**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM        10-QSB**

| [X]                  | **Quarterly                  Report pursuant to Section 13 or 15(d) of the Securities Exchange                  Act of                  1934**  |
|----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |                                                                                                                                            |
|                 | For                  the quarterly period ended June 30, 2007                                                                                   |
|                 | OR                                                                                                                                              |
| [   ] | **Transition                  Report pursuant to Section 13 or 15(d) of the Securities Exchange                  Act of                  1934** |
|                 |                                                                                                                                            |

**MDI,        INC.**

| **DELAWARE**                                              | **75-2626358**                    |
|-----------------------------------------------------------|-----------------------------------|
| (State                  or other jurisdiction             | (I.R.S.                  Employer |
| Of                  incorporation or organization)        | Identification                    |
|                                                      | No.)                              |
|                                                      |                              |
| **10226                  SAN PEDRO AVENUE, SUITE 200**    |                              |
| **SAN                  ANTONIO, TEXAS**                   | **78216**                         |
| (Address                  of principal executive offices) | (Zip                  Code)       |

**(210)        582-2664**

----

**MDI,        INC.**

**FORM        10-QSB**

**TABLE        OF CONTENTS**

**PART        I.                            FINANCIAL        INFORMATION**

**Item        1.                            Financial        Statements.**

**Notes        to Financial Statements**

**Item  2.**
**Management’s        Discussion and Analysis and Results of Operation**

**Item        3.                            Controls        and Procedures.**

**PART        II.                            OTHER        INFORMATION**

**Item        1.                            Legal        Proceedings.**

**Item        2.                            Unregistered        Sales of Equity Securities and Use of Proceeds.**

**Item        6.                            Exhibits        and Reports on Form 8-K**

**SIGNATURES**

**EXHIBITS**

**CERTIFICATIONS**

**Certification        of Chief Executive Officer**

**Certification        of Chief Financial Officer**

**Joint        Certification of Chief Executive Officer and Chief Financial        Officer**

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**PART        I - FINANCIAL INFORMATION**

**ITEM        1. CONSOLIDATED FINANCIAL STATEMENTS**

**MDI,        INC. and SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS**

**(in        thousands, except share and per share data)**

**(Unaudited)**

|                                                                                                                        |   | June                  30, |   | December                  31, |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|-------------------------------|
|                                                                                                                        |   | 2007                      |   | 2006                          |
| **ASSETS**                                                                                                                  |
| **Current                  Assets:**                                                                                        |   |                      |   |                          |
| Cash                  and cash equivalents                                                                                  | $      | 2,850                     | $      | 452                           |
| Trade                  accounts receivable, net                                                                             |   | 1,252                     |   | 1,308                         |
| Inventories                                                                                                                 |   | 599                       |   | 736                           |
| Prepaid                  expenses and other current assets                                                                  |   | 256                       |   | 107                           |
| Total                  current assets                                                                                       |   | 4,957                     |   | 2,603                         |
| **Property                  and Equipment – net**                                                                     |   | 205                       |   | 192                           |
| **Other                  Assets:**                                                                                          |   |                      |   |                          |
| Goodwill                                                                                                                    |   | 4,612                     |   | 4,612                         |
| Other                  intangible assets                                                                                    |   | 25                        |   | 28                            |
| Other                  assets                                                                                               |   | 135                       |   | 363                           |
| Total                  assets                                                                                               | $      | 9,934                     | $      | 7,798                         |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                   |
| **Current                  Liabilities:**                                                                                   |   |                      |   |                          |
| Trade                  accounts payable                                                                                     | $      | 455                       | $      | 1,473                         |
| Accrued                  expenses                                                                                           |   | 446                       |   | 263                           |
| Deferred                  legal settlement                                                                                  |   | 388                       |   | 388                           |
| Accrued                  compensation                                                                                       |   | 422                       |   | 382                           |
| Bank                  factoring advance                                                                                     |   | -                         |   | 312                           |
| Other                  current liabilities                                                                                  |   | 154                       |   | 9                             |
| Deferred                  revenue                                                                                           |   | 195                       |   | 210                           |
| Total                  current liabilities                                                                                  |   | 2,060                     |   | 3,037                         |
| **Long-Term                  Liabilities**                                                                                  |   | -                         |   | -                             |
| **Total                  Liabilities**                                                                                      |   | 2,060                     |   | 3,037                         |
| **Commitments                  and Contingencies**                                                                          |   | -                         |   | -                             |
| **Stockholders'                  Equity:**                                                                                  |   |                      |   |                          |
| Preferred                  stock, $5 par value, issuable in series; 2,000,000 shares authorized;                  Series A, |   |                      |   |                          |
| LIBOR+2%                  cumulative convertible; 195,351 shares authorized, issued and                  outstanding        |   | 977                       |   | 977                           |
| Common                  stock, $0.01 par value, 100,000,000 shares authorized;                  32,093,802                  |   |                      |   |                          |
| and                  22,657,610 shares issued at June 30, 2007 and December 31, 2006,                  respectively         |   | 321                       |   | 227                           |
| Additional                  paid-in-capital                                                                                 |   | 141,325                   |   | 132,957                       |
| Stock                  subscription receivable                                                                              |   | (2,600)                   |   | -                             |
| Accumulated                  deficit                                                                                        |   | (132,149)                 |   | (129,400)                     |
| Total                  stockholders' equity                                                                                 |   | 7,874                     |   | 4,761                         |
| Total                  liabilities and stockholders' equity                                                                 | $      | 9,934                     | $      | 7,798                         |
|                                                                                                                        |   |                      |   |                          |
|                                                                                                                        |   |                      |   |                          |

