Summary of MDI, INC. - Yahoo! Finance

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statement Notice

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operation."

When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "targets," "estimates," and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Estimates of future financial results are inherently unreliable.

From time to time, representatives of MDI, Inc. (the "Company") may make public predictions or forecasts regarding the Company's future results, including estimates regarding future revenues, expense levels, earnings or earnings from operations. Any forecast regarding the Company's future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and, as a matter of course, many of them will prove to be incorrect. Further, the achievement of any forecast depends on numerous factors (including those described in this discussion), many of which are beyond the Company's control. As a result, there can be no assurance that the Company's performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Investors are cautioned not to base their entire analysis of the Company's business and prospects upon isolated predictions, but instead are encouraged to utilize the entire available mix of historical and forward-looking information made available by the Company, and other information affecting the Company and its products, when evaluating the Company's prospective results of operations.

In addition, representatives of the Company may occasionally comment publicly on the perceived reasonableness of published reports by independent analysts regarding the Company's projected future performance. Such comments should not be interpreted as an endorsement or adoption of any given estimate or range of estimates or the assumptions and methodologies upon which such estimates are based. Undue reliance should not be placed on any comments regarding the conformity, or lack thereof, of any independent estimates with the Company's own present expectations regarding its future results of operations. The methodologies employed by the Company in arriving at its own internal projections and the approaches taken by independent analysts in making their estimates are likely different in many significant respects. Although the Company may presently perceive a given estimate to be reasonable, changes in the Company's business, market conditions or the general economic climate may have varying effects on the results obtained through the use of differing analyses and assumptions. The Company expressly disclaims any continuing responsibility to advise analysts or the public markets of its view regarding the current accuracy of the published estimates of outside analysts. Persons relying on such estimates should pursue their own independent investigation and analysis of their accuracy and the reasonableness of the assumptions on which they are based.

Company History and Recent Transactions

MDI, Inc., a Delaware corporation, ("MDI", "we", "our" or the "Company") was incorporated in the state of Delaware in December 1995 under the name Ultrak, Inc., and changed its name to MDI, Inc. in September 2004. Since that time, the Company has incurred recurring and increasing losses from operations and has negative working capital, despite the acquisition and divesture of several businesses, including American Business Systems and FAS, LLC. On September 8, 2009, the Company simultaneously completed a series of transactions described below, including the acquisition of Almana Networks International, Inc., a Delaware corporation, ("ANI") for 9,500,000 shares of the company's common stock ("Common Stock") and the private placement of 4,000,000 shares of Common Stockand warrants to purchase 4,000,000 at an exercise price of $0.60 per share in exchange for $1 million in cash. These transactions resulted in a change of control, with MDI, Inc., being the surviving legal entity and ANI being the surviving accounting entity. This report on Form 10Q is presented accordingly, and includes the results of operations of ANI since inception as of June 3, 2009.

Overview

We are a solution provider of enterprise class critical infrastructure protection and control systems company, focused in three primary market segments: (i) large, sophisticated security, surveillance and command and control solutions; (ii) program management of complex industrial and government control system implementations; and, (iii) development and deployment of security, communication and control systems products. Our solutions consist of enterprise software, expert services and preferred third party products. The Acquisition Transaction was completed because we believe that our predecessor company's 25-year legacy of delivering similar products and services, together with our marketing efforts, diverse international relationships, and strong localized delivery capabilities and reputation in several of the fastest growing economies in the world, will enable us to obtain additional contract awards in each region, leveraging MDI into a prominent brand in the international security market. Current sales and growth efforts are focused in the Middle East, India and Australia with planned expansion into the North American markets in 2010.

Plan of Operation

We have established corporate offices in San Antonio, Texas, to govern and administer our duties and obligations as a public company and facilitate the expansion of our global operations. We hired executive officers based in the United States and Canada to establish, promote, and administer corporate governance, business development, technological strategies, and facilitate expansion of our overall business. MDI's CEO is based in Qatar where he oversees our operations, marketing functions and international expansion strategy. We perform targeted marketing activities throughout the Middle East, in India, Australia and began limited marketing in North America.

We conduct a large portion of our operations in Qatar through a subcontract with Almana Network Solutions, Inc., ("ANSI"), a Qatar company that is a related party through common ownership. Our contracts with ANSI enable us to deliver solutions and services with a reduced overhead and risk and which generate gross margins ranging from 15% to 30%. During the period ended September 30, 2009, all of our operations that generated revenue were performed in Qatar. Subsequent to September 30, 2009, we expanded our operations beyond this relationship and began working with partners and channels in the U.S., Canada, and Australia to deliver solutions.

