<PAGE>   1
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                                  UNITED STATES
                       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, 2000

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

          For the transition period from ______________ to ______________


                          Commission File Number 0-8164

                               MSI HOLDINGS, INC.
          (Exact name of small business issuer as specified in charter)


                 UTAH                                           87-0280886
(State of incorporation or organization)                 (IRS Employer I.D. No.)

  1121 EAST 7TH STREET AUSTIN, TEXAS                              78702
(Address of principal executive offices)                        (Zip Code)

                                  512-476-6925
                           (Issuer's telephone number)



Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for 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 [ ]

As of July 31, 2000 the Registrant had 37,688,101 shares of common stock issued
and outstanding.

Transitional Small Business Disclosure Format (check one): Yes [X] NO [ ]


================================================================================


<PAGE>   2


                        MSI HOLDINGS, INC. (dba APERIAN)
                                   FORM 10-QSB
                       FOR THE QUARTER ENDED JUNE 30, 2000

                                      INDEX

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                           PAGE
<S>                                                                      <C>
   Item 1.  Consolidated Financial Statements (unaudited)                3

   Item 2.  Management's Discussion and Analysis of Interim Financial
            Condition and Results of Operations                          9


PART II - OTHER INFORMATION

   Item 1.  Legal Proceedings                                            15

   Item 2.  Changes in Securities and Use of Proceeds                    15

   Item 3.  Defaults upon Senior Securities                              15

   Item 4.  Submission of Matters to a Vote of Security Holders          15

   Item 5.  Other Information                                            15

   Item 6.  Exhibits and Reports on Form 8-K                             15

SIGNATURE PAGE                                                           16
</TABLE>


                                       2
<PAGE>   3


                          PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MSI HOLDINGS, INC. (dba APERIAN)
CONSOLIDATED BALANCE SHEET (UNAUDITED)


<TABLE>
<CAPTION>
ASSETS                                                                                 June 30, 2000
                                                                                       -------------
<S>                                                                                    <C>
    Current assets
        Cash and cash equivalents                                                       $ 34,945,717
        Accounts receivable - trade                                                        1,052,541
        Other receivables - advances                                                           7,091
        Other current assets                                                                 133,187
                                                                                        ------------
            Total current assets                                                          36,138,536
    Property, plant, and equipment, net                                                   14,930,498
    Other assets                                                                             161,158
                                                                                        ------------
TOTAL ASSETS                                                                            $ 51,230,192
                                                                                        ============


LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
        Accounts payable - trade                                                        $      6,761
        Other accrued expenses                                                               158,674
        Current maturities of notes payable                                                  150,000
        Current portion of obligations under capital leases                                  272,896
                                                                                        ------------
            Total current liabilities                                                        588,331

    Long-term liabilities
        Obligations under capital leases                                                     761,008
        Deferred rent                                                                        833,715
                                                                                        ------------
            Total long-term liabilities                                                    1,594,723

    Commitments and Contingencies                                                                 --
                                                                                        ------------
       Total liabilities                                                                   2,183,054
                                                                                        ------------

    Stockholders' equity
        Common stock at $.10 par value; 50,000,000 authorized, 36,687,452
            shares (excluding 5,087 shares held in treasury) issued and outstanding        3,668,745
        Additional paid-in-capital                                                        95,625,208
        Accumulated deficit                                                              (50,246,815)
                                                                                        ------------
            Total stockholders' equity                                                    49,047,138
                                                                                        ------------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $ 51,230,192
                                                                                        ============
</TABLE>


The accompanying notes are an integral part of these financial statements


                                       3

<PAGE>   4


MSI HOLDINGS, INC. (dba APERIAN)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                        Three months ended
                                                                              June 30,
                                                                      2000             1999
                                                                 ------------      ------------
<S>                                                              <C>               <C>
Revenues:
     Broadband Internet services                                 $    909,445      $      9,077
     Service, support and integration                                      --           260,789
     Hardware, software and peripherals                                    --           120,287
     Networks, LAN/WAN                                                     --            58,990
                                                                 ------------      ------------
                                                                      909,445           449,143
                                                                 ------------      ------------
Cost of goods sold:
     Broadband Internet services                                      468,596            45,666
     Service, support and integration                                      --            81,386
     Hardware, software and peripherals                                    --           185,912
     Networks, LAN/WAN                                                     --           194,482
                                                                 ------------      ------------
                                                                      468,596           507,446
                                                                 ------------      ------------
Gross margin (deficit)                                                440,849           (58,303)
                                                                 ------------      ------------

