<PAGE>   1


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-QSB/A

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL QUARTER ENDED   DECEMBER 31, 1998

Commission File Number          0-8146

MSI HOLDINGS, INC. f/k/a MICRO-MEDIA SOLUTIONS, INC.
 (Exact name of registrant as specified in charter)

 UTAH                                      87-0280886
State or other jurisdiction of     (I.R.S. Employer I.D. No.)
Incorporation or organization

501 Waller St., Austin, Texas 78702
(Address of principal executive offices)

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

Securities registered pursuant to section 12(b) of the Act:
Title of each class   Name of each exchange on which registered
        None                         N/A

Securities registered pursuant to section 12(g) of the Act:
Title of each class   Name of each exchange on which registered
Common Stock,                        None
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 ( )

Number of shares of common stock outstanding at DECEMBER 31, 1998:
13,177,989.


<PAGE>   2


Part I: Financial Information Item 1:
Consolidated Financial Statements

<TABLE>
<CAPTION>
Index to Consolidated Financial Statements         Page

<S>                                               <C>
Consolidated Balance Sheets                         3


Consolidated Statements of Operation                5


Consolidated Statements of Cash Flows               6


Consolidated Statements of Stockholders' Equity     9


Notes to Consolidated Financial Statements         11
</TABLE>


<PAGE>   3



MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                           December 31        March 31
                                              1998              1998
                                           (unaudited)        (audited)
<S>                                         <C>              <C>
                                                     ASSETS
Current Assets
 Cash and Cash Equivalents                  $   73,861       $   25,786
 Accounts Receivable - Trade                   840,606          150,851
 Inventory                                     312,300          285,023
 Short-Term Investment - restricted          1,350,000        1,350,000
 Other Receivables - Advances                  171,647           86,961
                                            ----------       ----------
  Total Current Assets                       2,748,414        1,898,621

Property, Plant, and Equipment
 (at cost) net                               1,487,640          800,831
                                            ----------       ----------
TOTAL ASSETS                                $4,236,054       $2,699,452
                                            ==========       ==========
</TABLE>


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

<PAGE>   4


MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - continued

<TABLE>
<CAPTION>
                                                 December 31        March 31
                                                    1998              1998
                                                 (unaudited)        (audited)
<S>                                              <C>               <C>
                         LIABILITIES AND STOCKHOLDERS EQUITY

Current Liabilities
 Accounts Payable - Trade                        $  1,194,655      $    300,035
 Bank Line of Credit                                1,600,000         1,228,966
 Other Accrued Expenses                                97,314           169,336
 Current Maturities of
  Long-term Debt                                      112,596           151,267
 Current Portion of Obligations
  Under Capital Leases                                 94,005            41,097
 Other Notes Payable                                  200,000           200,000
                                                 ------------      ------------
  Total Current Liabilities                         3,298,570         2,090,701
                                                 ------------      ------------
Long Term Notes
 Notes Payable                                        178,678           367,522
 Obligations under Capital
  Leases For Equipment                                290,605           149,560
                                                 ------------      ------------
  Total Long Term Notes                               469,283           517,082
                                                 ------------      ------------
Total Liabilities                                   3,767,853         2,607,783
                                                 ------------      ------------
Stockholders Equity
 Preferred stock Series B; $5.30
  stated value; 400,000 shares
  authorized, issued & outstanding                  2,120,000         2,597,000
 Preferred stock Series C; $10.60
  stated value;  94,340 shares
  authorized, issued & outstanding                  1,000,004         1,050,004
 Preferred stock Series D; $10.60
  stated value;  261,340 shares
  authorized, issued & outstanding                  2,770,204                --
 Preferred stock Series E; $30.00
  stated value; 105,000 shares
  authorized, 51,975 issued &
  outstanding                                       1,559,250
 Common stock at $.10 par value;
  50,000,000 authorized; 13,127,989
  and 11,518,571 shares issued
  and outstanding, respectively                    1,317,799          1,150,685
 Additional paid-in capital                        3,818,387          2,666,099
 Accumulated Deficit                              (12,117,443)       (7,372,119)
                                                 ------------      ------------
  Total Stockholders Equity                           468,201            91,669
                                                 ------------      ------------
TOTAL LIABILITIES AND
 STOCKHOLDERS EQUITY                             $  4,236,054      $  2,699,452
                                                 ============      ============
</TABLE>



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

<PAGE>   5


MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operation - (UNAUDITED)

<TABLE>
<CAPTION>
                                          For the Three Months             For the Nine Months
                                            Ended December 31               Ended December 31
                                          1998            1997            1998            1997
<S>                                   <C>             <C>             <C>             <C>
Revenues:
 Hardware, Software & Peripherals     $    249,156    $    212,013    $  1,431,352    $  1,350,810
 Service, Support & Integration            155,519         188,298         394,486         702,915
 Network Installation                      940,958         319,950       1,115,704         685,771
                                      ------------    ------------    ------------    ------------
Net revenues                             1,345,633         720,261       2,941,542       2,739,496
                                      ------------    ------------    ------------    ------------
Cost of Goods Sold
 Hardware, Software & Peripherals          239,419         204,926       1,376,870         885,989
 Service, Support & Integration             59,393         122,394         150,511         456,896
 Network Installation                      916,821         255,301       1,080,747         509,415
                                      ------------    ------------    ------------    ------------
Total cost of goods sold                 1,215,633         582,621       2,608,128       1,852,300
                                      ------------    ------------    ------------    ------------
Gross Margin                               130,000         137,640         333,414         887,196

Selling, General & Administrative
 Salaries & benefits                       729,243         576,512       2,139,673       1,304,833
 Professional fees and consultants         562,359         164,392         973,699         328,451
 Occupancy                                 127,158          70,345         325,369         158,845
 Depreciation                               65,000          49,720         171,991         149,160
 Vehicle expense                            50,995          30,210         125,427         109,061
 Other expense                             196,124         414,649         538,482         708,865
 Interest expense, net                      11,642         165,835          41,035         202,342
 Provision for uncollectable                    --          20,000         (35,000)         21,284
                                      ------------    ------------    ------------    ------------
Total selling, general and
 Administrative expenses                 1,742,521       1,491,663       4,280,676       2,982,841
                                      ------------    ------------    ------------    ------------
Net Loss                                (1,612,521)     (1,354,023)     (3,947,262)     (2,095,645)

Plus preferred stock dividends            (104,140)             --        (798,062)             --
                                      ------------    ------------    ------------    ------------
Net Loss available to
 common stockholders                    (1,716,661)     (1,354,023)     (4,745,324)     (2,095,645)
                                      ============    ============    ============    ============
Basic and diluted
       net loss per share             $      (0.14)   $      (0.13)   $      (0.39)   $      (0.20)
                                      ============    ============    ============    ============
Basic and diluted weighted
  average number of shares
  Outstanding                           12,056,060      10,764,733      12,051,893      10,764,733
                                      ============    ============    ============    ============
</TABLE>


