.
10.9 Guarantee Agreement with Vincent DeCrescenzo Incorporated by reference X
from Amendment No.1 to Annual Report on Form 10-KSB filed on October 3,
2005.
21.1 Subsidiaries of the registrant. Incorporated by reference from the X
Quarterly Report on Form 10-QSB filled June 2, 2006
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: October 19, 2006
By: /s/ Peter V. DeCrescenzo
---------------------------------------
Peter V. DeCrescenzo, President and
Chief Executive Officer
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