Selling, general and administrative expenses:
     Salaries and benefits                                          2,245,809           696,214
     Professional fees and consultants                                548,918           414,497
     Advertising and marketing                                        284,063                --
     Occupancy                                                        950,712            94,560
     Depreciation and amortization                                    510,088            97,586
     Vehicle expense                                                    5,357             7,229
     Other expense                                                    659,168           100,176
                                                                 ------------      ------------
          Total selling, general and administrative expenses        5,204,115         1,410,262
Interest (income) expense, net                                       (504,027)           48,556
                                                                 ------------      ------------
          Total expenses                                            4,700,088         1,458,818
                                                                 ------------      ------------

Net loss                                                         $ (4,259,239)     $ (1,517,121)
                                                                 ============      ============

Preferred stock dividends and stock discounts                              --          (669,013)
                                                                 ------------      ------------

Net loss to common stockholders                                  $ (4,259,239)     $ (2,186,134)
                                                                 ============      ============

Basic and diluted net loss per share                             $      (0.12)     $      (0.12)
                                                                 ============      ============

Basic and diluted weighted average shares outstanding              36,543,266        18,453,956
                                                                 ============      ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>   5


MSI HOLDINGS, INC. (dba APERIAN)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                            Three months ended
                                                                                                 June 30,
                                                                                          2000              1999
                                                                                      ------------      ------------
<S>                                                                                   <C>               <C>
Cash flows from operating activities:
      Net loss                                                                        $ (4,259,239)     $ (1,517,121)
      Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization expense                                           510,088            97,586
           Amortization of debt discount                                                   105,747                --
           Loss on disposal of property, plant and equipment                                12,372                --
           Amortization of deferred rent                                                   124,215            10,135
           Common stock and options issued for compensation                               (234,906)               --
      Changes in operating assets and liabilities:
           Accounts receivable - trade                                                    (563,467)          172,062
           Other receivables - advances                                                    376,106             1,322
           Other current assets                                                            280,460                --
           Other assets                                                                     35,000           (14,742)
           Accounts payable - trade                                                     (5,969,238)       (1,463,463)
           Other accrued expenses                                                         (425,521)           (2,043)
                                                                                      ------------      ------------
                     Net cash used in operating activities                             (10,008,383)       (2,716,264)
                                                                                      ------------      ------------

Cash flows from investing activities:
           Purchase of property, plant, and equipment                                   (4,533,931)         (117,716)
           Proceeds from sale of property, plant, and equipment                             11,400                --
           Proceeds from sale leaseback transaction                                             --           127,685
                                                                                      ------------      ------------
                     Net cash (used in) provided by investing activities                (4,522,531)            9,969
                                                                                      ------------      ------------

Cash flows from financing activities:
           Net draws (payments) on bank line of credit                                          --          (200,000)
           Payments on obligations under capital leases                                    (79,978)          (13,481)
           Payments on notes payable                                                      (456,500)          (49,973)
           Proceeds - private placement of preferred stock, net of offering costs               --           526,800
           Proceeds - exercise of warrants                                                 528,000                --
           Proceeds - exercise of stock options                                            226,000                --
           Proceeds - shareholder notes receivable                                         500,000
           Proceeds - issuance of common stock                                                  --         2,819,610
                                                                                      ------------      ------------
                     Net cash provided by financing activities                             717,522         3,082,956
                                                                                      ------------      ------------

                     Net change in cash and cash equivalents                           (13,813,392)          376,661

Cash and cash equivalents at beginning of period                                        48,759,109             8,471
                                                                                      ------------      ------------

Cash and cash equivalents at end of period                                            $ 34,945,717      $    385,132
                                                                                      ============      ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       5

<PAGE>   6


MSI HOLDINGS, INC. (dba APERIAN)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)