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

<PAGE>   6



MSI HOLDINGS, INC. AND SUBSIDIARIES (page 1 of 3)
Consolidated Statements of Stockholders' Equity
For the Year Ended March 31, 1998 (Audited) and
For the Nine Months Ended December 31, 1998 (unaudited)

<TABLE>
<CAPTION>
                                                                    Preferred Stock
                                         Series B                       Series C                        Series D
                                 Shares           Amount         Shares          Amount          Shares          Amount
<S>                             <C>            <C>               <C>            <C>             <C>          <C>
Balance
March 31, 1997                       --              --              --              --              --              --
Common stock issued:
 Interest                            --              --              --              --              --              --
 Compensation                        --              --              --              --              --              --
 Preferred
  stock dividend                     --              --              --              --              --              --
Preferred stock issued:
 Private
  Placement                     420,000       2,226,000          99,057       1,050,004              --              --
 Senior Debt                     70,000         371,000              --              --              --              --
Preferred stock
 dividend discount                   --              --              --              --              --              --
Stock option for:
 compensation                        --              --              --              --              --              --
 Placement agent                     --              --              --              --              --              --
Cash received
 for uncertificated
 stock                               --              --              --              --              --              --
Common stock-
 Uncertificated
 Issued for note
 Receivable                          --              --              --              --              --              --
Note receivable
 Offset against
 Common stock
 Subscribed                          --              --              --              --              --              --
Net loss                             --              --              --              --              --              --
                           ------------    ------------    ------------    ------------    ------------    ------------
Balance
March 31, 1998                  490,000    $  2,597,000          99,057    $  1,050,004              --              --
Preferred stock issued:
  Private
   Placement                         --              --              --              --         279,657    $  2,964,364
Common stock issued for:
 Rule 144 Stock
 Compensation                        --              --              --              --              --              --
 Preferred
  stock dividend                     --              --              --              --              --              --
 Class A Warrants
 Preferred stock
  conversion                    (90,000)       (477,000)         (4,717)        (50,000)        (18,317)       (194,160)
Stock options for
 Placement agents                    --              --              --              --              --              --
Net loss                             --              --              --              --              --              --
Balance                              --              --              --              --              --              --
December 31,1998                400,000    $  2,120,000          94,340    $  1,000,004         261,340    $  2,770,204
                           ============    ============    ============    ============    ============    ============
</TABLE>


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

<PAGE>   7


MICRO-MEDIA SOLUTIONS, INC. AND SUBSIDIARIES (page 2 of 3)
Consolidated Statements of Stockholders' Equity - continued
For the Year Ended March 31, 1998 (Audited), and
For the Nine Months Ended December 31, 1998 (Unaudited)

<TABLE>
<CAPTION>
                                        Preferred Stock                                           COMMON STOCK
                                           SERIES E                   Common Stock                 Subscribed
                                    Shares         Amount        Shares         Amount        Shares          Amount
<S>                               <C>         <C>           <C>             <C>            <C>            <C>

Balance
March 31, 1997                           --             --     10,764,733   $  1,076,473             --              --
Common stock issued:
 Interest                                --             --         10,286          1,029             --              --
 Compensation                            --             --        414,900         41,490             --              --
 Preferred
  stock dividend                         --             --         23,742          2,374             --              --
Preferred stock issued:
 Private
  Placement                              --             --             --             --             --              --
 Senior Debt
Preferred stock
 dividend discount                       --             --             --             --             --              --
Stock option for:
 compensation                            --             --             --             --             --              --
 Placement agent                         --             --             --             --             --              --
Cash received
 for uncertificated
 stock                                   --             --        293,185         29,319             --              --
Common stock-
 Uncertificated
 Issued for note
 Receivable                              --             --             --             --        543,000         407,250
Note receivable
 Offset against
 Common stock
 Subscribed                              --             --             --             --       (543,000)       (407,250)
Net loss                                 --             --             --             --             --              --
                               ------------   ------------   ------------   ------------   ------------    ------------
Balance
March 31, 1998                                                 11,506,846      1,150,685             --              --
Preferred stock issued:
  Private
   Placement                         51,975      1,559,250             --             --             --              --
Common stock issued for:
 Rule 144 stock                                                    50,000          5,000             --              --
 Compensation                                                      31,000          3,100             --              --
 Preferred
  stock dividend                                                   39,803          3,980             --              --
 Class A Warrants                                                 420,000         42,000             --              --
 Preferred stock
  conversion                             --             --      1,130,340        113,034             --              --
Stock options for
 Placement agents                                                      --             --             --              --
Net loss                                 --             --             --             --             --              --
Balance                        ------------   ------------   ------------   ------------   ------------    ------------
December 31,1998                     51,975      1,559,250     13,177,989      1,317,799             --              --
                               ============   ============   ============   ============   ============    ============
</TABLE>



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

<PAGE>   8

MICRO-MEDIA SOLUTIONS, INC. AND SUBSIDIARIES (page 3 of 3)
Consolidated Statements of Stockholders' Equity - continued
For the Year Ended March 31, 1998 (Audited), and
For the Nine Months Ended December 31, 1998 (Unaudited)

<TABLE>
<CAPTION>
                                Additional
                               (Discount on)    Accumulated
                              Paid-in Capital     Deficit          Total
<S>                          <C>               <C>             <C>
Balance
March 31, 1997                 $ (1,046,058)   $   (133,999)   $   (103,584)
Common stock issued:
 Interest                             4,114              --           5,143
 Compensation                       250,367              --         291,857
 Preferred
  stock dividend                     56,294         (58,668)             --
Preferred stock issued:
 Private
  Placement                        (975,641)             --       2,300,363
 Senior Debt                             --              --         371,000
Preferred stock
 dividend discount                3,412,502      (3,412,502)             --
Stock option for:
 compensation                        93,750              --          93,750
 Placement agent                    387,641              --         387,641
Cash received
 for uncertificated
 stock                              483,130              --         512,449
Common stock-
 Uncertificated
 Issued for note
 Receivable                              --              --         407,250
Note receivable
 Offset against
 Common stock
 Subscribed                              --              --        (407,250)
Net loss                                 --      (3,766,950)     (3,766,950)
                               ------------    ------------    ------------
Balance
March 31, 1998                    2,666,099      (7,372,119)         91,669
Preferred stock issued:
  Private
   Placement                     (1,402,631)             --       3,120,983
Common stock issued for:
 Rule 144 stock                     582,500        (534,500)         53,000
 Compensation                       163,087              --         166,187
 Preferred
  stock dividend                    259,582        (263,562)             --
 Class A Warrants                   291,900              --         333,900
 Preferred stock
  conversion                        608,126              --              --
Stock options for
 Placement agents                   649,724              --         649,724
Net loss                                 --      (3,947,262)     (3,947,262)
Balance                                  --              --              --
December 31,1998                  3,818,387     (12,117,443)        468,201
                               ============    ============    ============
</TABLE>


