##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION





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Form 10-QSB

[X]   QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]


For the Quarterly Period Ended June 30, 1999

or

[   ]   TRANSITION REPORT
 PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]




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Commission File Number 0-8164

MSI Holdings, Inc.





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

|                                         |  |           
|---------------------------------------- |  | ----------
|                                        
|                                        
|                                        
|                                        
|501 Waller Street Austin, Texas          |  | 78702     
|(Address of principal executive offices) |  | (Zip Code)

(Issuers telephone number, including area code) 512-476-6925

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, PAR VALUE $.10

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
 report(s), and (2) has been subject to such filing
requirements for the past 90 days. (1) 
Yes [X]  No [   ] (2) 
Yes [X]  No [   ]

Check if disclosure of delinquent
filers in response to Item 405 of Regulation S-B is not
 contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III
 of this Form 10-QSB or any amendment to this
Form 10-QSB  [   ]

As of June 30, 1999 the
Registrant had 22,635,212 shares of common stock issued and
outstanding.

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



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TABLE OF CONTENTS



|                                                                                                    |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Consolidated Balance Sheet as of June 30, 1999 (Unaudited)                                         
|Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998 (Unaudited)
|Consolidated Statements of Cash Flows for the three months ended June30, 1999 and 1998 (Unaudited) 
|Selected Notes to Consolidated Financial Statements(Unaudited)                                     



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PART I  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

INDEX TO FINANCIAL STATEMENTS

|                                                                                                     |  |  |     | 
|---------------------------------------------------------------------------------------------------- |  |  | --- | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Balance Sheet as of June 30, 1999 (Unaudited)                                           |  |  | F-2 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Operations for the three months ended
	June 30, 1999 and 1998 (Unaudited) |  |  | F-3 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Cash Flows for the three months ended
	June 30, 1999 and 1998 (Unaudited) |  |  | F-4 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Selected Notes to Consolidated Financial Statements (Unaudited)                                      |  |  | F-6 | 

F-1



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES






CONSOLIDATED BALANCE SHEET (UNAUDITED)


June 30, 1999


|                                           |                                                                                                                 |                             |           |             |           | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | --------------------------- | --------- | ----------- | --------- | 
|ASSETS                                    
|Current Assets                             |                                                                                                                 |                             |           |            
|                                          
|                                          
|                                          
|                                          
|                                           | Cash                                                                                                            |                             | $         | 385,132     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts Receivable  Trade                                                                                     |                             |           | 403,169     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Inventory                                                                                                       |                             |           | 72,258      |          
|                                          
|                                          
|                                          
|                                          
|                                           | Other Receivables  Advances                                                                                    |                             |           | 78,377      |          
|                                           |                                                                                                                 |                             |           |            
|                                           |                                                                                                                 | Total Current Assets        |           |             | 938,936   | 
|                                          
|                                          
|                                          
|                                          
|Property, Plant, and Equipment, net        |                                                                                                                 |                             | 2,061,246 |            
|                                           |                                                                                                                 |                             |           |            
|TOTAL ASSETS                               |                                                                                                                 | $                           | 3,000,182 |            
|                                           |                                                                                                                 |                             |           |            
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Current Liabilities                        |                                                                                                                 |                             |           |            
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts Payable  Trade                                                                                        |                             | $         | 238,500     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Other Accrued Expenses                                                                                          |                             |           | 141,442     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Current Maturities of Notes payable                                                                             |                             |           | 111,969     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Current Portion of Obligations Under Capital Leases                                                             |                             |           | 118,736     |          
|                                           |                                                                                                                 |                             |           |            
|                                           |                                                                                                                 | Total Current Liabilities   |           |             | 610,647   | 
|Long-Term Liabilities                      |                                                                                                                 |                             |           |            
|                                          
|                                          
|                                          
|                                          
|                                           | Notes Payable                                                                                                   |                             |           | 126,983     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Obligations Under Capital Leases                                                                                |                             |           | 743,759     |          
|                                           |                                                                                                                 |                             |           |            
|                                           |                                                                                                                 | Total Long-Term Liabilities |           |             | 870,742   | 
|                                          
|                                          
|                                          
|                                          
|Commitments and Contingencies              |                                                                                                                 |                             |          |            
|                                           |                                                                                                                 |                             |           |            
|                                           |                                                                                                                 | Total Liabilities           |           |             | 1,481,389 | 
|Stockholders Equity                       |                                                                                                                 |                             |           |            
|                                          
|                                          
|                                          
|                                          
|                                           | Preferred stock Series B; $5.30 stated value; 490,000
	authorized, 5 shares issued and outstanding              |                             |           | 27          |          
|                                          
|                                          
|                                          
|                                          
|                                           | Preferred stock Series D; $10.60 stated value; 279,657
	authorized, 19,005 shares issued and outstanding        |                             |           | 201,453     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Preferred stock Series E; $30.00 stated value; 157,500
	authorized, 16,005 shares issued and outstanding        |                             |           | 480,150     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock at $.10 par value; 50,000,000 authorized, 22,635,212
	 shares issued and outstanding, respectively |                             |           | 2,263,521   |          
|                                          
|                                          
|                                          
|                                          
|                                           | Additional Paid-in Capital                                                                                      |                             |           | 33,786,026  |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated Deficit                                                                                             |                             |           | (35,212,384 | )        
|                                           |                                                                                                                 |                             |           |            
|                                           |                                                                                                                 | Total Stockholders Equity  |           |             | 1,518,793 | 
|                                           |                                                                                                                 |                             |           |            
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                 | $                           | 3,000,182 |            
|                                           |                                                                                                                 |                             |           |            

