MDI, Inc. CEO J. Collier Sparks Delivers 2005 State of the Company Address.

SAN ANTONIO -- J. Collier Sparks, CEO and President of MDI, Inc. (NASDAQ:MDII), today released the following State of the Company address reporting the Company's current position, major achievements and future direction.

On behalf of MDI, Inc., I would like to extend my sincere
gratitude for your continued support of the Company.

    It has been a year since my last public address to our
shareholders, partners, vendors and members of our distribution
channel. Since that presentation, there have been many changes within
MDI. I feel it is the right time for me to provide an update of our
Company's activities over the last year and what lies ahead. I provide
this update with the understanding that there are many significant
challenges that we have yet to overcome.

    Our Vision

    Our overriding vision for the Company is to become a leading
provider of integrated security management solutions and comprehensive
video security products. To fully realize this, we are focused on
building an organization that delivers high-value innovative solutions
for our customers, provides enrichment to our employees and creates
positive returns for our shareholders.

    Profitability -- Our Overriding Goal

    During the first half of this year, the Company implemented
various reforms. These reforms were executed with one goal in mind --
to position the Company for profitability. To do so, several strategic
changes were made in our corporate structure and employee base. By
continuing to properly adjust the size of our work force through
reassignments and "smart-sizing" the organization, the Company has
established a smaller and more efficient team of core employees. The
hard-working and innovative spirits of this team will no doubt
contribute towards our achievements as we move forward into the second
half of 2005 and beyond. I would like to take this opportunity to
thank them for their dedicated efforts.

    State-of-the Art Products

    In addition to our current product offering, SAFEnet, iTRUST,
VIEWpoint and nTEGRITY, we will unveil at the ASIS Show in Orlando
later this month our new Integrated Intelligent Video Solution. I
would like to invite all of you to join us at booth #4043 for a
demonstration on the power of this capability, as it is where much of
our research and development efforts have been focused.

    At the ASIS show, we will demonstrate how our intelligent video
solution performs intelligent analysis that fully automates video
monitoring. The system automatically identifies objects, tracks
objects, analyzes motion, extracts video intelligence and issues real
time alerts via the SAFEnet platform.

    The system also analyzes and mines video data and outputs results
as real-time events, storing them in a database for future review.
Modules include intrusion detection, unaccompanied baggage detection,
asset protection, object detection and tracking, exit-entry direction
monitoring, motion analysis and behavior analysis. I am sure that you
will not be disappointed with its capabilities.

    New Business Initiatives

    UPGRADES TO OUR INSTALLED CUSTOMER BASE -- Because we were not
pleased with our mid-year financial performance, we have made some
major changes in July and August, primarily within our newly formed
Federal Systems Division. With Jim St. Pierre as President of this
division, the team has managed to solidify upgrades from a number of
legacy client locations. This is a significant accomplishment because
these were customers that had a decision to make...either to keep our
systems installed or replace them with the system of a competitor. We
worked hard to correct any problems that existed with our installed
systems and the result was that we were able to upgrade several of our
current systems.

    NEW BUSINESS -- Our team has managed to increase the Company's
business with implementations of our SAFEnet and VIEWpoint integrated
video security solution at a new United States Air Force facility on
the West Coast. This project has resulted in approximately $450,000 in
revenue. As implementations like this one prove successful, we will
use the knowledge gained with each project to increase our penetration
into the commercial and the middle market with similar solutions.

    Recent Accomplishments

    In August, the Company successfully raised approximately $4
million through the sale of common stock to a group of private
investors. This gives the Company cash it needs to further its
business plan. In addition to this, we recently received notice from
Nasdaq in August that we were back in full compliance with the Nasdaq
SmallCap Market Place Rules. With these two issues resolved, we can
devote all our time and efforts on developing the business.

    In order to succeed, our business must be developed through our
Security Dealers and Security Solution Partners. As we do not sell
directly to end users, our dealers are the primary point of focus in
our latest marketing efforts. We have signed 44 new dealers in the
first half of 2005. This is equal to the total number of dealers
signed in all of 2004.

    In July, we announced that we had signed a business agreement with
the PSA Security Network, the largest buying cooperative of its kind
in the world. This network includes over 250 dealers nationwide. We
are dedicated to the PSA network and will invest the necessary
resources and manpower to make this relationship a success.

    A Word About Our Stock

    We care about our shareholders and the ability for them to realize
a fair return on their investment over time. But, we do not, and will
not, operate the Company, or issue "news releases," or otherwise
promote ourselves in a way designed to artificially cause movement in
the price of our stock.

    2005 Summary

    I will now summarize some of our activities and accomplishments
over the first half of 2005.

    (i) Upon completing our review of our mid-year results, it became
apparent that we did not require the level of staffing that we had for
the first half of the year. As a result, we have been able to reduce
our headcount by 25%. As our business increases, we will ramp-up to
meet demand.