<TABLE>
<CAPTION>
                                                                            Three months ended
                                                                                 June 30,
Supplemental disclosure:                                                    2000         1999
                                                                          --------     --------
<S>                                                                       <C>          <C>
              Cash paid during the period for:
                   Interest                                               $ 90,600     $ 44,491
                                                                          ========     ========


Supplemental schedule of non-cash investing and financing activities;
              Common stock issued for preferred stock dividends           $     --     $ 69,013
              Discount on preferred and common stock issued                     --      600,000
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       6

<PAGE>   7


MSI HOLDINGS, INC. (dba APERIAN)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of presentation

     The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principals and the rules of the
Securities and Exchange Commission (the SEC), and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest annual Report filed with the SEC on Form 10-KSB, as amended. In
the opinion of management all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of financial position and
results of operations for the interim periods presented have been reflected
herein. The results of operations are not necessarily indicative of the results
to be expected for the full year. Notes to the financial statements which would
substantially duplicate the disclosure contained in the audited financial
statements for the year ended March 31, 2000, as reported in the Form 10-KSB
have been omitted.

     Comprehensive Income

     There are no differences between net loss and comprehensive loss for the
three months ended June 30, 2000 or 1999.

     Recent Accounting Pronouncements

     In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. The Interpretation will
be applied prospectively to new awards, modifications to outstanding awards, and
changes in employee status on or after July 1, 2000, except as follows: (i)
requirements related to the definition of an employee apply to new awards
granted after December 15, 1998; (ii) modifications that directly or indirectly
reduce the exercise price of an award apply to modifications made after December
15, 1998; and (iii) modifications to add a reload feature to an award apply to
modifications made after January 12, 2000. The Company is evaluating the effect
the application of the Interpretation will have on the financial statements.

2. STOCKHOLDERS' EQUITY

     During the three months ended June 30, 2000, the Company converted 1,000
shares of Series E Preferred Stock into 10,000 shares of the Company's common
stock.

     During the three months ended June 30, 2000, the Company received $226,000
from the exercise of various employee and non-employee stock options. These
options converted into 47,500 shares of the Company's common stock.

     During the three months ended June 30, 2000, the Company received $528,000
from the exercise of warrants. These warrants converted into 120,000 shares of
the Company's common stock.

     During the three months ended June 30, 2000, the Company issued 12,164 of
its common stock in satisfaction of an accounts payable approximating $45,000.

     During the three months ended June 30, 2000, the Company recognized
$234,906 as a reduction in salaries and benefits due to the variable accounting
of stock options issued to a previous employee of the Company.


                                       7

<PAGE>   8


3. SUBSEQUENT EVENTS

     Effective May 31, 2000, the trading of the Company's common stock moved
from the Over-The-Counter Bulletin Board under the ticker symbol "MSIA", to the
NASDAQ National Market System under the symbol "APRN".

     The merger of OuterNet Connection Strategies, Inc. ("OuterNet") into a
wholly owned subsidiary of the Company occurred on July 26, 2000 following
approval of the merger by OuterNet's common shareholders. As a result of the
merger, OuterNet became a wholly-owned subsidiary of the Company. Pursuant to
the terms of the merger, the shares of common stock of OuterNet issued and
outstanding immediately prior to the effective time of the merger were converted
into an aggregate of 1 million shares of the Company's common stock. The company
intends on accounting for this acquisition as a purchase.

     On August 2, 2000, Ernesto Chavarria and Blandina Cardenas resigned from
the Company's board of directors. In connection with the resignations, the board
accelerated the vesting of their options to acquire 25,000 shares of common
stock at $5.375 per share and extended the expiration of the options to one year
from the date of their resignations. There was no compensation expense
recognized in this transaction, as the fair value of the Company's common stock
on the date of the modification was less than the exercise price of the options.
The board also awarded each of Mr. Chavarria and Ms. Cardenas fully vested
one-year options to acquire 12,500 shares of common stock at the market price of
the shares on the date of their resignation. The company also entered into a
consulting arrangement with Mr. Chavarria under which he received a one-year,
fully vested option to acquire up to 75,000 shares of common stock at the fair
market price of the shares on the date of the consulting agreement.