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

F-2



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES






CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


Three Months Ended June 30, 1999 and 1998


|                                                      |                                    |                                                    |            |         |           |   |            |         |           | 
|----------------------------------------------------- | ---------------------------------- | -------------------------------------------------- | ---------- | ------- | --------- | - | ---------- | ------- | --------- | 
|                                                      |                                    |                                                   
|                                                      |                                    | June 30                                           
|                                                      |                                    |                                                   
|                                                      |                                    | 1999                                               |            | 1998   
|                                                      |                                    |                                                    |            |        
|Revenues:                                             |                                    |                                                    |            |         |           |   |            |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Hardware, software and peripherals |                                                    | $          | 120,287 |           |   | $          | 503,632 |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Networks, LAN/ WAN                 |                                                    |            | 58,990  |           |   |            | 23,898  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Service, support and integration   |                                                    |            | 260,789 |           |   |            | 74,099  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Broadband Internet services        |                                                    |            | 9,077   |           |   |            |        |          
|                                                      |                                    |                                                    |            |         |           |   |            |        
|                                                      |                                    | Net Revenues                                       |            |         | 449,143   |   |            |         | 601,629   | 
|                                                      |                                    |                                                    |            |         |           |   |            |        
|Cost of Goods Sold:                                   |                                    |                                                    |            |         |           |   |            |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Hardware, software and peripherals |                                                    |            | 185,912 |           |   |            | 419,204 |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Networks, LAN/ WAN                 |                                                    |            | 194,482 |           |   |            | 17,207  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Service, support and integration   |                                                    |            | 81,386  |           |   |            | 64,735  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Broadband Internet services        |                                                    |            | 45,666  |           |   |            |        |          
|                                                      |                                    |                                                    |            |         |           |   |            |        
|                                                      |                                    | Total Cost of Goods Sold                           |            |         | 507,446   |   |            |         | 501,146   | 
|                                                      |                                    |                                                    |            |         |           |   |            |        
|                                                      |                                    | Gross Profit (Loss)                                |            |         | (58,303   | ) |            |         | 100,483   | 
|                                                      |                                    |                                                    |            |         |           |   |            |        
|Selling, General and Administrative Expenses:         |                                    |                                                    |            |         |           |   |            |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Salaries and benefits              |                                                    |            | 696,214 |           |   |            | 553,207 |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Professional fees and consultants  |                                                    |            | 671,427 |           |   |            | 171,575 |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Advertising and marketing          |                                                    |            | 5,506   |           |   |            | 14,367  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Occupancy                          |                                                    |            | 94,560  |           |   |            | 89,679  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Depreciation and amortization      |                                                    |            | 97,586  |           |   |            | 52,991  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Vehicle expense                    |                                                    |            | 7,229   |           |   |            | 34,610  |          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other expense                      |                                                    |            | 124,541 |           |   |            | 109,375 |          
|                                                      |                                    |                                                    |            |         |           |   |            |        
|                                                      |                                    | Total Selling, General and Administrative Expenses |            |         | 1,697,063 |   |            |         | 1,025,804 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense, net                                 |                                    |                                                    | 44,491     |         |           |   | 20,636     |        
|                                                      |                                    |                                                    |            |         |           |   |            |        
|                                                      |                                    | Total expenses                                     |            |         | 1,741,554 |   |            |         | 1,046,440 | 
|                                                      |                                    |                                                    |            |         |           |   |            |        
|Net Loss                                              |                                    |                                                    | (1,799,857 | )       |           |   | (945,957   | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Plus Preferred stock dividends                        |                                    |                                                    | (69,013    | )       |           |   | (66,743    | )      
|                                                      |                                    |                                                    |            |         |           |   |            |        
|Net loss available to Common stockholders             |                                    | $                                                  | (1,868,870 | )       |           | $ | (1,012,700 | )      
|                                                      |                                    |                                                    |            |         |           |   |            |        
|Basic and diluted net loss per share                  |                                    | $                                                  | (0.09      | )       |           | $ | (0.09      | )      
|                                                      |                                    |                                                    |            |         |           |   |            |        
|Basic and diluted weighted average shares outstanding |                                    |                                                    | 20,268,057 |         |           |   | 11,507,002 |        
|                                                      |                                    |                                                    |            |         |           |   |            |        

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

F-3



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Three Months Ended June 30, 1999 and 1998


|                                |                                                                                  |                                       |                                           |            |         |            |         |           |        |            |  
|------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------- | ----------------------------------------- | ---------- | ------- | ---------- | ------- | --------- | ------ | ---------- | -
|                                |                                                                                  |                                      
|                                |                                                                                  | June 30                              
|                                |                                                                                  |                                      
|                                |                                                                                  | 1999                                  |                                           | 1998      
|                                |                                                                                  |                                       |                                           |           
|OPERATING ACTIVITIES:           |                                                                                  |                                       |                                           |            |         |            |         |          
|                               
|                               
|                               
|                               
|                                | Net loss                                                                         |                                       | $                                         | (1,799,857 | )       |            | $       | (945,957  | )     
|                               
|                               
|                               
|                               
|                                | Adjustments to reconcile net loss to net cash provided by
	operating activities: |                                       |                                           |            |         |            |         |           |       
|                               
|                               
|                               
|                               
|                                |                                                                                  | Depreciation and amortization expense |                                           |            | 97,586  |            |         |           | 52,991 |           
|                               
|                               
|                               
|                               
|                                |                                                                                  | Stock issued for compensation         |                                           |            | 281,581 |            |         |           | 8,002  |           
|                               
|                               
|                               
|                               
|                                |                                                                                  | Options issued for compensation       |                                           |            | 95,532  |            |         |           |       |           
|                               
|                               
|                               
|                               
|                                | Change in accounts receivable  trade                                            |                                       |                                           | 172,061    |         |            |         | (181,887  | )     
|                               
|                               
|                               
|                               
|                                | Change in inventory                                                              |                                       |                                           | (1,637     | )       |            |         | 55,430    |       
|                               
|                               
|                               
|                               
|                                | Change in other receivables  advances                                           |                                       |                                           | 35,822     |         |            |         | (91,140   | )     
|                               
|                               
|                               
|                               
|                                | Change in accounts payable  trade                                               |                                       |                                           | (1,263,463 | )       |            |         | (110,798  | )     
|                               
|                               
|                               
|                               
|                                | Change in other accrued expenses                                                 |                                       |                                           | (35,139    | )       |            |         | (68,689   | )     
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|                                |                                                                                  |                                       | Net cash used by operating activities     |            |         | (2,417,514 | )       |           |        | (1,190,908 | )
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|INVESTING ACTIVITIES:           |                                                                                  |                                       |                                           |            |         |            |         |          
|                               
|                               
|                               
|                               
|                                | Purchase of property, plant & equipment                                          |                                       |                                           | (13,105    | )       |            |         | (149,050  | )     
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|                                |                                                                                  |                                       | Net cash used by investing activities     |            |         | (13,105    | )       |           |        | (149,050   | )
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|FINANCING ACTIVITIES:           |                                                                                  |                                       |                                           |            |         |            |         |          
|                               
|                               
|                               
|                               
|                                | Changes in bank line of credit, net                                              |                                       |                                           | (200,000   | )       |            |         |          |       
|                               
|                               
|                               
|                               
|                                | Payments on notes payable                                                        |                                       |                                           | (49,973    | )       |            |         | (329,866  | )     
|                               
|                               
|                               
|                               
|                                | Payments on obligations under capital leases                                     |                                       |                                           | (17,546    | )       |            |         | (22,401   | )     
|                               
|                               
|                               
|                               
|                                | Proceeds  private placement of preferred stock                                  |                                       |                                           | 526,800    |         |            |         | 1,765,664 |       
|                               
|                               
|                               
|                               
|                                | Proceeds  issuance of Common Stock                                              |                                       |                                           | 2,547,999  |         |            |         |          |       
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|                                |                                                                                  |                                       | Net cash provided by financing activities |            |         | 2,807,280  |         |           |        | 1,413,397  |  
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|NET INCREASE (DECREASE) IN CASH |                                                                                  |                                       | 376,661                                   |            |         |            | (17,701 | )        
|                               
|                               
|                               
|                               
|CASH AT BEGINNING OF PERIOD     |                                                                                  |                                       | 8,471                                     |            |         |            | 25,785  |          
|                                |                                                                                  |                                       |                                           |            |         |            |         |          
|CASH AT END OF PERIOD           |                                                                                  | $                                     | 385,132                                   |            |         | $          | 8,085   |          
|                                |                                                                                  |                                       |                                           |            |         |            |         |          