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

<PAGE>   9

MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Year Ended March 31, 1998 (Audited) and
For the Nine Months Ended December 31, 1998 (unaudited)


<TABLE>
<CAPTION>
                                                      December 31,      March 31,
                                                          1998            1998
<S>                                                  <C>             <C>
Cash Flows from Operating
 Activities:
Net (Loss)                                           $ (3,947,262)   $ (3,766,950)
Adjustments to reconcile net income
  to net cash, provided by operating
  activities:
 Depreciation expense                                     171,991         178,892
 Stock issued for compensation                            166,187         291,857
 Stock options issued for compensation                         --          93,750
 Stock issued for interest                                     --           5,143
 Change in accounts receivable                           (689,755)        832,062
 Change in inventory                                      (27,277)        (19,569)
 Change in accounts payable                               894,633        (577,325)
 Change in accrued expenses                               (72,022)         57,775
Net Cash Provided by (used by                        ------------    ------------
 Operating Activities                                  (3,503,505)     (2,904,365)
                                                     ------------    ------------
Cash Flows from Investment Activities:
 Investment in property & equipment                      (604,238)       (195,685)
 Purchase of short-term investment                     (1,350,000)
 Additional notes receivables                                  --        (142,265)
 Proceeds from notes receivables                               --         477,645
 Proceeds from other receivables                               --         162,793
 Additional other receivables                             (84,686)       (121,341)
Net Cash provided by (Used by)                                 --              --
 Investing Activities                                    (688,924)     (1,168,853)
                                                     ------------    ------------
Cash Flows from Financing Activities:
 Proceeds from Line of Credit                             371,034         504,076
 Proceeds from other notes payable                        200,000
 Change in long term debt                                (227,515)       (162,153)
 Payments in capital lease obligations (60,609)           (32,485)
 Proceeds from Private Placement                        3,770,694       2,688,004
 Proceeds from issuance of common stock                    53,000         512,450
 Proceeds from exercise of warrants                       333,900              --
 Proceeds from Senior Convertible Debt                         --         371,000
Net Cash Provided by (Used by)                       ------------    ------------
 Financing Activities                                   4,240,504       4,080,892
                                                     ------------    ------------
Net Increase in Cash                                       48,075           7,674
Cash at Beginning of Period                                25,786          18,112
                                                     ------------    ------------
Cash at End of Period                                $     73,861    $     25,786
                                                     ============    ============
</TABLE>



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

<PAGE>   10


MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - continued
For the Year Ended March 31, 1998 (Audited) and
For the Nine Months Ended December 31, 1998 (unaudited)

<TABLE>
<CAPTION>
                                        December 31,       March 31,
                                            1998              1998
<S>                                <C>                  <C>
Supplemental disclosures:
 Cash paid for interest            $       85,750       $   232,578

Supplemental schedule of non-cash investing and financing activities: Preferred
stock issued for:
  Placement agent fees             $           --       $   156,000
Stock options:
 Compensation                                  --            93,750
 Placement agent fees                     649,724           387,641
Common stock issued for:
 Compensation                             166,187           291,857
 Interest on debt                              --             5,143
 Preferred stock dividends                263,562            58,668
Common stock subscribed for
  Note receivable                              --           407,250
Debt converted to preferred stock              --           371,000
Inventory received for notes                   --            84,394
Inventory converted to equipment           44,021                --
Discount on preferred stock               543,500         3,412,502
Capital lease obligations                 254,562                --
</TABLE>




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

<PAGE>   11


MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation:

The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principals and the rules of the
Securities and Exchange Commission (the SEC), and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest annual Report filed with the SEC on Form 10-KSB/A on November
12, 1998 and the latest quarterly report filed with the SEC on form 10QSB/A on
November 12, 1998. In the opinion of management, all adjustments consisting of
normal recurring adjustments, necessary for the fair presentation of financial
position and the results of operations for the interim periods presented have
been reflected here in. The results of operation are not necessarily indicative
of the results to be expected for the full year. Notes to the financial
statements which would substantially duplicate the disclosure contained in the
audited financial statements for the year ended March 31, 1998 and the nine
months ended December 31, 1998, as reported in the Form 10-KSB/A and Form
10QSB/A have been omitted.

Nature of Business and Organization:

MSI Holdings, Inc., (the Company),(formerly known as Micro-Media Solutions,
Inc.), was organized under the laws of the State of Utah on April 15, 1969. On
October 14, 1998, Micro-Media Solutions, Inc. changed its name to MSI Holdings,
Inc. The Company has two wholly-owned subsidiaries, Micro-Media Solutions, Inc.,
a Texas corporation("MSI") and TeleVista, Inc., a Texas corporation, doing
business as High Power.Net, ("TVI"). TVI was incorporated in August 1998 and has
not yet commenced operations. The Company is publicly traded on the OTC Bulletin
Board under the symbol "MSIA".

MSI is an Austin, Texas, based technology corporation formed to provide computer
hardware, software programming, system support, maintenance, media duplication,
kitting to the public and private sectors and to be a business solutions
technology integrator with infrastructure design and implementation services. In
addition, MSI provides computer networking services including system integration
and local wide-area networks. MSI is certified by the State of Texas as a
Historically Underutilized Business (HUB).

Going concern:

As shown in the accompanying consolidated financial statements, the Company has
incurred net losses of $3,947,262 for the nine month period ending December 31,
1998.As of December 31, 1998 the Company's current liabilities exceeded its
current assets by $550,156. These factors create a substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company obtaining additional
financing to fund the expenses related to operations and capital improvements.






<PAGE>   12



MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

In November 1998 through February 1999, the Company received approximately $2
million in partial completion of a private placement agreement of a newly
created series of preferred stock (Series E), which proceeds have been used by
the Company for operating expenses and remodeling the existing facility.
Additional proceeds of approximately $1 million from the completion of the
Series E private placement are expected by the end of March 1999. The closing of
the Series E private placement will enable the Company to have sufficient funds
to meet the its working capital and capital expenditures needs. Management has
identified and closed substantial contracts with GTE and Siemens Nixdorf during
the nine months ending December 31, 1998, and believes it can produce the level
of revenue necessary to return the Company to a positive earnings trend.

The Company is also negotiating with several investment banks for an additional
$20 million private offering of the Company's securities to take place before
the end of April 1999. These funds will be used to satisfy additional capital
needs for expansion opportunities associated with the contracts identified
above. In the event the Company is unable to complete the contemplated private
placement, the Company will forego the Contract's expansion opportunities,
reduce the number of employees and overhead expenses and concentrate its efforts
on the Austin operations.