     As reported on August 7, 2000, the Company and Hewlett-Packard Company
("HP") have entered into a financing under which HP has agreed, subject to the
fulfillment of certain conditions, to lend up to $40 million to the Company. The
loans, which will be evidenced by a convertible secured promissory note (the
"Note"), will bear interest, payable quarterly, at the rate of 10.5% per annum.
Principal will be due on August 3, 2004. Under the Note, the Company is required
to use at least 50% of the proceeds of the borrowings to purchase HP products,
support and services. The remainder may be used for other corporate purposes.
The Note will be secured by security interests in the HP equipment and other
equipment acquired by the Company with the proceeds of the loans. At HP's option
the Note is convertible into the Company's common stock at a price of $8.333333
per share, subject to adjustment. In connection with the financing, HP is to be
a preferred provider of products and services for the Company's data centers.


                                       8
<PAGE>   9


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

     This quarterly report on Form 10-QSB contains forward-looking statements,
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or those anticipated. Words used in this report such as
"believe", "anticipate", "expect", "may", "will" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to update or revise these forward-looking statements to reflect any
future events or circumstances. Readers are urged to carefully review and
consider the various disclosures made by the Company in this report, including
those under the section entitled "RISK FACTORS THAT MAY AFFECT OUR FUTURE
RESULTS" which consist primarily of a brief discussion of certain risks which
are in their entirety forward-looking statements, and those included in the
Company's other reports previously filed with the commission, including the
disclosures in the "RISK FACTORS THAT MAY AFFECT OUR FUTURE RESULTS" section
appearing in the Form 10-KSB for the fiscal year ended March 31, 2000.

     The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with (i) the financial
statements and accompanying notes appearing in this Quarterly Report, and (ii)
the Company's financial statements and accompanying notes appearing in the
Company's Form 10-KSB for the fiscal year ended March 31, 2000, as filed with
the Commission.

DESCRIPTION OF NEW OPERATIONS

     During fiscal year 2000 the Company exited the relatively mature low margin
legacy business of office network connectivity and systems integration, and
entered into the high growth business of Internet connectivity, web-hosting and
infrastructure outsourcing. Web-hosting services are among the fastest-growing
segments of the Internet services sector. IDC and Forrester Research both
forecast that the market will grow to $15 billion in revenues by 2003, equating
to an annual growth of approximately 85% per year for the next four years. As a
result of this transition there has been a virtually complete change of
management and employee personnel. Fundamentally, this is a capital and people
intensive service business, which requires that a substantial investment be made
on a national basis prior to turning cash flow positive.

     We provide our Broadband Internet Services from our data centers located in
Austin, Texas, Dallas, Texas and Tampa, Florida. Each of these data centers are
directly connected to Genuity's Global Network Infrastructure ("GNI")
point-of-presence. The GNI is one of the largest and most technologically
sophisticated fiber optic Internet backbones in the United States. We leverage
Genuity's proprietary network routing protocols to optimize the efficiency and
reliability of our DOCC infrastructure.

     Our objective is to be a leading broadband Internet Infrastructure Provider
("IIP") to businesses with significant Internet applications, Internet service
providers ("ISPs") and application service providers ("ASPs"). Our focus is to
provide a complete infrastructure solution set to the mid-market designed to
optimize the performance of next generation bandwidth intensive multimedia
content.

     The transition of end user access from narrow band to broadband Internet
access using, xDSL and Cable modems is driving the demand for bandwidth
intensive multi-media content and applications. This demand in turn is creating
the need for the next generation of Web server Internet connectivity and
backbone routing infrastructure.

     Our current business of providing Internet infrastructure and managed
services is both capital and personnel intensive. We anticipate incurring
significant additional losses for the foreseeable future, as the business grows
rapidly towards a critical mass objective.


                                       9
<PAGE>   10


RESULTS OF OPERATIONS

     The revenues for this new business are grouped under Broadband Internet
Services in our Consolidated Statements of Operations, contained in our
financial statements. Revenues from Broadband Internet Services aggregated
$956,736 for the year ended March 31, 2000. These revenues have increased each
quarter since June 1999 when our first data center in Austin, Texas began
operations. Quarter by quarter revenues are as follows:

<TABLE>
<CAPTION>
Broadband Internet Services by quarter:
---------------------------------------
<S>                                         <C>
Quarter ended June 30, 1999                 $  9,077
Quarter ended September 30, 1999              85,650
Quarter ended December 31, 1999              278,455
Quarter ended March 31, 2000                 583,554
Quarter ended June 30, 2000                  909,445
</TABLE>