----

**MDI,        INC. and SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

**(in        thousands, except share and per share data)**

**(Unaudited)**

|                                                                                               |   | Three                  months ended June 30, |
|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                                               |   | 2007                                         |   | 2006 |
| Net                  sales                                                                         | $      | 1,843                                        | $ | 2,219 |
| Cost                  of sales (exclusive of depreciation shown separately                  below) |   | 991                                          |   | 1,165 |
| Gross                  profit                                                                      |   | 852                                          |   | 1,054 |
| Other                  operating costs:                                                            |   |                                         |   |   |
| Selling,                  general and administrative                                               |   | 2,652                                        |   | 2,858 |
| Depreciation                  and amortization                                                     |   | 30                                           |   | 121 |
|                                                                                               |   | 2,682                                        |   | 2,979 |
| Operating                  loss                                                                    |   | (1,830)                                      |   | (1,925) |
| Other                  income (expense):                                                           |   |                                         |   |   |
| Interest                  income                                                                   |   | 25                                           |   | 10 |
| Interest                  expense                                                                  |   | (27)                                         |   | - |
| Loss                  on disposal of fixed assets                                                  |   | -                                            |   | - |
| Other,                  net                                                                        |   | -                                            |   | - |
|                                                                                               |   | (2)                                          |   | 10 |
| Loss                  before income taxes and discontinued operations                              |   | (1,832)                                      |   | (1,915) |
| Income                  taxes                                                                      |   | -                                            |   | - |
| Loss                  from continuing operations                                                   |   | (1,832)                                      |   | (1,915) |
| Loss                  from discontinued operations                                                 |   | -                                            |   | - |
| Net                  loss                                                                          |   | (1,832)                                      |   | (1,915) |
| Dividend                  requirements on preferred stock                                          |   | (9)                                          |   | (8) |
| Net                  loss allocable to common shareholders                                         | $      | (1,841)                                      | $ | (1,923) |
| Basic                  and diluted earnings (loss) per share from:                                 |   |                                         |   |   |
| Continued                  operations                                                              | $      | (0.06)                                       | $ | (0.09) |
| Discontinued                  operations                                                           |   | 0.00                                         |   | (0.00) |
| Basic                  and diluted loss per share                                                  | $      | (0.06)                                       | $ | (0.09) |
|                                                                                               |   |                                         |   |   |
| Number                  of common shares used in computation                                       |   | 30,864,549                                   |   | 22,335,110 |
|                                                                                               |   |                                         |   |   |