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

F-4



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended June 30, 1999 and 1998


|                                                                       |                                |                           |        |      |         |  |        |   |        | 
|---------------------------------------------------------------------- | ------------------------------ | ------------------------- | ------ | ---- | ------- |  | ------ | - | ------ | 
|                                                                       |                                |                          
|                                                                       |                                | June 30,                 
|                                                                       |                                |                          
|                                                                       |                                | 1999                      |        | 1998
|                                                                       |                                |                           |        |     
|Supplemental disclosure:                                               |                                |                           |        |      |         |  |        |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Cash paid during the year for: |                           |        |      |         |  |        |   |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                | Interest                  |        | $    | 44,491  |  |        | $ | 35,789 | 
|                                                                       |                                |                           |        |      |         |  |        |  
|Supplemental schedule of non-cash investing and financing
	activities: |                                |                           |        |      |         |  |        |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Preferred stock issued for:    |                           |        |      |         |  |        |   |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                | Placement agent fees      |        | $    | 73,200  |  |        | $ |       | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Stock options:                 |                           |        |      |         |  |        |   |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                | Placement agent fees      |        |      | 95,532  |  |        |   |       | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Common stock issued for:       |                           |        |      |         |  |        |   |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                | Compensation              |        |      | 281,581 |  |        |   | 8,002  | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                | Preferred stock dividends |        |      | 69,013  |  |        |   | 66,743 | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Inventory converted to equipment                                       |                                |                           | 13,105 |      |         |  | 44,021 |  
|                                                                       |                                |                           |        |      |         |  |        |  

F-5



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES






SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


Three Months Ended June 30, 1999 and 1998


Note 1  Basis of Presentation and Significant
Accounting Policies

The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Article 310(b) of
Regulation S-B. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation for the
periods indicated have been included. Operating results for the
three month period ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended
 March 31, 2000. The accompanying financial statements
should be read in conjunction with our audited consolidated
financial statements and notes thereto for the year ended
March 31, 1999.

Going concern:

As shown in the accompanying consolidated financial statements,
the Company has incurred a net loss of $1,799,857 for the three
months ended June 30, 1999. The ability of the Company to
continue as a going concern is dependent on the Company obtaining
 additional financing to fund operations and capital
improvements.

At March 31, 1999, the Company has completed arrangements
with a private investment group for the private placement of up
to 1.5 million shares of the Companys Common Stock to
raise approximately $4.5 million in capital. In April
through July 15, 1999, the Company received approximately
$3.3 million in this private placement. The Company received
 $600,000 from the private placement of 20,000 shares of the
 Companys Series E Preferred Stock, $30 stated value
(the Series E Preferred) during the three months
 ended June 30, 1999. These funds have been used to retire
debt, decrease past due accounts payable and pay operating
expenses. In addition, management closed a substantial contract
with GTE during the year ended March 31, 1999. In the first
quarter of fiscal year 2000, the Company established an
affiliation with Southwestern Bell as a Digital Subscriber Line
(xDSL) service reseller which will foster its ability
 to provide state-of-the-art connectivity services.

The Company is also consulting with investment bankers for a
secondary public offering to be completed during the year ended
March 31, 2000. These funds will be used to satisfy
additional capital needs for expansion opportunities associated
with the contracts identified above.

The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a
going concern.

Comprehensive Income:

In 1997, the Financial Accounting Standards Board issued
Statement No. 130, Reporting Comprehensive Income, which
establishes standards for reporting comprehensive income and its
components in a full set financial statements. The adoption of
Statement No. 130 did not have a significant effect on the
current financial statement presentation of income as the Company
 has no items of comprehensive income.

Principles of Consolidation:

The condensed consolidated financial statements for the three
months ended June 30, 1999, include the accounts and
transactions of the Company and its wholly-owned subsidiaries,
MSI and Tele-Vista, Inc., (which was incorporated August 1998 and
 has not yet commenced operations). All significant intercompany
accounts and transactions have been eliminated in the
accompanying consolidated financial statements.

F-6



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES




SELECTED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Reclassification:

Certain reclassifications have been made to the prior period
amounts to conform to the 1999 presentation.

Note 2  Bank Line of Credit

The Company has a secured line of credit agreement with a bank
which matures April 30, 1999, is secured by accounts
receivable, and bears interest at 7.25%. This line is payable in
monthly installments of interest only. The balance at
March 31, 1999, was $200,000. Interest was paid through
March 31, 1999. The line of credit was paid in full at
April 30, 1999 and was not renewed. There are no additional
loan covenants associated with this line of credit.

Note 3  Related Party Transactions

During the year ended March 31, 1998, the Company entered
into a consulting agreement with an entity,
(Consultant), in which the President of the entity is
 the Chairman of the Board of the Company. The terms of the
consulting agreement include the following:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | $10,000 fee per month,                                                              
|
| |  | Reasonable business expenses incurred by Consultant,                                
|
| |  | 75,000 shares of Common Stock,                                                      
|
| |  | Various fees and commissions for acquisitions or sales secured by
	 Consultant,  and
|
| |  | Options to purchase 75,000 shares of Common Stock.                                  

During the three months ended June 30, 1999 the Company paid
 the Consultant $30,000.

Note 4  Stockholders Equity

During the three months ended June 30, 1999,
399,995 shares of the Companys Series B Preferred
 Stock were converted to 3,999,950 shares of the
Companys Common Stock.

During the three months ended June 30, 1999,
177,335 shares of the Companys Series D Preferred
 Stock were converted to 1,773,350 shares of the
Companys Common Stock.

The Company received $600,000 from the private placement of
20,000 shares of the Companys Series E Preferred
Stock, $30 stated value (the Series E Preferred)
 during the three months ended June 30, 1999. Each share of
the Companys Series E Preferred Stock is initially
convertible into 10 shares of the Companys Common
Stock, subject to adjustment. The Company paid approximately
$73,200 for placement agent fees.

During the three months ended June 30, 1999,
130,247 shares of Series E Preferred Stock were
converted to 1,302,470 shares of the Companys Common
Stock.

The Company has concluded the private placement of
1,178,666 shares of the Companys Common Stock (the
Common Stock). The Company paid approximately
$180,000 and issued 25,000 shares of Common Stock for
placement agent fees. The Common Stock yielded aggregate net
proceeds of approximately $3.3 million to the Company and
was completed by June 30, 1999. At June 30, 1999,
$879,999 of the proceeds, representing 293,333 shares of
Common Stock, was receivable from stockholders, $72,000 of the
expenses for placement agent fees had not been paid and
10,000 shares of the Commons for placement agent fees had
not been issued. These amounts were offset against Common Stock
and additional paid-in capital in the accompanying financial
statements, respectively.