     To date, we have had limited revenues and have not shown a profit in our
operations. During fiscal year 2000, our total revenues were only $1.8 million
of which $956,736 came from our new Internet infrastructure business. Our
revenues of $909,445 for the quarter ended June 30, 2000 were derived completely
from our Internet infrastructure business. We expect our losses, which were
approximately $22.0 million in fiscal year 2000 and approximately $4.3 million
for the quarter ended June 30, 2000 to increase during fiscal year 2001, and
possibly beyond, as we continue to expand our operations. As of June 30, 2000,
our accumulated deficit was approximately $50.2 million. Approximately $12.9
million of the accumulated deficit relates to preferred stock discounts and
dividends. Approximately $37.3 million of the deficit relates to losses from
operations. Of the prior year net loss from operations, approximately $8.7
million was due to non-cash charges for issuances of common stock, stock
options, and stock warrants to employees and non-employees. We cannot predict
when profitability might be achieved, if at all. If we are able to become
profitable, we may not be able to sustain it. If we are unable to obtain
profitability or sustain it, we may have to discontinue operations.

     Selling, general and administrative expenses for the three months ended
June 30, 2000 were approximately $5.2 million as compared to the approximate
$11.9 million for the quarter ended March 31, 2000, which represents a decrease
of approximately $6.7 million from the three months ended March 31, 2000.
Approximately $4.6 million of the decrease is attributable to non-cash stock
compensation expense for common stock and options granted to certain employees
of the Company. The decrease in professional fees of approximately $2.7 million
is largely attributable to non-cash compensation expenses for options granted to
non-employees for various services rendered, fees for technical consulting
related to the design and implementation of the broadband Internet services
product offering described above that occurred during the three months ended
March 31, 2000. These expenses were not incurred during the quarter ended June
30, 2000. These decreases were slightly offset by staff additions which include
executive management, specialized technical personnel, sales, finance and
project management employees. These increased expenditures were and will
continue to be required as we build the Company into a multinational premier
provider of broadband Internet infrastructure services. The increase in other
expenses is attributable to the transformation and expansion of the business to
providing broadband Internet infrastructure services. Some of these expenses are
travel, office and other supplies, settlement of business obligations, and other
miscellaneous expenses.

     Interest income for the three months ended June 30, 2000, was $504,027.
This is attributable to interest earned on the proceeds from the various private
placement of common stock of the Company through February 2000, with the Company
receiving net proceeds of approximately $56.5 million. The interest expense of
approximately $2.0 million for the quarter ended March 31, 2000 was primarily as
a result of amortization of debt discount charged to interest relating to senior
convertible debt issued for cash.


                                       10
<PAGE>   11


LIQUIDITY AND CAPITAL RESOURCES

     We have experienced significant losses to date. We have an ongoing need for
significant capital to finance the expansion of our business of providing a
suite of high-speed Internet access data transport and networking services,
co-location services and web site hosting services. Significant funds will be
needed to hire additional technical and professional staff, construct additional
data centers, and implement a sales and marketing campaign.

     At June 30, 2000, our principal source of liquidity was approximately $34.9
million in cash and cash equivalents. This cash was raised primarily through
various private placements of common stock with the Company receiving net
proceeds of $56.5 million. As of June 30, 2000, our current liabilities were
approximately $588,000.

     Net cash used in operating activities for the three months ended June 30,
2000 was approximately $10 million, primarily due to net losses, an increase in
accounts receivable-trade, and decreases in accounts payable and accrued
expenses. These amounts were offset in part by depreciation and amortization
expense, amortization of debt discount, amortization of deferred rent, and
decreases in other receivables and other current assets. This compares to net
cash used in operating activities for the three months ended June 30, 1999 of
approximately $2.7 million, which was primarily due to net losses and decreases
in accounts payable.

     Net cash used in investing activities for the three months ended June 30,
2000 was approximately $4.5 million, primarily due to capital expenditures for
the continued construction of Internet data centers. This compares to the net
cash provided by investing activities for the three months ended June 30, 1999
of approximately $10,000, primarily due to proceeds of a sale/leaseback
transaction in part by the capital expenditures for the construction of our
first Internet data center in Austin, Texas.