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

Principles of Consolidation:

The consolidated financial statements for the nine months ended December 31,
1998 and 1997 and as of March 31, 1998, include the accounts and transactions of
the Company and MSI. All significant inter-company accounts and transactions
have been eliminated in the accompanying consolidated financial statements. The
Company, however, did not have any material asset or liability accounts or
account balances. With the exception of the Company's equity accounts and a
deficit retained earnings, the significant account balances belong to MSI.

Cash and Cash Equivalents:

Cash equivalents consist primarily of funds invested in short-term
interest-bearing accounts. The Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.

Accounts Receivable:

The Company follows the allowance method of expensing accounts receivable when
considered uncollectable. As of December 31, 1998 and March 31, 1998, management
believes all accounts are collectible; and therefore, no allowance has been
recorded. The financial statements include a $35,000 recovery of a previously
written-off bad debt.

Inventory:

Inventory is valued at lower of cost, using the FIFO method (first-in/first-
out), or market. Inventory consists principally of hardware and software needed
for maintaining and building network technology for customers.


<PAGE>   13


MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

Property, Plant, and Equipment:

Property and equipment are stated at cost. For financial statement purposes,
depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the term of the
related lease or the useful life of the leasehold improvements. Accelerated
depreciation methods are used for tax purposes. Depreciation and amortization
are calculated over the following useful lives stated in years:

<TABLE>
<CAPTION>
                                                         Useful
                                                         Lives
<S>                                                        <C>
         Vehicles                                          5
         Furniture and fixtures                            5
         Equipment                                         5
         Leasehold improvements                           20
</TABLE>

Revenue and cost recognition:

Hardware and peripherals sales consist of computers and related electronic
equipment. Software sales consist of the resale of prepackaged software and
operating systems from Microsoft and other vendors to the end user. Revenue is
recognized when persuasive evidence of an arrangement exist, delivery has
occurred, the customer fee is fixed and collectibility is probable. Most
hardware, software and peripherals sales are made without the right of return.
Product returns, which are minimal, are recorded as a reduction of sales upon
receipts of the product. Service, support and integration sales are recognized
upon completion of the service and is not subject to warranty.

Revenue from fixed priced contracts is recognized on the percentage-of-
completion method of accounting, measured by the cost-to-cost method. This
method is used because management considers total costs incurred to be the best
available measure of progress on contracts.

Contract costs include all direct costs and those indirect costs related to
contract performance. Changes in job performance, job conditions, and estimated
profitability and final contract settlements may result in revisions to costs
and revenue and are recognized in the period in which the revisions are
determined.

The asset, "Costs and Estimated Earnings in Excess of Billings Uncompleted
Contracts", represents revenue earned in excess of amounts billed. The liability
"Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts"
represents billings in excess of amounts earned.

Revenue and contract costs from fixed priced contracts are included in the
various categories of revenue and cost of goods sold in the accompanying
financial statements.





<PAGE>   14



MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

Federal Income Tax:

The Company uses the liability method of accounting for income taxes as
prescribed by the Financial Accounting Standard Board Statement No. 109.
Deferred tax liabilities and assets are determined based on differences between
the financial statement and tax basis of assets and liabilities using enacted
tax rates expected to be in effect for the year in which the differences are
expected to reverse. The net change in deferred tax assets and liabilities is
reflected in the statement of operations.

Use of Estimates and Certain Concentrations:

Management of the Company has made a number of estimates and assumptions
relating to the valuation and reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Although actual results could differ from those estimates,
management believes its estimates are reasonable. Certain components,
subassemblies and software included in the Company's computer systems are
obtained from sole suppliers or a limited number of suppliers. The Company
relies, to a certain extent, upon the ability of its suppliers' to enhance
existing products in a timely and cost-effective manner, to develop new products
to meet changing customer needs and to respond to emerging standards and other
technological developments in the computer industry. The Company's reliance on a
limited number of suppliers involves several risks, including the possibility of
shortages and/or increases in costs of components and subassemblies, and the
risk of reduced control over delivery schedules.

Financial Instruments:

Cash equivalents include highly liquid short-term investments with original
maturities of three months or less, readily convertible to known amounts of
cash. The amounts reported as cash equivalents, receivables, other assets,
accounts payable and accrued expenses and debt are considered by the Company to
be reasonable approximations of their fair values, based on market information
available to management as of December 31, 1998. The use of different market
assumptions and estimation methodologies could have a material effect on the
estimated fair value amounts. The reported fair values do not take into
consideration potential taxes or other expenses that would be incurred in an
actual settlement.

Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents and trade accounts
receivable. A concentration of credit risk may exist with respect to trade
receivables, as many of the Company's customers are in the computer and
telecommunications industries. The Company has a large number of customers on
which it performs ongoing credit evaluations and generally does not require
collateral from its customers. Historically, the Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any particular industry or geographic area.





<PAGE>   15


MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

NOTE 2 - STOCKHOLDERS' EQUITY

In October 1997, the Company completed a Private Placement Agreement, (the
"Agreement") with a group of accredited investors. The Agreement provides for
three "Phases" of financing. The Agreement states that conversion of the
preferred stock will not occur to the extent that the HUB status of the Company
is compromised.

Phase I of the Agreement was funded in November 1997. The Company received
$2,120,000 in exchange for 400,000 shares of series B preferred stock (5%
cumulative, convertible, non-voting, stated value $5.30) ,(the "Series B
Stock"). Each share of preferred stock is initially convertible into 10 shares
of the Company's common stock subject to adjustment and six warrants, (the
"Warrants") for the purchase of six shares of common stock at $1.50 per share.

Phase II of the Agreement was funded in February 1998. The Company received
$1,000,004 in exchange for 94,340 shares of series C preferred stock (6%
cumulative, convertible, non-voting, stated value, $10.60), (the "Series C
Stock). Each share of preferred stock is initially convertible into 10 shares of
the Company's common stock, subject to adjustment.

Phase III of the Agreement was funded in May through July 1998. The Company
received $2,923,204 in exchange for 266,340 shares of series D preferred stock
(6% cumulative, convertible, non-voting, stated value, $10.60), (the "Series D
Stock"). Each share of preferred stock is initially convertible into 10 shares
of the Company's common stock, subject to adjustment. The Company paid $349,318
and issued 13,317 shares of series D preferred stock for placement agent fees.
Also options to purchase 250,850 shares of common stock at $1.59 per share were
issued as a part of the agreement. The common stock had a fair value of $1.65 to
$2.86 per share at the grant date resulting in $487,880 in placement agent fees.

During the nine months ended December 31, 1998 the Company received $53,000 for
5,000 shares of Series D preferred stock at 10.60 per share. Due to the Series D
preferred stock being over subscribed, the company converted the 5,000 preferred
shares to 50,000 shares of Rule 144 common stock. The discount on the 50,000
shares in the amount of $534,500 has been included as a dividend in the
accompanying financial statements.