F-7



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES




SELECTED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Preferred stock dividends were paid with the issuance of Common
Stock, valued at the previous thirty day average closing bid
price per share of Common Stock, as follows:

|                                 |  |        |        |        |  |   |        | 
|-------------------------------- |  | ------ | ------ | ------ |  | - | ------ | 
|                                 |  | Shares |        | Amount
|                                 |  |        |        |       
|Three Months ended June 30, 1999 |  |        | 12,057 |        |  | $ | 69,013 | 

Note 5  Earnings Per Share

The following data details the amounts used in computing earnings
 per share (EPS) and the effect on income and the weighted
average number of shares of dilutive potential Common Stock.

|                                                                                          |                              |               |            |   | 
|----------------------------------------------------------------------------------------- | ---------------------------- | ------------- | ---------- | - | 
|                                                                                          |                              | June 30, 1999
|                                                                                          |                              |              
|Loss from continuing operations                                                           |                              | $             | (1,799,857 | )
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Less: Preferred dividends                                                                 |                              |               | (69,013    | )
|                                                                                          |                              |               |            |  
|Loss available to Common stockholders used in basic EPS                                   |                              | $             | (1,868,870 | )
|                                                                                          |                              |               |            |  
|Weighted average number of Common shares used in basic EPS                                |                              |               | 20,268,057 |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Effect of dilutive securities:                                                            |                              |               |            |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Preferred Stock  all series |               |            |  | 
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Stock options                |               |            |  | 
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Warrants                     |               |            |  | 
|                                                                                          |                              |               |            |  
|Weighted number of common shares and dilutive potential Common
	Stock used in diluted EPS |                              |               | 20,268,057 |  
|                                                                                          |                              |               |            |  

In addition, 5 shares of Series B Preferred Stock,
convertible into 50 shares of the Companys Common
Stock, 19,500 shares of the Companys Series D
Preferred Stock convertible into 195,000 shares of the
Companys Common Stock, 16,005 shares of the
Companys Series E Preferred Stock convertible into
1,600,005 shares of the Companys Common Stock, options
 on 786,170 shares of the Companys Common Stock and
warrants on 2,520,000 shares of the Companys Common
Stock were not included in computing diluted EPS for the three
months ended June 30, 1999, because their effects were
antidilutive.

Note 6  Contingencies

As of March 31, 1999, the Company agreed to settle its
lawsuits related to the Companys relationship with a former
 consultant, Kenneth ONeal (ONeal) and a
firm which he controls, Argus Management, Inc.
(Argus). On December 18, 1997 Argus filed a
lawsuit in Kerr County, Texas, 216th Judicial District, to
collect on two promissory notes in the aggregate principal amount
 of $200,000. The Company vigorously defended this lawsuit and
filed a related suit against ONeal and Argus in Travis
County, Texas on February 6, 1998, alleging fraud, usury in
connection with the promissory notes, and seeking an order from
the Court demanding that Argus transfer 293,185 shares of
Common Stock of the Company, held by Argus, to various
shareholders who have previously purchased such shares (the
Argus Related Shares). The agreed upon settlement
provides that Argus return 200,250 shares of the
Companys Common Stock to MSI, that MSI tender $250,000 to
Argus and that MSI issue the balance of 92,935 shares of
Common Stock as restricted shares. The parties have agreed to
cancel the two promissory notes from MSI to Argus and write-off
an accounts receivable from Argus in the amount of $65,000 and
release all other claims among the parties. The
200,250 shares have been canceled during the three months
ended June 30, 1999.

On July 28, 1999, the Company was sued by its former
President seeking more than $50,000, excluding cost and
attorneys fees. Outside counsel for the Company has advised
 that at this stage in the proceedings they cannot offer an
opinion as to the probable outcome. The Company believes the suit
 is without merit and intends to vigorously defend itself.

F-8



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##### Table of Contents



MSI HOLDINGS, INC. AND SUBSIDIARIES




SELECTED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 7  Subsequent Events

Subsequent to June 30, 1999, an additional 8,000 shares
 of the Companys Series E Preferred Stock were
converted into 80,000 shares of the Companys Common
Stock.

F-9



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##### Table of Contents



ITEM 2.  Managements Discussion and
Analysis Or Plan of Operation

This report contains forward-looking statements that involve
risks and uncertainties. Our actual results may be very different
 from the results discussed in the forward-looking statements.
Some of the factors that could cause differences are discussed
below.

Company Background and Going Concern Issues

Micro-Media Solutions, Inc. (MSI) is the operating
subsidiary of MSI Holdings, Inc. (MSHI, or the
Company). MSI was founded in 1993 in Austin, Texas,
to provide computer hardware, software programming, system
installation and support, maintenance, and media duplication to
the public and private sectors. On June 23, 1997, the
shareholders of MSI entered into an agreement and plan of
reorganization with Mountain States Resources Corporation (now
known as MSHI), whereby the Company acquired all of the issued
and outstanding stock of MSI in exchange for
9,310,000 shares of the Common Stock of MSHI. This was
accounted for as a recapitalization.

In the past, our revenues have been derived from sales of
hardware and software and the performance of technical services,
including the installation and maintenance of networks. Due to
intense competition in these markets and the current opportunity
in the Internet industry, we have repositioned ourselves as a
provider of bandwidth and related services. This shift resulted
in increased expenses for remodeling, compensation, and equipment
 leasing during the last quarter of fiscal year 1999 and the
first quarter of fiscal year 2000.

Our significant historical losses create doubt about our ability
to continue as a going concern. We have reached a short-term
solution to the going concern issue through the private placement
 of Series E Preferred Stock and a private placement of
Common Stock. These funds will provide working capital until we
have completed a larger offering, either publicly or privately.
Through July 1999, we had received net proceeds of
approximately $3.7 million related to the private placement
of Series E Preferred Stock and net proceeds of
approximately $3.3 million related to the private placement
of Common Stock. In addition to working capital, the proceeds
from these two private placements have been and will be used to
retire debt, to decrease accounts payable, and to take advantage
of opportunities for expansion. As a result, our current ratio
and our cash position have both improved. We anticipate
generating working capital from the revenues associated with the
GTE Point of Presence (POP) and the Southwestern Bell
 and Covad Communications xDSL reseller agreement. We are also
consulting with investment bankers and plan a larger offering,
either publicly or privately, in the near future.

Recent Developments

MSI received certification by GTEs BBN Professional
Services group on March 23, 1999 for network architecture,
security design, and facility design. We are the first company to
 receive this certification. During the last half of fiscal year
1999, BBN Professional Services consultants assisted us with the
design and implementation of a data center constructed on
GTEs fiber optic backbone in our facilities in Austin,
Texas. MSIs data center is known as the Internet
Accelerator Portal (IAP). The IAP accelerates Internet
connectivity, increases the users proximity to the
Internet, and increases access speed via the connection to the
Internet Point of Presence.

In May 1999, we formed a strategic alliance with Southwestern
Bell and are now an authorized reseller of their Digital
Subscriber Line (DSL) service. We offer our customers the
opportunity to leverage Southwestern Bells broadband
technology and access the Internet at high speeds with increased
bandwidth. Subsequent to the end of the first quarter, MSI also
announced a strategic alliance with Covad Communications that
enables MSI to provide high-speed Internet and network access to
customers nationwide using Covads Digital Subscriber Lines.

On April 20, 1999, Jose Chavez, President and Chief
Executive Officer, Mitchell Kettrick, Chief Technology officer,
and Jaime Munoz, Vice President of Operations, were terminated
for cause. Robert Gibbs joined the Company as President and Chief
 Executive Officer in June 1999.