     Net cash provided by financing activities for the three months ended June
30, 2000 was approximately $718,000, primarily due to approximately $1.3 million
of proceeds from the exercise of warrants, stock options and a shareholder
receivable. This was offset in part by approximately $536,000 in repayments on
notes payable and capital leases.

     On August 7, 2000, the Company and Hewlett-Packard Company ("HP") entered
into a financing under which HP agreed, subject to the fulfillment of certain
conditions, to lend up to $40 million to the Company. The loans, which will be
evidenced by a convertible secured promissory note, will bear interest, payable
quarterly, at the rate of 10.5% per annum. Principal will be due on August 3,
2004. Under the Note, the Company is required to use at least 50% of the
proceeds of borrowings to purchase HP products, support and services. The
remainder may be used for other corporate purposes. The Note will be secured by
security interests in the HP equipment and other equipment acquired by the
Company with the proceeds of the loans. At HP's option the Note is convertible
into the Company's common stock at a price of $8.333333 per share, subject to
adjustment.

     We intend to make significant expenditures in the next twelve months
primarily for property and equipment, in particular equipment and construction
needed for existing and future Internet data centers, as well as other general
office equipment. We expect to finance these purchases from the cash described
above and supplement that with additional financing through lending institutions
or strategic vendors. We believe our currently estimated working capital and
capital expenditure requirements over the next twelve months can be met with
existing cash and cash equivalents, cash from sales of services, and future
equipment financing lines of credit.

     We may enter into additional equipment loans and capital leases. We may
also seek to raise additional funds through public or private financing,
strategic relationships and other arrangements. There can be no assurance that
we will be successful in generating sufficient cash flows from operations or
raising capital in sufficient amounts on terms acceptable to us.


                                       11
<PAGE>   12


RISK FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

     In addition to the other information in this report, you should carefully
consider the following factors in evaluating our business and us. The
discussions in this report and in our reports filed with the SEC contain
forward-looking statements that involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to a
difference in our actual results are discussed below. Additionally, further
discussion of these risk factors and other risks may be found in the
"Management's Discussion and Analysis of Financial Condition and Results
Operations" and "Business" sections of this report.

RISKS RELATED TO OUR BUSINESS

     Our forecasts are based on an unproven business model. If our model's
assumptions are not accurate we may fail to generate profits and may continue to
recognize losses.

     The success of our business model depends on developing a market for
unproven products and services. We generate revenues by providing customers with
bandwidth and related services, relatively new products and services. Our
success relies on our products and services achieving wide acceptance in the
market at competitive prices. Because of the relative novelty of our products
and services, our business model is based on limited and uncertain information
about future demand and costs. As a result, we may not generate revenues at the
expected levels or control expenses. If our earnings are lower than anticipated,
we may disappoint investors, which could cause our stock price to decline.

     You have limited information on which to evaluate us. Our future results
may vary significantly from our past performance.

     Since March 1999, we have changed the focus of our business from providing
hardware and systems integration services to providing a suite of high-speed
Internet access, data transport and networking services, co-location services
and web site hosting services. Because of our limited operating history in
providing our current product mix, there is limited operating and financial data
about our business for you to use in evaluating us or our performance.

     We have a history of losses and expect continuing losses. As a shareholder,
your investment may be lost if we fail to become profitable.

     To date, we have had limited revenues and have not shown a profit in our
operations. During fiscal 2000, our total revenues were only $1.8 million of
which $956,736 came from our new Internet infrastructure business. First quarter
fiscal year 2001 revenues were $909,445, all of which came from our Internet
infrastructure business. We expect our losses, which were approximately $22.0
million in fiscal year 2000 and approximately $4.3 million for the quarter ended
June 30, 2000 to increase during fiscal year 2001, and possibly beyond, as we
continue to expand our operations. As of June 30, 2000, our accumulated deficit
was approximately $50.2 million. Approximately $12.9 million of the accumulated
deficit relates to preferred stock discounts and dividends. Approximately $37.3
million of the deficit relates to losses from operations. Of the fiscal year
2000 net loss from operations, approximately $8.7 million was due to non-cash
charges for issuances of common stock, stock options, and stock warrants to
employees and non-employees. We cannot predict when profitability might be
achieved, if at all. If we are able to become profitable, we may not be able to
sustain it. If we are unable to obtain profitability or sustain it, we may have
to discontinue operations.