    (ii) We successfully launched a new line of video security
products, which we sell under the VIEWpoint brand. This new product
line was developed based on the needs and requirements of our Security
Dealers and their customers.

    (iii) We successfully launched a new mid-level integrated access
control product, which is based on the SAFEnet software platform. This
application, which we branded as iTRUST, is more affordable and easier
to use than our enterprise-level SAFEnet system because it is designed
to handle the access control and monitoring functions for
organizations who need an entry-level system.

    (iv) Our SAFEnet Open System Integration platform was awarded
integrated physical security product of the year by Network Defense
Product News (a Government Security News Publication) at the ISC West
conference in Las Vegas.

    (v) At the same conference, we introduced our nTEGRITY line of
access control readers and biometrics. This line gives our Security
Dealers an affordable package for iTRUST customers while allowing them
to purchase everything they need from one single source, minimizing
order complications and delays.

    (vi) We introduced the Company's first formal software maintenance
packages, complete with tiered pricing levels, focused on streamlining
technical support while increasing revenue.

    (vii) SAFEnet became the first (and only) security product in the
industry to receive NIST certification on its proprietary Advanced
Encryption Algorithm.

    (viii) MDI received UL 1076 and UL 294 certification on SAFEnet in
advance of the new UL Listing requirements.

    (ix) The Company's iTRUST small business solution was awarded
Security Technology of the Year for 2005 by Secure Convergence
Magazine.

    (x) MDI's SAFEnet and VIEWpoint products were chosen to secure
Singapore's National Day Parade.

    (xi) MDI signed an agreement with the PSA Security Network to
offer its iTRUST, VIEWpoint and nTEGRITY products to over 250 PSA
Member Dealers.

    2005 Challenges

    Despite our accomplishments in 2005, there are many challenges in
front of us that we will have to meet head on. These challenges
include:

    (i) REVENUE. Our primary focus is to create new sources of revenue
and to generate new business from our existing customer base. Sounds
basic, doesn't it? Well, it is. The Federal Systems group will manage
our legacy business. Our Enterprise Sales group will manage our
commercial business. Our Small Business group will manage our
middle-market business. We will invest our resources by hiring a new
team of territory sales representatives as part of the Small Business
group. These representatives will target all PSA Dealers and other
middle-market security dealers with our iTRUST, VIEWpoint and nTEGRITY
product brands. The sales cycle for the middle-market products is
weeks, not months. Accordingly, this business should lead to a more
predictable revenue stream as in the Enterprise Business.

    (ii) MARKETING. We are focusing our marketing efforts on
developing new sales and distribution channels. We will continue to
grow our international business by developing established distribution
partners who have the capability and customer relationships in key
countries. Combined programs that include our marketing, outside sales
and inside sales departments working together to deliver valuable
product information to our dealers will assist in gaining dealer
mind-share, which should eventually transfer into market share.

    (iii) CASH. Even though we have just raised approximately $4
million, which is to be used for general operating purposes, we are
continually mindful that we need to invest our cash wisely and to keep
a watchful eye out for unnecessary expenses.

    (iv) PEOPLE. To keep and attract the needed people to run our
Company will be a challenge. Today, we are blessed with a core group
that has endured some tough times over the last year or so, but who
remain committed to seeing our Company succeed. As their President, I
am grateful for their hard work and dedication. I also am mindful that
the cost of replacing people is expensive and time consuming. I
believe that employees are the key to a Company's success and that
they should share in its success.

    Looking to the Future

    Now that we have overcome our short-term cash challenge, and with
our increased focus on sales, I believe that we will be successful in
obtaining significant orders for our products. However, reaching
profitability will not be easy. Let me be specific. Our latest 10-QSB
for the quarter ended June 30, 2005, shows revenue for the quarter of
$1.8 million. It also shows operating expenses for that period of $2.7
million. Assuming our costs and margins remain constant, we will
continue to use more cash than we will generate from operations, until
we increase revenues. Therefore, our future efforts will be focused on
generating revenue. Based on the above assumptions, we will need an
additional $900,000 in revenue each month to become profitable.

    To this end, our Federal Systems, Enterprise Sales and Small
Business Sales groups will be the core components in our strategy. We
will invest in our Sales team and give them the products and tools
necessary to deliver the right message, to the right prospects, with
the right frequency.

    In closing, it is my firm belief that the worst times are behind
us and the future looks very bright. I will continue to communicate
with you, our shareholders and partners, as we progress down this
journey together.

    Thank you for your continued support.

    J. Collier Sparks

    President and CEO
    MDI Inc.

Forward-Looking and Cautionary Statements

Except for historical information and discussions contained herein, certain statements included in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed in the Company's filings with the Securities and Exchange Commission.