1



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##### Table of Contents



Subsequent to the close of the quarter, Roger M. Lane, Chief
 Operating Officer, resigned from the Company to pursue other
interests. In addition, Patricia Hrabina, Vice President of Human
 Resources, Cliff Luckey, Vice President of Technology &
 Solutions, and Robert Frank, Executive Vice President of New
Business Development were hired subsequent to June 30, 1999.

Results of Operations



| |                                                                            
| | ---------------------------------------------------------------------------
| | Quarter Ended June 30, 1999 compared with the Quarter
	Ended June 30, 1998:

|                            |  |           |         |              |  |          |          |             |  |       |          |    |  |   |         |   |  |   |          |   
|--------------------------- |  | --------- | ------- | ------------ |  | -------- | -------- | ----------- |  | ----- | -------- | -- |  | - | ------- | - |  | - | -------- | --
|                            |  |           |         | Hardware     |  |          |          | Service,    |  |      
|                            |  | Broadband |         | Software and |  | Networks |          | Support and |  |      
|                            |  | Internet  |         | Peripherals  |  | LAN/WAN  |          | Integration |  | Total
|                            |  |           |         |              |  |          |          |             |  |      
|Quarter ended June 30, 1999 |  |           |         |              |  |          |          |             |  |       |          |    |  |   |         |   |  |   |          |   
|                           
|                           
|                           
|                           
|Revenues                    |  | $         | 9,077   |              |  | $        | 120,287  |             |  | $     | 58,990   |    |  | $ | 260,789 |   |  | $ | 449,143  |   
|                           
|                           
|                           
|                           
|Cost of Goods Sold          |  |           | 45,666  |              |  |          | 185,912  |             |  |       | 194,482  |    |  |   | 81,386  |   |  |   | 507,446  |   
|                           
|                           
|                           
|                           
|Gross Profit (Loss)($)      |  |           | (36,589 | )            |  |          | (65,625  | )           |  |       | (135,492 | )  |  |   | 179,403 |   |  |   | (58,303  | ) 
|                           
|                           
|                           
|                           
|Gross Profit (Loss)(%)      |  |           | (403.1  | )%           |  |          | (54.6    | )%          |  |       | (229.7   | )% |  |   | 68.8    | % |  |   | (13.0    | )%
|                           
|                           
|                           
|                           
|Quarter ended June 30, 1998 |  |           |         |              |  |          |          |             |  |       |          |    |  |   |         |   |  |   |          |   
|                           
|                           
|                           
|                           
|Revenues                    |  |           | N/A     |              |  | $        | 503,632  |             |  | $     | 23,898   |    |  | $ | 74,099  |   |  | $ | 601,629  |   
|                           
|                           
|                           
|                           
|Cost of Goods Sold          |  |           |         |              |  |          | 419,204  |             |  |       | 17,207   |    |  |   | 64,735  |   |  |   | 501,146  |   
|                           
|                           
|                           
|                           
|Gross Profit (Loss)($)      |  |           |         |              |  |          | 84,428   |             |  |       | 6,691    |    |  |   | 9,364   |   |  |   | 100,483  |   
|                           
|                           
|                           
|                           
|Gross Profit (Loss)(%)      |  |           |         |              |  |          | 16.8     | %           |  |       | 28.0     | %  |  |   | 12.6    | % |  |   | 16.7     | % 
|                           
|                           
|                           
|                           
|Increase/(Decrease)         |  |           |         |              |  |          |          |             |  |       |          |    |  |   |         |   |  |   |          |   
|                           
|                           
|                           
|                           
|Revenues                    |  | $         | 9,077   |              |  | $        | (383,345 | )           |  | $     | 35,092   |    |  | $ | 186,690 |   |  | $ | (152,486 | ) 
|                           
|                           
|                           
|                           
|Cost of Goods Sold          |  |           | 45,666  |              |  |          | (233,292 | )           |  |       | 177,275  |    |  |   | 16,651  |   |  |   | 6,300    |   
|                           
|                           
|                           
|                           
|Gross Profit (Loss)($)      |  |           | (36,589 | )            |  |          | (150,053 | )           |  |       | (142,183 | )  |  |   | 170,039 |   |  |   | (158,786 | ) 
|                           
|                           
|                           
|                           
|Gross Profit (Loss)(%)      |  |           | (403.1  | )%           |  |          | (71.4    | )%          |  |       | (201.7   | )% |  |   | 56.2    | % |  |   | (29.7    | )%

Total revenues for the quarter ended June 30, 1999 decreased
 $152,486 (25.3%) from the total revenues recorded for the
quarter ended June 30, 1998. This was caused by a decrease
of $383,345 in hardware, software, and peripherals revenue which
was partially offset by increases in revenues from network LAN/
WAN and service, support, and integration, and the addition of
Broadband Internet services. The revenue from Broadband Internet
services was $9,077 and only represents revenues from the
initiation of the service in June 1999 through the end of the
quarter. The decrease in hardware, software, and peripherals
reflects a reduction in large one-time sales to governmental
agencies. This is a direct result of the companys shift in
focus from hardware, software and peripherals to Broadband
Internet services. The increase of $35,092 in network LAN/ WAN
revenues was due to normal fluctuations in installation projects
that were in place during each period. The $186,690 increase in
service, support and integration revenues is due to increased
activity on the service contract with Siemens Nixdorf.

Cost of goods sold for the quarter ended June 30, 1999
increased $6,300 (1.3%) from the same period in the prior year.
The total cost of goods sold includes $45,666 related to
Broadband Internet services that were not offered in 1998. The
cost of goods sold related to network LAN/ WAN increased $177,275
 and the cost of goods sold related to service, support, and
integration increased $16,651. There was a decrease of $233,292
in cost of goods sold for hardware, software and peripherals due
to the corresponding reduction in revenues.

The total gross loss for the quarter ended June 30, 1999 was
 ($58,303) or (13.0%), compared to a gross profit of $100,483 or
16.7% for the same period in the prior year. The gross loss for
hardware, software and peripherals for the quarter ended
June 30, 1999 was (54.6%), compared to a gross profit of
16.8% in the quarter ended June 30, 1998. This 71.4%
decrease is the result of fixed costs and decreasing revenue. In
addition, margins are decreasing due to price declines,
competitive bidding, and other industry conditions. The gross
loss for network LAN/ WAN was (229.7%) for the quarter ended
June 30, 1999, compared to a gross profit of 28.0% for the
same period in the prior year. The decrease in profit of 257.7%
is the result of fixed costs and increased salaries related to
network LAN/ WAN installations. The gross profit for service,
support and integration was 68.8% for the quarter ended
June 30, 1999, compared to a gross profit of 12.6% for the
quarter

2



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##### Table of Contents





Selling, general, and administrative expenses for the quarter
ended June 30, 1999 were $1,741,554 (387.8% of revenue),
compared with $1,578,783 (262.4% of revenue) for the quarter
ended June 30, 1998. This is an increase of $162,771
(10.3%). Increases in salaries and benefits account for $143,007
or 87.9% of the increase. Staff additions include technical,
sales, and accounting staff and project management personnel.
Additional personnel were required to enable the Company to enter
 the Broadband Internet services market. Depreciation and
amortization expense increased $44,595 and accounts for 2.7% of
the increase in selling, general, and administrative expense.
This increase was due to the first full quarter of depreciation
expense being recorded on equipment acquired for the build-out of
 the co-location racks at the Austin site.