     We may be unable to manage complications that arise during the build out of
additional data centers. These build outs may cost more than budgeted and not
generate revenues as quickly as anticipated.

     We are planning to build out new data centers across a wide range of
geographic regions. The build out of data centers is a key element of our
business strategy. Each data center takes approximately 60 to 90 days to
complete. Any delays in the build out of new data centers could significantly
harm our expansion plans. Many of the risks


                                       12
<PAGE>   13


associated with significant expansion projects are beyond our control and could
delay the build out of additional data centers. These risks include cost
estimation errors or overruns, equipment and material delays or shortages, and
the inability to obtain necessary permits on a timely basis, if at all.

     If our new data centers exceed our managerial and capital resources, our
customer service may suffer, causing us to lose customers.

     If completed, new data centers will result in substantial new operating
expenses and managerial burdens. Moreover, a failure to institute adequate
financial and managerial controls, reporting systems and procedures for multiple
facilities would significantly harm our operations. Failure to manage the data
centers' increased expenses and managerial burdens could interrupt operations
causing us to lose customers.

     We have had recent changes in management. Our current management may be
unable to lead us into profitability.

     Many of our senior managers have only recently been hired. We are
continuing to build a new management team. This team has not had the opportunity
to work together in the past. There is no assurance the new management team will
be able to successfully lead us into profitability.

     We will be unable to compete effectively if we are unable to attract and
retain key personnel.

     Our future success depends on highly qualified technical, sales, marketing
and customer service personnel. The industry in which we compete has a high
level of employee mobility and aggressive recruiting of skilled personnel. We
face intense competition for qualified personnel in software development,
network engineering and product management. If we are unable to attract and
retain qualified personnel, our ability to compete will be compromised.

     Our possible exposure to infringement claims may cause unexpected legal
expenses and divert management resources.

     Our management personnel were previously employees of other
telecommunications companies. Our management personnel may have had contracts
with the prior companies. In many cases, these individuals conduct activities
for us in areas similar to those in which they were involved before joining us.
As a result, our employees or we could be subject to allegations of violation of
trade secrets, breach of contract or unfair competition. These claims may
distract our management and employees from their duties and require reallocation
of our resources. Moreover, an unfavorable ruling may hinder our ability to use
technology we need to conduct our business. Liability and defense costs under
these claims could increase our expenses and adversely affect our ability to
compete.

     Our operations depend on our ability to maintain favorable relationships
with third party suppliers. We cannot assure the continuity of those
relationships.

     We have entered into several alliance and contractual agreements to utilize
third parties' infrastructures and networks for our products and services. We
are dependent on the continued availability of these infrastructures and
networks for our growth and development. If we are unable to maintain or replace
our relationships with our suppliers, we will be unable to provide the current
level of services to our customers. Our failure to consistently provide our
current levels of service could result in a reduction of our client base and
sales volume.

     System failures could disrupt our services and cause us to lose customers.

     Our target market is particularly sensitive to service failures. Service
failures may reduce or terminate the services we supply to our customers. Any
reduction or termination of our services could cause our customers to switch
their business to our competitors and may hinder our ability to obtain new
customers. Our system is vulnerable to damage from human error, power loss,
facility failures, fire, earthquake, floods, telecommunications failure,
break-ins, sabotage and vandalism. Moreover, we do not have a disaster recovery
plan, carry any business interruption insurance or have any secondary off-site
systems.


                                       13
<PAGE>   14


RISKS RELATED TO OUR INDUSTRY

     Our growth and performance may be hindered if the Internet use fails to
increase as predicted.

     Demand for our services could be reduced if the market for business-related
Internet solutions fails to develop further. Critical issues concerning the
commercial use of the Internet remain unresolved and may hinder the growth of
Internet use. These issues are particularly critical in the business sector --
our target market. If demand for our services fails to materialize at the
anticipated levels, our revenues will also fail to reach expectations.

     The market for our products and services is highly competitive, and we may
not be able to compete effectively.