The Series D preferred stock can be converted to common stock. Therefore, a
discount in the amount of $4,843,296 at December 31, 1998 has been realized. The
discount is the difference in the intrinsic value of the common stock less the
net proceeds from the series D preferred stock. Due to the limitation on the
number of shares of stock that can be issued to retain the HUB status, the
unrecognized discount in the amount of $4,843,296 will be recorded if and when
the preferred stock is converted or the HUB status changes.

During the nine months ended December 31, 1998, Class A warrants were exercised
for 420,000 shares of common stock at $0.795 per share in the amount of
$333,900.




<PAGE>   16



MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

NOTE 2 - STOCKHOLDERS' EQUITY

In October 1998 the Company completed a private placement agreement with a group
of accredited investors for the placement of 100,000 shares of Series E
preferred stock, stock (6% cumulative, convertible, non-voting, stated value,
$10.60), (the "Series E Stock). Each share of preferred stock is initially
convertible into 10 shares of the Company's common stock, subject to adjustment.
Also options to purchase 50,000 shares of common stock at $4.50 per share were
issued as a part of the agreement.

In November 1998 the Company received $1,485,000 in exchange for 49,500 shares
of Series E Stock. The Company paid $188,600 and issued 2,475 shares of Series E
Stock for placement agent fees. The common stock had a fair value of
 $6.375 to $6.75 per share at the grant dates resulting in $161,844 in placement
agent fees.

Through February 1999, the Company had received $600,000 in exchange for 20,000
shares of Series E Stock. The Company paid $72,000 and issued 1,000 shares of
Series E Stock for placement agent fees. The remaining 30,000 shares of Series E
Stock will be funded by March 31, 1999.

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:

<TABLE>
<CAPTION>
                        COMMON
                        SHARES       AMOUNT
                        ------      --------
<S>                    <C>         <C>
March 31, 1998          23,742      $ 58,668
June 30, 1998           10,224      $ 66,743
September 30, 1998      14,151      $ 92,679
December 31, 1998       15,428      $104,140
</TABLE>

NOTE 3 - CONTINGENCY

On December 18, 1997, Argus Management, Inc. filed Plaintiff's Original Petition
in the 216th District Court of Kerr County, Texas. Argus claims the Company and
Mr. Jose G. Chavez, as joint obligors, defaulted on their obligation to Argus
pursuant to two promissory notes for $100,000 each, both dated June 2, 1997.
Argus is seeking a judgment for $200,000, together with interest on the notes at
the rate of 20% per annum from June 2, 1997, through the date the notes are
satisfied. As of March 31, 1998, $65,000 had been disbursed to third parties in
satisfaction of obligations of Argus Management, Inc. The $65,000 has been
recorded in other receivables in the accompanying financial statements.

On February 6, 1998, the Company filed Plaintiff's Original Petition in the
above-referenced case. The Company asserts breach of contract, fraud,
defamation, usury, and civil conspiracy claims against Argus Management, Inc.
The Company strongly disagrees with Argus' contentions and denies liability to
Argus under the notes and plans to oppose vigorously Argus' claims and recover
the amounts disbursed to third parties.




<PAGE>   17



MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)

NOTE 3 - CONTINGENCY

On November 20, 1996, MCA Communications, Inc. ("MCA") filed a lawsuit against
the Company in County Court at Law No. 2 in Harris County, Texas. MCA claims the
Company owes $12,485 for certain goods and services that MCA claims to have
provided to MSI in connection with various projects for the Texas Department of
Health. MCA also seeks interest, costs, and attorneys' fees. On January 6, 1997,
the Company filed its answer and denied the above-referenced claim in its
entirety.


Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS

THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SECTION CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW.

Overview
========

Micro-Media Solutions, Inc. ("MSI"), the operating subsidiary of MSI Holdings,
Inc. was created 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. MSI maintains certification as a
minority-owned business enterprise and status as a Historically Underutilized
Business ("HUB").

Among the principal costs to market and sell the Company's products are
advertising and promotion costs, salaries and commissions, and general and
administrative expenses. The Company's operating results may be subject to
fluctuations on a quarterly and annual basis as a result of various factors,
including, but not limited to, fluctuating market pricing for computer and
semiconductor memory products, industry competition, seasonal government
purchasing cycles, and working capital restrictions on manufacturing and
production. Therefore, the operating results for any particular period are not
necessarily indicative of the results that may occur in any future period.

The Company's revenues consist of hardware sales, prepackaged software sales and
the delivery of technical services, including installing and maintaining network
systems. The technical service sales of the Company typically yield a higher
margin than the hardware and software sales of the Company. This is due, in
part, to the intense competition in the hardware and software sales sector from
Original Equipment Manufactures ("OEM's") and distributors. As a result, the
Company, is attempting to strategically reposition itself from emphasizing
hardware and software sales to intensifying sales of technical services.







<PAGE>   18



Recent Developments
===================

On July 27, 1998, MSI entered into a renewable 10 year sublease with GTE
Intelligent Network Services, Inc. ("GTE") under which MSI agreed to lease a
portion of their east Austin facilities to GTE for installation of GTE's Point
of Presence ("POP") equipment (the "Sublease"). On May 29, 1998, MSI entered
into a 3 year subscription to GTE's Internet Advantage version 5.1 Connection
Service granting MSI access to GTE's POP (the "Connection Service")(the Sublease
and Connection Service are collectively referred to as the "GTE Agreement").
GTE's establishment, management and monitoring of multiple domains on behalf of
MSI is included in the Connection Service. The Connection Service was upgraded
to GTE's Internet Advantage version 6.0 on September 29, 1998. MSI will lease
connections to the POP for access to the GTE Internet network to other
businesses. MSI will target companies that need direct, high-speed access to the
Internet through turn-key collocation services for high volume (known as
bandwidth) Internet web applications. Collocation is a service that provides a
high speed, high bandwidth connection to the Internet backbone using various
backup systems to increase the connection's fault tolerance. By connecting
directly to Internet via the POP, MSI is able to eliminate the local loop, the
weakest component in localized Internet connections. MSI will have the capacity
to support over four thousand collocation rack spaces at its Austin, Texas
facilities. These rack spaces will be used to host the network servers for MSI
clients and provide those clients with direct access to the Internet. When fully
implemented, these collocation services are expected to significantly increase
The Company's revenues over the term of the Connection Service. The GTE
Agreements provide the potential for The Company to increase revenue by selling
Internet access to various high Internet demand entities for such activities as
commerce and academics. The Company has remodeled a portion of its east Austin
facility in preparation of supplying the Collocation service. It is anticipated
that the requisite hardware will be operational in February 1999.