----

**MDI,        INC. and SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

**(in        thousands, except share and per share data)**

**(Unaudited)**

|                                                                                               |   | Six                  months ended June 30, |
|----------------------------------------------------------------------------------------------------|--------|--------------------------------------------|
|                                                                                               |   | 2007                                       |   | 2006 |
| Net                  sales                                                                         | $      | 4,106                                      | $ | 4,914 |
| Cost                  of sales (exclusive of depreciation shown separately                  below) |   | 1,925                                      |   | 2,415 |
| Gross                  profit                                                                      |   | 2,181                                      |   | 2,499 |
| Other                  operating costs:                                                            |   |                                       |   |   |
| Selling,                  general and administrative                                               |   | 4,799                                      |   | 5,570 |
| Depreciation                  and amortization                                                     |   | 58                                         |   | 242 |
|                                                                                               |   | 4,857                                      |   | 5,812 |
| Operating                  loss                                                                    |   | (2,676)                                    |   | (3,313) |
| Other                  income (expense):                                                           |   |                                       |   |   |
| Interest                  income                                                                   |   | 27                                         |   | 10 |
| Interest                  expense                                                                  |   | (48)                                       |   | - |
| Loss                  on disposal of fixed assets                                                  |   | (5)                                        |   | - |
| Other,                  net                                                                        |   | (29)                                       |   | 1 |
|                                                                                               |   | (55)                                       |   | 11 |
| Loss                  before income taxes and discontinued operations                              |   | (2,731)                                    |   | (3,302) |
| Income                  taxes                                                                      |   | (1)                                        |   | - |
| Loss                  from continuing operations                                                   |   | (2,732)                                    |   | (3,302) |
| Loss                  from discontinued operations                                                 |   | -                                          |   | (12) |
| Net                  loss                                                                          |   | (2,732)                                    |   | (3,314) |
| Dividend                  requirements on preferred stock                                          |   | (17)                                       |   | (17) |
| Net                  loss allocable to common shareholders                                         | $      | (2,749)                                    | $ | (3,331) |
| Basic                  and diluted earnings (loss) per share from:                                 |   |                                       |   |   |
| Continued                  operations                                                              | $      | (0.10)                                     | $ | (0.15) |
| Discontinued                  operations                                                           |   | 0.00                                       |   | (0.00) |
| Basic                  and diluted loss per share                                                  | $      | (0.10)                                     | $ | (0.15) |
|                                                                                               |   |                                       |   |   |
| Number                  of common shares used in computation                                       |   | 28,581,379                                 |   | 22,335,110 |