We have also begun offering MDI branded products throughout the Middle East, which we believe will add to our revenue stream in the foreseeable future. These branded offerings have been introduced to the market via independent integrators and directly through MDI managed projects. We have hired senior security experts and are now marketing our world class expertise and corporate credentials under the MDI brand, allowing us to stand out from the local competition.

We have also initiated an aggressive, targeted marketing campaign designed to win additional business in India. As part of this campaign, we exhibited at the INDESEC Homeland Security and Defense show for India in October 2009 resulting in national exposure through MDI's featured interviews on CNN and CNBC family channels. Further, we met extensively with heads of state, police and border protection, with whom we continue to have active and promising discussions. We anticipate closing our first substantial project in India in fiscal 2010.

Additionally, we have begun to tactically pursue other business opportunities in the U.S. and other countries, through both direct and partner relationships. In order to improve our prospects for winning projects beyond our current size and scope, we have established Tier 1 relationships with multiple global integrators such as Unisys and L-3 GS&ES (Global Security and Engineering Solutions). We believe that these relationships significantly extend our global sales reach as well as enhance our regional delivery capability. Further, by leveraging our partners' credentials and capabilities via teaming and subcontracting relationships, we believe we that we will be able to participate in large scale opportunities that we would be unable to pursue on a stand-alone basis.

Corporate Information

Our principal executive offices are located at 835 Proton Road, San Antonio, Texas 78258. Our telephone number is 210-404-9551. Our website is operating at www.mdisecure.com.

Employees

As of September 30, 2009, we had 5 employees, including a sales and marketing consultant and our CEO based in Qatar. None of these employees were represented by collective bargaining agreements. We also employ consultants on an as-needed basis to supplement existing staff.

Description of Property

Our headquarters is in approximately 6,000 square feet of space that we rent in a building located at 835 Proton Road, San Antonio, Texas. We believe our headquarters space is adequate through fiscal 2010 and future requirements will be dependent upon the rate of growth we experience.

Results of Operations

During the three months ended and period from inception through ended September 30, 2009, we generated revenue totaling $1,922,625 under five contract awards that generated $320,015 in gross margin. Our operating costs, which totaled $262,760 and $277,569 for the three months ended and period from inception through September 30, 2009, included transaction costs of approximately $127,500, which were classified as general and administrative expenses.

General and administrative expenses include salaries, occupancy costs, travel expenses, professional fees, and other general and administrative expense. These costs totaled $247,659 and $262,468, for the three months ended and period from inception through September 30, 2009. While the transaction costs are non-recurring in nature, other general and administrative expenses were generally incurred during the 22-day period subsequent to September 8, 2009, and expenses in future periods are expected to increase accordingly.

Likewise, depreciation and amortization expenses were incurred for the 22-day period subsequent to the Acquisition Transaction, and are expected to increase in future periods accordingly.

Sales and marketing expenses, which totaled $8,333 for three months ended and period from inception through September 30, 2009, which represents costs directly related to our marketing efforts, will increase in future periods as we devote additional resources to trade shows, enhancing our marketing efforts and materials and building our sales and marketing organization.

Liquidity and Capital Resources

We received $1 million cash in a private placement of our common stock on September 8, 2009. We are to use the proceeds for working capital. Until that time, the Company had no operations or funding. Pursuant to the Acquisition Agreement, we acquired approximately $1.2 million in financial assets and assumed approximately $1.04 million in financial liabilities. The financial assets did not include cash or cash equivalents, and we must fund our operations and meet our obligations from this initial injection of working capital or from cash generated from operations, if any. Our contracts in Qatar generally provide for advance payments to accommodate the requirements to purchase equipment and materials before revenue is earned and certain delivery milestones are complete. However, the terms of payment on our invoices to customers are generally on a net 60 to net 90 day terms. Our contracts generally require the purchase of materials prior to collection of our receivables. Accordingly, our working capital requirements include substantial investment in work in progress as well as our fixed overhead expenses.

The financial assets we acquired pursuant to the Acquisition Transaction are non-current in nature or not immediately convertible into cash, while the creditors for the assumed liabilities are seeking prompt payment for those liabilities. We are in the process of negotiating long-term payment plans or a reduction in the total obligation in exchange for prompt payment.

As of September 30, 2009, we had approximately $200,000 in cash and receivables in excess of $1.4 million. Our billings in excess of revenue, which totaled $1.1 million, represent amounts that we have invoiced to our customers as advances or progress payments that exceed the revenue we have recognized. We utilized these advance payments to fund the projects, and at September 30, 2009, we have work in progress totaling $995,000 that represents project costs in excess of the revenue we have earned. We also have recognized approximately $148,000 as revenue on certain projects in excess of the amount we have billed to the customer. We believe that we will be able to satisfy our obligations from cash on hand and cash generated from operations.

Off- Balance Sheet Arrangements.

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditure, or capital resources that is material to investors.

Contractual Obligations

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

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