In July 1998, MSI began providing systems integration, warehousing, systems
configuration and other fulfillment services for Siemens-Nixdorf Information
Systems, Inc. ("Siemens-Nixdorf") for Point of Sale ("POS") systems and
Automated Teller Machines for Siemens-Nixdorf's customers such as Sears-Roebuck,
and Bealls department stores (the "Siemens-Nixdorf Agreement"). This agreement
provides that Siemens-Nixdorf will store its inventory at MSI, and will charge
Siemens-Nixdorf for various systems integration services. This arrangement
provides The Company with a revenue stream without a significant working capital
commitment.

The Company formed TeleVista, Inc., a wholly owned subsidiary ("TVI") in
September of 1998 to run the electronic commerce business for the on-line sale
of hardware and software over the Internet through the use of a secure server.
Secure servers allow for the accelerated receipt of funds through credit card
payments for hardware and software purchases made through their web sites
operated by it. TVI had no operations at December 31, 1998.










<PAGE>   19



Results of Operations
=====================
Three Months Ended December 31, 1998 Compared with December 31, 1997
======================================================================

Revenues for the quarter ended December 31, 1998 of $1,345,633 increased
$625,372 or 86.8% from the $720,261 recorded in the quarter ended December 31,
1997. This increase is a combination of an increase of $37,143 in Hardware,
Software & Peripherals (HSP) revenues; decrease of $32,779 in Service, Support &
Integration (SSI) revenues; and an increase of $621,008 in Network Installation
(NI) revenues.

The 17.5% increase in HSP revenues of $37,143 is a reflection of the normal
fluctuations in sales of HSP products.

The 17.4% decrease in SSI revenues of $32,779 is a of a reduction in the scope
of work on a several contracts. New revenue sources for SSI are being developed
to replace the reduction in revenues. As described in the "Recent Developments"
section above, the Company has signed a contract with Siemens-Nixdorf to
supplement its SSI revenues. Other decreases in SSI revenues relate to normal
fluctuations in service requests from customers that occur throughout the year.

The 94% increase in NI revenues of $621,008 relates to specific significant
school district network installation contracts that were in place during each
quarter. During the quarter ended December 31, 1997 MSI was finishing a contract
for Hereford ISD. During the quarter ended December 31, 1998, MSI completed a
major portion of the work for an installation of a network system under a
contract with San Felipe Del Rio CISD.

Cost of goods sold, (COGS), for the quarter ended December 31, 1998 increased
$633,012 or 108.6% to $1,215,633 compared to the quarter ended December 31, 1997
representing 90.3% of revenue resulting in a margin of 9.7%. Cost of Goods Sold
for the quarter ended December 31, 1997 was $582,621 or 80.9% of revenue
resulting in a margin of 19.1%. The decrease in margins is a combination of an
increase in COGS for HSP in the amount of $34.493 and a decrease in COGS for SSI
in the amount of $63,001 and an increase in COGS for NI in the amount of
$661,520.

COGS as a percentage of revenues for HSP was 96.1% for the quarter ended
December 31, 1998 resulting in a margin of 4.9% compared to a margin of 3.3% for
the quarter ended December 31, 1997. The low margins on HSP revenues is due to
market pressure to lower prices on HSP products from the Company's competitors
and customers including the result of the competitive bidding process required
for sales to public entities.

COGS as a percentage of revenues for SSI was 38.2% for the quarter ended
December 31, 1998 resulting in a margin of 61.8% compared to a margin of 35.0%
for the quarter ended December 31, 1997. The increase in margins is a result of
MSI obtaining an SSI contract with Siemens Nixdorf for system integration. This
contract requires that Siemens Nixdorf supply all hardware and software products
to be integrated into the systems. Additional increases in margins are a result
of a contract to install Texas State Lottery vending machines in retail
businesses. This contract requires the lottery contractor to supply all hardware
cost.





<PAGE>   20



COGS as a percentage of revenues for NI was 97.4% for the quarter ended December
31, 1998 resulting in a margin of 2.6% compared to a margin of 20.2% for the
quarter ended December 31, 1997. The decrease in margins relate to specific
significant school district network installation contracts that were in place
during each quarter. During the nine months ending December 31, 1998 MSI
received a contract of approximately $700,000 with San Felipe Del Rio CISD (Del
Rio) for network system installation. The margin on this contract was less due
to competitive bidding required by public entities. Additional contracts with
Del Rio were received, subsequently, that allow the opportunity for increased
overall margins. Aggregate contracts and purchase orders with Del Rio are now in
excess of $1 million.

Selling, General and Administrative Expenses for the quarter ended December 31,
1998 of $1,742,521 represents 129.5% of Revenues. The 1998 amount represents an
increase over the quarter ended December 31, 1997 of $250,858 or 16.8%.
Approximately $153,000 of the increase represents the increase in staff salaries
and benefits. Staff additions include technical staff, sales staff, accounting
staff and middle management. These increases are needed as the Company prepares
to offer collocation services at its Austin, Texas facility and will also enable
the Company to work on larger service contracts. Increases in professional fees
of $398,000 is largely attributable the reporting requirements associated with
being a public company and fees paid for technical consulting related to the
design and implementation of the Collocation services described in the "Recent
Developments" section above. Occupancy expense increased approximately $57,000
due to facility expansion and increased staffing. Interest expense decreases of
$154,000 is a result of a reduction in late fees and interest charged on past
due invoices and decrease line of credit usage.

Nine Months Ended December 31, 1998 Compared with December 31, 1997
====================================================================

Revenues for the nine months ended December 31, 1998 of $2,941,542 increased
$202,046 or 7.4% from the $2,739,496 recorded in the nine months ended December
31, 1997. This increase is a combination of an increase of $80,542 in HSP
revenues; a decrease of $308,429 in SSI revenues and an increase of $429,933 in
NI revenues.

The nominal increase of $80,542 in HSP revenues reflects normal fluctuations in
sale of HSP products.

The $308,429 decrease in SSI revenues relates to a reduction in the scope of
work on two contracts. Revenues on a contract for the installation and servicing
of lottery machines decreased approximately $328,000 from the nine months ended
December 31, 1997 compared to the December 31, 1998 period. Other decreases in
revenues were on a contract for the City of Austin of approximately $64,000 from
the nine months ended December 31, 1997 compared to December 31, 1998 period.
Increases in SSI revenues of approximately $84,000 are attributed to new
contracts received from Siemens Nixdorf and the State of Texas lottery
contractor.

The $429,933 decrease in NI revenues relates to specific significant school
district network installation contracts that were in place during each period.
During the nine months ended December 31, 1997 MSI was finishing on a contract
for Hereford ISD which started in April 1997. During the nine months ended
December 31, 1998, MSI began the installation of a network system under a
contract with San Felipe Del Rio CISD. This contract was executed in July 1998
with installation beginning in August 1998.