----

**MDI,        INC. and SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**(in        thousands)**

**(Unaudited)**

|                                                                                                          |   | Six                  months ended June 30, |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|
|                                                                                                          |   | 2007                                       |   | 2006 |
| **Operating                  Activities:**                                                                    |   |                                       |   |   |
| Net                  loss                                                                                     | $      | (2,732)                                    | $ | (3,314) |
| Adjustments                  to reconcile net loss to net cash used in operating                  activities: |   |                                       |   |   |
| Loss                  on disposal of fixed assets                                                             |   | 5                                          |   | - |
| Non                  cash stock compensation                                                                  |   | 231                                        |   | 347 |
| Services                  rendered for warrants issued                                                        |   | 134                                        |   | - |
| Rent                  forgiveness for stock warrants issued                                                   |   | 46                                         |   | - |
| Depreciation                  and amortization                                                                |   | 58                                         |   | 242 |
| Provision                  for losses on accounts receivable                                                  |   | 131                                        |   | 11 |
| Loss                  on early collection of notes receivable                                                 |   | 29                                         |   | - |
| Changes                  in operating assets and liabilities, net of dispositions:                            |   |                                       |   |   |
|      Trade                  accounts receivable                                      |   | (75)                                       |   | (122) |
|      Inventories                                                                     |   | 137                                        |   | (70) |
|      Prepaid                  and other current assets                               |   | 50                                         |   | (91) |
|      Trade                  accounts payable                                         |   | (1,018)                                    |   | 348 |
|      Accrued                  and other current liabilities                          |   | 250                                        |   | 75 |
| Net                  cash used in operating activities                                                        |   | (2,754)                                    |   | (2,574) |
| **Investing                  Activities:**                                                                    |   |                                       |   |   |
| Purchases                  of property and equipment                                                          |   | (73)                                       |   | (34) |
| Net                  cash used in investing activities                                                        |   | (73)                                       |   | (34) |
| **Financing                  Activities:**                                                                    |   |                                       |   |   |
| Sale                  of common stock, net of stock acquisition costs                                         |   | 5,450                                      |   | 2,193 |
| Net                  repayment of short term debt                                                             |   | (225)                                      |   | - |
| Payment                  of preferred stock dividends                                                         |   | -                                          |   | (17) |
| Net                  cash provided by (used in) financing activities                                          |   | 5,225                                      |   | 2,176 |
| Net                  increase (decrease) in cash and cash equivalents                                         |   | 2,398                                      |   | (432) |
| Cash                  and cash equivalents, beginning of period                                               |   | 452                                        |   | 2,140 |
| Cash                  and cash equivalents, end of period                                                     | $      | 2,850                                      | $ | 1,708 |
| **Non                  cash investing and financing activities:**                                             |   |                                       |   |   |
| Purchase                  of assets from Ecomatrix Funding, allocated to goodwill                  for        |   |                                       |   |   |
| 2,000,000                  shares of common stock                                                             | $      | -                                          | $ | 1,820 |
| Subscription                  receivable for 5,306,122 shares of stock                                        | $      | 2,600                                      | $ | - |
| Stock                  acquisition costs for warrants issued                                                  | $      | 78                                         | $ | - |
| **Supplemental                  cash flow information:**                                                      |   |                                       |   |   |
| Cash                  paid during the year for:                                                               |   |                                       |   |   |
| Interest                                                                                                      | $      | 48                                         | $ | - |
| Income                  taxes                                                                                 | $      | -                                          | $ | - |
|                                                                                                          |   |                                       |   |   |

----

**NOTES        TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**Note        1 – Organization and Business Description**

**Note        2 – Basis of Presentation**

**Note        3 – Summary of Significant Accounting Policies**

**Use        of Estimates**

**Revenue        Recognition**

----

**Uncertainty        in Income Taxes**

**Stock-Based        Compensation**

|                                     | June                  30, 2007 |   | June                  30, 2006 |
|------------------------------------------|--------------------------------|--------|--------------------------------|
| Expected                  life in years  | 2.5                            |   | 5.5                            |
| Expected                  volatility     | 86%                            |   | 81%                            |
| Risk-free                  interest rate | 4.8                            |   | 5.2                            |

**Earnings        (Loss) Per Share**

**Reclassifications**

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**Note        4                      Business        Acquisition**

**Note        5 – Stockholders’ Equity**

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**ITEM        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATIONS**