Decision by MSI Not to Seek Recertification as a HUB

Through the end of 1996, MSI focused on the sale of electronics
equipment to customers who relied upon the Companys status
as a Historically Underutilized Business (HUB). As a HUB, MSI
received favorable treatment by certain governmental agencies in
the granting of contracts. During 1997, MSI shifted its focus to
communications technology services, and the HUB status was no
longer a major competitive advantage. Therefore, the Company has
chosen not to seek recertification as a HUB. MSI generated
revenue of approximately $65,000 (14.4% of revenue) during the
quarter ended June 30, 1999 related to its HUB status.
Historical revenues from HUB related contracts were $478,000 in
fiscal year 1999 and $414,000 in fiscal year 1998. This equated
to 14% and 15% of revenue, respectively.

Liquidity and Capital Resources

The Company received $600,000 from the private placement of
20,000 shares of the Companys Series E Preferred
Stock, $30 stated value (the Series E Preferred)
 during the three months ended June 30, 1999. The Company
has concluded the private placement of 1,178,666 shares of
the Companys Common Stock (the Common Stock).
The Common Stock yielded aggregate net proceeds of approximately
$3.4 million and was completed by June 30, 1999. These
proceeds were received by the end of July 1999. Receipt of these
funds enabled the Company to retire debt, decrease past due
accounts payable and pay operating expenses

As of June 30, 1999, the Companys total assets were
$3,000,182, with liabilities of $1,481,389. Current assets of
$938,936 at June 30, 1999 represent 153.8% of current
liabilities of $610,647. Improvements in the Companys cash
position are a result of improved realization of accounts
receivable and funds from increases in Shareholders Equity
resulting from the previously consummated private placements
described above. The increase in cash to $385,132 at
June 30, 1999 is the result of the private placements
described above. The Companys liabilities of $1,481,389 at
June 30, 1999 consist of $610,647 of current liabilities and
 $870,742 of long-term liabilities.

As of June 30, 1999, MSI had working capital of $328,289.
This was an increase of $1,706,644 from the working capital
deficit of $1,378,355 on March 31, 1999. Accounts payable
and accrued expenses were decreased as a result of Private
Placement Phase III of the Series E Preferred and the
Common Stock Offering. In addition, accounts receivable decreased
 $172,061 during the quarter ended June 30, 1999. As of
June 30, 1999, MSI was more than 30 days past due on
approximately $170,000 of accounts payable.

The Company has a critical need for additional working capital to
 meet contractual obligations under agreements with GTE relating
to the GTE Internet POP located in MSIs primary facility.
Management believes that its relationship with GTE has the
potential to substantially increase revenue if sufficient working
 capital is obtained. The Company is currently consulting with
various investment bankers to conduct additional private
placements and a secondary public offering. These funds will be
used to satisfy additional capital requirements for expansion.
See Company Background and Going Concern Issues.

3



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##### Table of Contents



Year 2000 Issues

The Year 2000 (Y2K) Issue is the result of computer programs
 being written using two digits rather than four to define the
applicable year. Any of the Companys computer programs that
 have time-sensitive software may recognize a date using
00 as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or
engage in other normal business activities.

MSI recently completed a study to assess the impact of the
Year 2000 problem on its computer systems in order to insure
 Y2K compliance. The study involved identifying any
modifications or replacements of hardware and software maintained
 by the Company that would be required in preparation
for Y2K. The systems requiring modification, upgrade, or
replacement have been identified and the necessary changes should
 be made by September 30, 1999. MSI personnel will complete
this process and the Company anticipates that the total cost will
 be insignificant. In addition, the Company is also taking
actions to assure that its customers and suppliers are taking
steps to remedy any Y2K issues.

MSIs GTE/ BBN certification is contingent upon the
Companys Y2K compliance. GTEs BBN division has
provided a list of issues requiring attention and will provide
assistance to ensure the Companys Y2K readiness as
required. The Company is not facing any additional unique risks
related to the Year 2000 problem. MSI is, however, subject
to the universal risk that information and financial resources
may be temporarily unavailable. If Year 2000 compliance is
not achieved by September 30, 1999, the Company will
reallocate resources as necessary to ensure compliance prior to
December 31, 1999.

While there can be no assurance, based on currently available
information, the Company does not believe that the Y2K issue as
it relates to the Companys products or services sold to
customers will have a material adverse impact on the
Companys business, financial condition or results of
operations. In addition, there can be no assurance that the
failure to ensure Y2K capability by a supplier or third party
would not have a material adverse effect on the Companys
business, financial condition or results of operations.

Inflation

Management does not believe that inflation will have a material
impact on the Companys pricing of goods or services since
the Company, generally, has the ability to adjust prices for its
technical services to meet the current market conditions.

Other risk factors that may affect our business include:

We have a history of losses and cannot predict our future
profitability.

We have incurred significant net losses recently. We expect to
incur significant capital and operating expense in the
foreseeable future, and it will take substantial revenue growth
to become profitable. If we do become profitable, there is no
assurance that we will continue to earn a profit in the future.
If revenues grow more slowly than projected or expenses exceed
our expectations, our financial condition and results of
operations will be adversely affected.

Because we have a limited operating history, our business is
difficult to evaluate.

Although we commenced operations in 1993, we have recently
changed our business strategy and entered the Internet market in
the spring of 1999. The limited amount of information about our
new business model makes it difficult to predict if we will be
successful. Our past results are not meaningful and you should
not rely on them to predict future performance. The consumer
acceptance of our products and services is unproven and we cannot
 forecast operating expenses based on past results. To evaluate
our business, you should consider the risks, difficulties, and
expenses related to the new and rapidly developing market for
Internet-related products and services.

4



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##### Table of Contents



We have a critical need for additional capital.

We have a critical need for additional capital and no assurance
of future financing. Our ability to grow and become profitable
depends on our ability to expand our capacity and create brand
awareness. We expect that our fiscal year 2000 cash
requirements will include disbursements for some or all of the
following:



| |   |                                                
| | - | -----------------------------------------------
| |  | Facility expansion and build-out               
| |  | Working capital                                
| |  | Marketing/brand awareness campaign             
| |  | Potential acquisitions of web hosting companies

We cannot be certain that we will have access to the capital we
need to execute our current business plan. If financing is
unavailable, we will have to reduce our operations and modify our
 plans for growth. We might also be required to sell assets or
seek a merger partner. There is no assurance that we would be
able to accomplish any of these actions.

We are dependent on strategic alliances.

Our ability to provide our customers with the bandwidth they
require is dependent upon strategic alliances with GTE and
Southwestern Bell. GTE built an Internet Point of Presence
(POP) in the center of our building. This enables us to
offer our customers virtually unlimited bandwidth on demand and
we have the first broadband co-location/ web-hosting facility
with Tier-1 Internet access. We have a contractual agreement with
 GTE. However, if for any reason the POP were to become
unavailable to us, we would be unable to provide the current
level of service to our customers.