<PAGE>   21



Cost of goods sold for the nine months ended December 31, 1998 increased
$755,828 or40.8% to $2,608,128 compared to the nine months ended December 31,
1997 representing 88.7% of revenue resulting in a margin of 11.7%. Cost of goods
sold for the nine months ended December 31, 1997 was $1,852,300 or 67.6% of
revenue resulting in a margin of 32.4%. The decrease in margins is a combination
of an increase in COGS for HSP in the amount of $490,881 and decrease in COGS
for SSI in the amount of $306,385 and an increase in COGS for NI in the amount
of $571,332.

COGS as a percentage of revenues for HSP was 96.2% for the nine months ended
December 31, 1998 resulting in a margin of 3.8% compared to a margin of 65.6%
for the nine months ended December 31, 1997. The decreasing margins are due to
market pressure to lower prices on HSP products from the Company's competitors
and customers including the result of the competitive bidding process required
for sales to public entities. Contributing to the lower margins for 1998 were
sales made below cost as a result of poor estimating of cost by MSI. Procedures
are now in place to insure profitable margins on HSP sales.

COGS as a percentage of revenues for SSI was 38.2% for the nine months ended
December 31, 1998 resulting in a margin of 61.8% compared to a margin of 35.0%
for the nine months ended December 31, 1997. The increase in margins is a result
of MSI obtaining an SSI contract with Siemens Nixdorf for system integration.
This contract requires that Siemens Nixdorf supply all hardware and software
products to be integrated into the systems. Additional decreases in COGS are a
result of a contract to install Texas State Lottery vending machines in retail
businesses. This contract requires the lottery contractor to supply all hardware
cost.

COGS as a percentage of revenues for NI was 96.9% for the nine months ended
December 31, 1998 resulting in a margin of 3.1% compared to a margin of 25.7%
for the nine months ended December 31, 1997. The decrease in margins relate to
specific significant school district network installation contracts that were in
place during each quarter. During the quarter ending December 31, 1998 MSI
received a contract of approximately $700,000 with San Felipe Del Rio CISD for
network system installation. The margin on this contract was less due to
competitive bidding required by public entities. Additional contracts with Del
Rio were received, subsequent to December 31, 1998, that allow the opportunity
for increased overall margins. Aggregate contracts and purchase orders with Del
Rio are now in excess of $1 million.

Selling, General and Administrative Expenses for the nine months ended December
31, 1998 of $4,280,676 represents 145.5% of Revenues. The 1998 amount represents
an increase over the nine months ended December 31, 1997 of $1,297,835 or 43.5%.
Approximately $835,000 of the increase represents the increase in staff salaries
and benefits. Staff additions include technical staff, sales staff, accounting
staff and middle management. These increases are needed as the Company prepares
to offer collocation services at its Austin, Texas facility and will also enable
the Company to work on larger service contracts. Increases in professional fees
of $645,000 is attributable to the reporting requirements associated with being
a public company and fees paid for technical consulting related to the design
and implementation of the Collocation services described in the "Recent
Developments" section above. Occupancy expense increased approximately $167,000
due to facility expansion and increased staffing. Interest expense decreases of
$154,000 is a result of a reduction in late fees and interest charged on past
due invoices and decrease line of credit usage.



<PAGE>   22



Going Concern Issues
====================

The Company's significant historical losses raise a doubt as to the Company's
ability to continue as a going concern. The Company plans to address the going
concern issues described in the notes to the financial statements through an
additional private placement of series E preferred stock and from substantial
contracts signed during fiscal year ending March 31, 1999, which will provide
sufficient working capital and cash flows for the next twelve month period.
However, there can be no assurance that the Company will be able to secure such
additional capital or that the contracts will generate sufficient cash flows or
working capital. Subsequent to March 31, 1998, the Company received $2.8 million
dollars in proceeds from Private Placement Phase III (as defined) that have been
used to retire debt, decrease past due accounts payable and for operating
expenses. The Company has completed arrangements with a private investment group
for a private placement of a newly created series E of preferred stock with net
proceeds to the Company of approximately $2.6 million to take place in November
1998 through March 1999. Approximately 1.3 million was received in November 1998
on the Series E private placement with the balance to be received through March
1999.

Management, based upon expressions of interest, estimated growth and facility
capacities, believes that its contracts with GTE and Siemens Nixdorf (the
"Contracts") have the possibility of producing revenues of approximately $8
million during the next twelve month period. Management further anticipates the
contracts to yield approximately 10% of revenues as net income. The Company has
purchased the required equipment with capital leases as of September 30, 1998,
and will begin operations under the contracts by February 1999. The proceeds
from the Series E Preferred will allow the Company to remodel the existing
facility and continue operations through the end of the current fiscal year, by
which point it is anticipated that the contracts will be generating positive
cash flow and adequate working capital.

The Company is also negotiating with investment bankers for an additional $20
million private placement to be completed before the end of April 1999. These
funds will be used to satisfy additional capital needs for expansion
opportunities associated with the Contracts. In the event the Company is unable
to complete the contemplated $20 million private placement, the Company will
forego the Contracts' expansion opportunities, reduce the number of employees
and overhead expenses and concentrate its efforts on the Austin operations.

Liquidity and Capital Resources
===============================

On November 18, 1997, the Company received $2,120,000 upon completion of a
private placement whereby 400,000 of Series B Preferred were sold to
Entrepreneurial Investors, Ltd. ("EIL") for $5.30 per share. On February 4,
1998, the Company received $1,000,000 completing a second private placement
whereby 94,340 shares of Series C Preferred were sold to EIL for a purchase
price of $10.60 per share. By July, 1998, the Company received $2,964,364
completing a third private placement, whereby 279,657 shares of Series D
Preferred were sold to fourteen investors for a purchase price of $10.60 per
share. In November 1998 the Company received $1,485,000 in exchange for 49,500
shares of Series E Stock. The Company paid $188,600 and issued 2,475 shares of
Series E Stock for placement agent fees. Through February 1999, the Company had
received $600,000 in exchange for 20,000 shares of Series E Stock. The Company
paid $72,000 and issued 1,000 shares of Series E Stock for placement agent fees.
The remaining 30,000 shares of Series E Stock will be funded by
March 31, 1999.

<PAGE>   23


For the nine months ended December 31, 1998 and the year ended March 31,1998,
the Company's total assets were $4,236,054 and $2,699,452 respectively, with
liabilities of $3,767,853 and $2,607,783, respectively. Current assets of
$2,748,414 and $1,898,621 represent 120.0% and 90.8% of current liabilities of
$3,298,570 and $2,090,701. Deterioration of the Company's cash position is a
result of the Company's continuing operating losses. See "Going Concern" in Note
1 to the financial statements above. The Company's liabilities of $3,767,853 at
December 31,1998 consist of $1,600,000 of a fully secured credit line,
$1,698,570 of current liabilities and $469,283 of long-term liabilities.