**Forward        Looking Statements**

**Overview**

**Product        and Service Offerings**

**1.                 Enterprise-Grade        Business**

----

**2.                 Standardized        Product Sales**

**Growth        Strategy**

**Competition**

**Enterprise-Grade        Business        Offerings**

**Professional        Services Group Business Offerings**

**Cash        Requirements**

----

**Financial        Condition, Liquidity and Capital Resources**

**Risks        Associated With Our Common Equity**

**Acquisition**

----

**Results        of Operations**

**Three        Months Ended June 30, 2007 Compared to Three Months Ended June 30,        2006**

|                                                 |                                              |                                             |                                              |          |                                             |   |                                    |                                               |
|------------------------------------------------------|---------------------------------------------------|--------------------------------------------------|---------------------------------------------------|---------------|--------------------------------------------------|--------|-----------------------------------------|----------------------------------------------------|
|                                                 |                                              |                                             |                                              |          |                                             |   |                                    |                                               |
|                                                 | Three                  months ended June 30, 2007 |                                             | Three                  months ended June 30, 2006 |          | Three                  months ended June 30,     |
|                                                 |  Dollars                                     | %                  of                  Net Sales |                                              |  Dollars | %                  of                  Net Sales |   | Change                  In Dollar Value | Percentage                  Change In Dollar Value |
|                                                 |                                              |                                             |                                              |          |                                             |   |                                    |                                               |
| Net                  Sales                           | $1,843                                            | 100%                                             |                                              | $2,219        | 100%                                             |   | $(376)                                  | -17%                                               |
| Gross                  profit                        | 852                                               | 46%                                              |                                              | 1,054         | 47%                                              |   | (202)                                   | -19%                                               |
| Selling,                  general and administrative | 2,652                                             | 144%                                             |                                              | 2,858         | 129%                                             |   | (206)                                   | -7%                                                |
| Operating                  loss                      | (1,830)                                           | -99%                                             |                                              | (1,925)       | -87%                                             |   | 95                                      | -5%                                                |
| Net                  loss                            | (1,832)                                           | -99%                                             |                                              | (1,915)       | -86%                                             |   | 83                                      | -4%                                                |

**Six        Months Ended June 30, 2007 Compared to Six Months Ended June 30,        2006**

|                                                 |                                            |                                             |                                            |          |                                             |   |                                    |                                               |
|------------------------------------------------------|-------------------------------------------------|--------------------------------------------------|-------------------------------------------------|---------------|--------------------------------------------------|--------|-----------------------------------------|----------------------------------------------------|
|                                                 |                                            |                                             |                                            |          |                                             |   |                                    |                                               |
|                                                 | Six                  months ended June 30, 2007 |                                             | Six                  months ended June 30, 2006 |          | Six                  months ended June 30,       |
|                                                 |  Dollars                                   | %                  of                  Net Sales |                                            |  Dollars | %                  of                  Net Sales |   | Change                  In Dollar Value | Percentage                  Change In Dollar Value |
|                                                 |                                            |                                             |                                            |          |                                             |   |                                    |                                               |
| Net                  Sales                           | $4,106                                          | 100%                                             |                                            | $4,914        | 100%                                             |   | $(808)                                  | -16%                                               |
| Gross                  profit                        | 2,181                                           | 53%                                              |                                            | 2,499         | 51%                                              |   | (318)                                   | -13%                                               |
| Selling,                  general and administrative | 4,799                                           | 117%                                             |                                            | 5,570         | 113%                                             |   | (771)                                   | -14%                                               |
| Operating                  loss                      | (2,676)                                         | -65%                                             |                                            | (3,313)       | -67%                                             |   | 637                                     | -19%                                               |
| Net                  loss                            | (2,732)                                         | -67%                                             |                                            | (3,314)       | -67%                                             |   | 582                                     | -18%                                               |

----

**ITEM        3. CONTROLS AND PROCEDURES**

**Evaluation        of Disclosure Controls and Procedures**

**Changes        in Internal Controls**

**PART        II – OTHER INFORMATION**

**ITEM        1. LEGAL PROCEEDINGS**

**ITEM        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF        PROCEEDS**

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**ITEM        6. EXHIBITS AND REPORTS ON FORM 8-K**

**Exhibits**

**Reports        on Form 8-K**

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|   | **SIGNATURES** |
|--------|----------------|

|                                              | **MDI,                INC.** |                                                                            |
|---------------------------------------------------|------------------------------|---------------------------------------------------------------------------------|
|                                              |                         |                                                                            |   |
| August                  13,                  2007 | By:                          | /s/ Michael                Sweet                                           |   |
|                                              |                         | Michael                Sweet                                                    |   |
|                                              |                         | Senior                Vice                President and Chief Financial Officer |   |
|                                              |                         |                                                                            |   |