Through strategic alliances with Southwestern Bell
(SBC) and Covad Communications, we are able to resell
 DSL (Digital Subscriber Line) services to Internet Service
Providers who are co-located in our facility. We have a
contractual agreement with SBC and with Covad. However, if for
any reason this relationship were terminated, we would be unable
to provide this service to our customers.

Because we have a long sales cycle, our quarterly operating
results are subject to significant fluctuations.

We have a long sales cycle because of the need to educate
prospective customers about the benefits provided by our
services. The long sales cycle makes it difficult to predict in
which quarter sales will occur.

We are dependent on key personnel and the ability to hire
qualified employees in the future.

We are dependent upon the services of Robert Gibbs, President and
 Chief Executive Officer and Glenn Birk, Vice President of Sales.
 The loss of their services would have a material and adverse
impact on our success, and there is no assurance that their
services will continue to be available.

The market for qualified personnel in the Internet industry is
highly competitive. We are especially dependent upon our ability
to attract and retain sales and marketing employees. If we are
unable to hire the employees we need, it could result in poor
service and difficulty in signing up new customers.

Our market is new and our products may not be widely accepted
by potential customers.

The market for bandwidth (provided through co-location and
connectivity) is new and constantly evolving. Our financial
success will be harmed if the market develops more slowly than
expected or fails to develop. The growth of this market is
dependent upon uncertainties such as:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Continued growth in the use of the Internet for e-business and
	global communication
| |  | Our ability to successfully gain profitable market share                            
| |  | Consumer acceptance of broadband and co-location services and
	xDSL technology      

5



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Our success is dependent upon continued growth in the use of
the Internet and the development of the Internet infrastructure.

Our success will be impacted by the overall growth of the
Internet. The continued growth and development of the Internet is
 dependent upon quality of service, cost, reliability, security,
and availability of sufficient bandwidth. To be successful, we
must provide this to our customers. Demand for Internet related
services is based on widespread adoption of the Internet for
business applications.

Recent increases in the traffic on the Internet have strained its
 infrastructure. There is no assurance that the necessary
upgrades will be made to update the Internet and improve its
performance. There is no assurance that the Web infrastructure
will be able to support the demands placed on it by increased
numbers of users and increased consumption of bandwidth. If the
Web infrastructure is not improved to meet demand, consumer
adoption of the Internet could be delayed.

Our industry is subject to rapid technological change and
evolving industry standards.

Our services could become less useful to our clients if we fail
to respond to developing technologies. Future technological
advances could make our services less cost-effective or even
unnecessary for our clients. Keeping pace with the rapidly
developing technology in our industry may be expensive and time
consuming. Our future success will be dependent upon our ability
to adapt to technological changes and to improve our current
services while introducing new products and services to meet our
clients changing needs. We could experience delays or
difficulties that might prevent the successful design,
development, and implementation of new products and services.
There is no assurance that new products and services would be
widely accepted by consumers.

We are operating in a highly competitive market where there
are relatively low barriers to entry. We expect additional
competition from new market entrants and existing competitors in
the future.

The market for bandwidth and related services is intensely
competitive. We expect competition to increase because there are
relatively low barriers to entry and a trend of industry
consolidation. Our ability to successfully compete depends on
many factors, including the following:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | Quality of our services and customer support                                
| |  | Effectiveness of sales and marketing campaign                               
| |  | Market acceptance of our products and services and those of our
	competitors
| |  | Timing of market entry by our competitors                                   

Some of our existing competitors (and many potential competitors)
 have greater name recognition, longer operating histories,
larger market share, and greater financial resources than we do.
They may be able to respond faster to changing technologies and
market conditions. Competitors may devote more resources to
research and development and design more far-reaching marketing
campaigns. There is no assurance that we will be able to offer
products and services superior to those offered by our
competitors or that we will have new products ready for market
sooner. Due to a trend of industry consolidation, it is possible
that a new competitor could emerge and quickly gain substantial
market share. We expect that increased competition will result in
 price reductions that could have a material adverse impact on
our operating and financial results.

System security risks could disrupt our services.

Although we have implemented security measures that meet GTE/ BBN
 standards, our network and computer systems could still be
vulnerable to computer viruses, intrusions, or other breaches of
security that might result in service interruptions. If
unauthorized third parties gained access to confidential
information residing in our network, it could result in losses to
 our customers or us. The potential for security problems could
deter prospective customers from using our services. It is
possible that customers or third parties could assert claims of
liability against us for any losses related to system failures or
 breaches of security. Concerns over security could slow the
growth of commercial use of the Internet and cause our revenues
to be lower than expected. This would have a material and adverse
 affect on our operational and financial results.

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Our stock price is volatile.

The market price of our Common Stock has fluctuated in the past
and may continue to be volatile in the future. Since the summer
of 1997, our Common Stock has traded in the over-the-counter
market and there is no assurance that a more active trading
market will develop or continue. The market prices of
Internet-related stocks tend to be more volatile than the market
as a whole. In the past, companies that have experienced wide
fluctuations of their stock price have been the object of
securities class action litigation. If we became involved in
class action litigation, it would be expensive and a diversion of
 managerial time and resources.

Many factors, some of which are beyond our control, could affect
the volatility of our stock price:



| |   |                                                              
| | - | -------------------------------------------------------------
| |  | Changes in market capitalization of Internet companies       
|
| |  | Fluctuations in our operating results or those of competitors
|
| |  | Estimates made by securities analysts                        
|
| |  | Changes in key personnel                                     
|
| |  | Future offerings of Common Stock                             
|
| |  | Gain or loss of material contracts or customers              

Our business plan is aggressive. To be successful, we must
manage our growth effectively.

We are rapidly expanding our operations and plan to continue this
 expansion into the foreseeable future. We must do this to take
advantage of a limited window of opportunity in our market. This
growth will place a strain on our financial, managerial, and
operational resources. A sales and marketing campaign and the
expansion of the existing Internet Accelerator Portal are
consuming substantial resources at this time.

Government regulation and legal uncertainties may have a
negative impact on our business.

The U.S. Congress, state and local governments and the
European Union have all passed legislation relating to regulation
 of the Internet. Topics that have already been subject to
legislation include privacy, taxation, copyrights, content,
access charges, and jurisdiction. Areas that could be subject to
legislation in the future include pricing, quality, libel, and
intellectual property rights. E-commerce could be adversely
affected by proposed taxes on the sale of goods and services over
 the Internet.

Because the Internet and all related legislation are new, we do
not know how these laws will be interpreted by the judicial
system or how regulation of the Internet would impact our
business. If regulation decreased use of the Internet, it could
reduce the demand for our services, increase costs, and have an
adverse impact on our operating results.

Systems failures could cause us to lose customers.

One of the main benefits to the customer for using our service is
 that the IAP is located in a GTE/ BBN certified network and
facility. The network is fully redundant and the customer should
experience substantially less downtime than with most other
providers. Frequent or prolonged service interruptions are one of
 the primary reasons why customers switch access providers. We
expect that due to market positioning as a highly reliable
provider, our customers will be particularly sensitive to service
 failures. Our building is designed to provide the greatest
protection possible to the GTE POP and the servers in our
co-location facility. However, a natural disaster, failure of one
 of our systems or any other unanticipated problem could cause an
 interruption in our service. If service failures occur, they
could have a material and adverse affect on our operating results
 and financial condition.