     The market for our products and services is rapidly evolving. Our market is
also intensely competitive, partly due to relatively low barriers to entry. Many
of our competitors and potential competitors have longer operating histories,
greater name recognition and substantially greater financial, technical and
marketing resources than us. Moreover, our competitors may be able to negotiate
contracts with suppliers on more favorable terms than we can. Some of these
competitors may also provide products with some performance advantages over our
products. Given the fierce competition in our industry and our comparatively
limited resources, we may not be able to compete effectively.

     Our services are subject to uncertain government regulation. Changes in
laws or regulations could restrict the way we operate our business.

     We operate in an environment of unstable and evolving laws and regulations.
Changes in applicable laws or regulations could impact our operations and impact
our costs, service requirements and the scope of competition. Incumbent local
carriers are likely to pursue efforts to affect the applicable laws and
regulations in a manner that would be more favorable to them and that may be
against our interests. The likely means to affect the laws include litigation in
courts, administrative proceedings with the Federal Communications Commission
and state telecommunications regulators and lobbying the U.S. Congress. We may
choose to expend significant resources to participate in regulatory proceedings
at the federal or state level. The expenses associated with participating in and
complying with an evolving regulatory framework may increase our operating
expenses beyond expectations. Despite our possible expenditures, we cannot
assure any favorable results.

     Demand for our products and our projected income will fail to meet
expectations if digital subscriber line services are not accepted by businesses
at profitable prices

     The market for high-speed Internet access, data transport and networking
services using copper telephone lines is in the early stages of development. If
the market for our digital subscriber line services fails to develop, grows more
slowly than anticipated or becomes saturated with competitors, our operations
and future revenue stream may not achieve our expectations. We cannot accurately
predict the rate at which this market will grow or whether new or increased
competition will result in market saturation. If demand for our products and
services does not meet expectations, our revenues may be lower than anticipated.

     Internet security concerns may hinder the development of electronic
commerce and demand for our products and services.

     A significant barrier to commerce and communications over the Internet has
been the need for the secure transmission of confidential information. Security
breaches or the inadvertent transmission of computer viruses could expose us to
litigation and possible liability. We may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by
breaches. A party who is able to penetrate our network security could misuse our
users' personal information and our users might sue us or bring claims against
us. If any well-publicized compromise of security occurs, Internet usage and the
demand for our services could decline.


                                       14
<PAGE>   15


                           PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The Company may from time to time be parties to various legal actions. The
company is not currently a party to any material legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     For a discussion of Changes in Securities and Use of Proceeds, refer to
Note 2, Stockholders' Equity, in the Notes to Consolidated Financial Statements
in Part I, Item 1.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

ADDITIONAL FACILITIES:

     The Company has executed one additional lease to construct a new data
center in Chicago, Illinois. Phase I of the data center construction in Dallas
and Tampa was completed in April 2000. Additional phases will be completed in
Dallas and Tampa as needed. Phase I construction of a data center in Atlanta,
Georgia is currently in progress and expected to be completed in August 2000.
Phase I construction of a data center in Phoenix, Arizona is expected to be
started in September 2000. The Phase II expansion of the Austin data center was
completed in April 2000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBIT

     27.1 Financial Data Schedule

(B)  REPORTS ON FORM 8-K

The Company filed no Reports on Form 8-K during the quarter covered by this
Report on Form 10-QSB.


                                       15
<PAGE>   16


                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                               MSI HOLDINGS, INC.

                       Date: August 14, 2000  By: /s/ Robert J. Gibbs
                                                  ------------------------------
                                                  Robert J. Gibbs, President and
                                                  Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of this
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                            Title                              Date
---------                            -----                              ----
<S>                                  <C>                                <C>

/s/ Robert J. Gibbs                     President and                   August 14, 2000
----------------------------         Chief Executive Officer
    Robert J. Gibbs


/s/ Douglas W. Banister              Chief Financial Officer and        August 14, 2000
----------------------------         Secretary
    Douglas W. Banister


/s/ Elizabeth Montoya                Controller                         August 14, 2000
----------------------------
    Elizabeth Montoya
</TABLE>


                                       16
<PAGE>   17


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
 27.1          Financial Data Schedule
</TABLE>