We are operating under an unproven business model.

Our business model is to generate revenues by providing customers
 with bandwidth and related services. Bandwidth will be delivered
 through these product offerings: Boadband Co-location and
Webhosting,

7



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Our success is dependent upon building a good reputation and
developing brand awareness.

We believe that a strong reputation and brand awareness of the
Internet Accelerator Portal is critical to gaining and
maintaining market share. We expect the importance of brand
awareness to increase as the number of competitors increases. The
 uniqueness of our brand could be damaged by poor service or we
could fail to create brand awareness.

We have had a recent change in management.

Jose Chavez, President and Chief Executive Officer, Mitchell
Kettrick, Secretary, and Jaime Muñoz, Vice President of
Operations, were terminated for cause on April 20, 1999.
Robert Gibbs joined the company as President and Chief Executive
Officer in June 1999. Subsequent to the close of the quarter,
Roger M. Lane, Chief Operating Officer, resigned from the
Company to pursue other interests. In addition, Patricia Hrabina,
 Vice President of Human Resources, Cliff Luckey, Vice President
of Technology & Solutions, and Robert Frank, Executive
Vice President of New Business Development were hired subsequent
to June 30, 1999. This new management team has not had the
opportunity to work together in the past and there is no
assurance they will be able to successfully lead the company into
 profitability.

We have no history of paying dividends on our Common Stock.

We have never paid, and do not anticipate paying, any cash
dividends on our Common Stock in the foreseeable future. We plan
to retain any future earnings to finance growth.

Share ownership of our company is concentrated.

As of March 31, 1999, the executive officers and directors
of the Company, as a group, owned or controlled approximately
56.9% of the outstanding capital stock of the Company. Due to the
 termination of Mr. Chavez and the conversion of certain
shares of the Series B, C, D, and E Preferred Stock, the
executive officers and directors of the Company, as a group,
owned or controlled approximately 38.7% of the outstanding
capital stock of the Company as of June 30, 1999.
Messrs. Chavez, Kettrick and Munoz, the officers terminated
on April 20, 1999, hold an aggregate of
8,000,000 shares or 35.3% of the outstanding shares of the
Common Stock as of June 30, 1999. These persons and entities
 will continue to exert significant influence over the business
and affairs of the Company.

Additional shares may be eligible for future sale.

Sales in the public market of substantial amounts of Common Stock
 (including sales related to the exercise of certain registration
 rights relating to the Common Stock) or the perception that such
 sales could occur might depress the market price of the stock.
As of June 30, 1999, we had 22,635,212 shares of Common
 Stock issued and outstanding, of which 7,415,366 or 32.8% are
eligible for future sale. If all the outstanding Preferred shares
 were converted into Common Stock as of June 30, 1999, we
would have had 26,981,599 shares of Common Stock issued and
outstanding. Of these shares, 10,297,390 (38.2%) would have been
eligible for future sale. The remaining 16,684,209 shares
would have been subject to the Rule 144 restrictions on
sales of securities by affiliates of the issuer. Subsequent to
June 30, 1999, an additional 80,000 shares of Common
Stock were issued upon the conversion of 8,000 shares of
Series E Preferred.

8



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##### Table of Contents



PART II:  OTHER INFORMATION

ITEM 1.  Legal Proceedings

For a discussion of Legal Proceedings, refer to Note 6,
Contingencies, in the Notes to the Consolidated Financial
Statements in Part I.

ITEM 2.  Changes in Securities and Use of
Proceeds

For a discussion of Changes in Securities and Use of Proceeds,
refer to Note 4, Stockholders Equity, in the Notes to
the Consolidated Financial Statements.

ITEM 3.  Default Upon Senior Securities

None

ITEM 4.  Submission of Matters to a Vote of
Security Holders

None

ITEM 5.  Other Information

On April 20, 1999, Jose Chavez, President & CEO,
Mitchell Kettrick, Secretary, and Jaime Muñoz,
Vice-President of Operations, respectively, were terminated.

Robert Gibbs joined the company as President and Chief Executive
Officer in June 1999. Subsequent to the close of the quarter,
Roger M. Lane, Chief Operating Officer, resigned from the
Company to pursue other interests. In addition, Patricia Hrabina,
 Vice President of Human Resources, Cliff Luckey, Vice President
of Technology & Solutions, and Robert Frank, Executive
Vice President of New Business Development were hired subsequent
to June 30, 1999.

ITEM 6.  Exhibits and Reports on Form 8-K

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

|            |       |  |  |                     |  |                                                                                                                                                                                              
|----------- | ----- |  |  | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  |  | Exhibit Description
|            |       |  |  |                    
|            | 10.28 |  |  |                    |  | Amendment to Certificate of the Designation, Preferences Rights
        and Limitations of Series E 6 percent Cumulative
        Convertible Non-voting Preferred Stock of MSI Holdings, Inc.
|            | 27    |  |  |                    |  | Financial Data Schedule                                                                                                                                                                      

9



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.



| |                   
| | ------------------
| | MSI HOLDINGS, INC.



| |     |                 
| | --- | ----------------
| | By: | /s/ ROBERT GIBBS

| |                                      
| | -------------------------------------
| |                                      
| | Robert Gibbs,                        
| | President and Chief Executive Officer

Date: August 13, 1999

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.

|                                                 |  |                                         |  |                
|------------------------------------------------ |  | --------------------------------------- |  | ---------------
|Signature                                        |  | Title                                   |  | Date           
|                                                 |  |                                         |  |                
|                                                 |  |                                         |  |                
|/s/ ERNESTO CHAVARRIAErnesto Chavarria           |  | Director                                |  | August 13, 1999
|                                                
|/s/ BLANDINA CARDENASBlandina Cardenas           |  | Director                                |  | August 13, 1999
|                                                
|/s/ DANIEL DORNIERDaniel Dornier                 |  | Director                                |  | August 13, 1999
|                                                
|/s/ HUMBERT B. POWELL, IIIHumbert B. Powell, III |  | Director                                |  | August 13, 1999
|                                                
|/s/ DAVINDER SETHIDavinder Sethi                 |  | Director                                |  | August 13, 1999
|                                                
|/s/ ROBERT GIBBSRobert Gibbs                     |  | President and
	Chief Executive Officer  |  | August 13, 1999
|                                                
|/s/ STEPHEN HOELSCHERStephen Hoelscher           |  | Secretary and
	Chief Accounting Officer |  | August 13, 1999



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##### Table of Contents



EXHIBIT INDEX

|            |       |  |  |                     |  |                                                                                                                                                                                              
|----------- | ----- |  |  | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  |  | Exhibit Description
|            |       |  |  |                    
|            | 10.28 |  |  |                    |  | Amendment to Certificate of the Designation, Preferences Rights
        and Limitations of Series E 6 percent Cumulative
        Convertible Non-voting Preferred Stock of MSI Holdings, Inc.
|            | 27    |  |  |                    |  | Financial Data Schedule