Net shareholders equity as of December 31, 1998 and March 31, 1998 was $468,201
and $91,669, respectively. During the year ended March 31, 1998, and the nine
months ended December 31, 1998, the Company completed private placements of
Series B Stock, Series C Stock and Series D Stock. The Series E Stock private
placement was partially completed through December 31, 1998 with the Company
receiving $1,485,000 in exchange for 49,500 shares of Series E Stock. Receipt of
these funds enabled the Company to fund its operations, reduce its outstanding
debt and pay off past due accounts payable.

Subsequent to December 31, 1998, the Company received an additional $600,000 in
exchange for 20,000 shares of Series E Stock. The Company expects to receive an
additional $900,000 in exchange for 30,000 shares of Series E Stock by March 31,
1999 to complete the Series E placement.

During the nine months ended December 31, 1998, working capital decreased
$358,076 from March 31, 1998. The balances of its accounts payables, accrued
expenses and accounts receivables were increased as a result increased sales and
the resulting increase in related accounts. At December 31, 1998, the Company
had a working capital deficit of ($550,156) compared to a working capital
deficit of ($192,080) at March 31, 1998. The Company was current on all
significant accounts payable at December 31, 1998. As of March 31, 1998 the
Company was more than 30 days past due on $170,000 or 57% of its accounts
payable. The Company's account receivables at December 31, 1998 include
approximately $465,000 from the Del Rio Consolidated School District. This
amount was subsequently collected.

The Company has a critical need for additional working capital to meet
contractual obligations under the GTE Agreements. Management believes that the
GTE Agreements with Siemens Nixdorf Agreements have the potential to increase
revenue levels, provided that sufficient working capital is obtained. See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations and Going Concern Issues.














<PAGE>   24



Year 2000 Issues
================

As with other companies, the Company has initiated a program to study the impact
on its computer system in order to be Year 2000 compliant. This study involved
identifying any modifications or replacements of certain hardware and software
maintained by the Company. The study has been completed. The company has
identified the computer systems that will require either modification, upgrade
or replacement. Implementation of the Company's Year 2000 plan should be
completed by June 30, 1999. The Company anticipates that in-house personnel will
be primarily responsible for completing these tasks and that the costs will be
insignificant. As such, the Company believes that the planned modifications,
upgrades and replacements of existing systems will be completed in a timely
fashion to assure Year 2000 compliance, and any related cost will not have a
material impact on the Company's results of operations, cash flows, or financial
conditions in future periods. The Company has budgeted for $25,000 to address
these expenses. In addition, the Company is also taking actions to assure that
its customers and vendors are taking steps to remedy their Year 2000 issues. The
Company is not incurring any unique risks in connection with Year 2000 issues.
It is however subject to the risk that information and financial resources may
be temporarily unavailable. This societal risk may temporarily disrupt cash
flows worldwide. The Company believes that by becoming, and assisting its
clients and vendors to become, Year 2000 compliant it is likely to circumvent
that threat. The Company expects to be Year 2000 compliant March 31, 1999. If
compliance is not achieved by that date, the Company will reallocate resources,
as necessary, to ensure compliance within six months, thereafter.

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 to meet the current market conditions.

Subsequent Events
=================

         As of March 23, 1999, MSI has been certified by GTE's BBN Professional
Services as meeting their technology and service quality standards for network
architecture, security architecture and facilities design. MSI is the first
company to receive this certification. Throughout the last half of fiscal year
1999, MSI, in conjunction with GTE's BBN Professional Services consultants
designed and implemented the Internet Accelerator Portal ("IAPTM"). The IAPTM
accelerates end-to-end Internet connectivity, increasing the user's proximity
and access speed to the Internet's content through direct connection via the
POP. This allows direct access to virtually unlimited bandwidth on demand and
eliminates the need for costly local loop circuits. End-users access high speed
connectivity services by taking advantage of Digital Subscriber Line ("DSL")
technology. In May 1999, MSI formed an alliance with Southwestern Bell to
provide Southwestern Bell's DSL service ("the Southwestern Bell DSL Reseller's
Agreement"). As an authorized reseller of Southwestern Bell's DSL service, MSI
will offer its customers (Internet Service Providers ("ISPs") and other
resellers) the opportunity to leverage Southwestern Bell's broadband technology
and provide them with high speed links, increased bandwidth and Asynchronous
Transfer Mode, a cell-based switching technology designed for broadband
transmission of voice, data and video. The combined IAP(TM), BBN Certification
and DSL Agreement, when operational, will enable MSI's customers to access the
Internet or corporate networks up to 200 times faster than conventional analog
modems.

<PAGE>   25

Subsequent to December 31, 1998, an additional 8,624,027 shares of Common Stock
were issued comprised as follows. During the last quarter of fiscal year ended
March 31, 1999: (i) 94,340 shares of Series C Preferred were converted to
943,400 shares of Common Stock; (ii) 65,000 shares of Series D Preferred were
converted to 650,000 shares of Common Stock; and (iii) 23,027 shares of Common
Stock were issued as dividends for the Series B, C, D, and E Preferred.
Subsequent to March 31, 1999: (i) 399,995 shares of Series B Preferred were
converted to 3,999,950 shares of Common Stock; (ii) 176,335 shares of Series D
Preferred were converted to 1,763,350 shares of Common Stock; and (iii) 124,430
shares of Series E Preferred were converted to 1,244,300 shares of Common Stock.

On February 22, 1999, the Company hired Glenn Birk as Vice President of Sales
and he was subsequently named an officer of the Company.  Mr. Birk has over 9
years of experience in sales at NCR, AT&T, Lawson Software, and BBN/GTE.  Prior
to joining MSI, Mr. Birk was an Account Executive for BBN/GTE and was
recognized as the company's sixth leading sales representative for 1998.  Mr.
Birk holds a Bachelors of Business Administration degree in Marketing from the
University of Texas at Austin. Mr. Birk's employment is currently not the
subject of an employment contract.

As of March 24, 1999, Roger M. Lane became the Company's Chief Operating Officer
pursuant to an employment agreement between Mr. Lane and the Company (the "Lane
Agreement"). The Lane Agreement provides for an annual salary of $120,000 and
reimbursement of ordinary, necessary and documented business expenses. In
addition, the Lane Agreement provides for a stock option to purchase up to
450,000 shares of Common Stock vesting as follows: (i) options to purchase
100,000 shares of Common Stock will vest at six months after the grant date of
March 24, 1999; (ii) options to purchase an additional 110,000 shares of Common
Stock will vest on the first anniversary of the grant date; and (iii) options to
purchase 120,000 shares will vest on each of the second and third anniversary of
the grant date. The agreement is terminable by either party. Mr. Lane has more
than 20 years of experience in operations and logistics management in the
computer, copier, and software industries. Prior to joining MSI, Mr. Lane was
the Chief Operating Officer at Techworks, Inc. in Austin, Texas. Prior to that,
Mr. Lane was Vice-President of Operations at Ashton-Tate Corporation in
Torrance, California and Vice-President of Logistics at Intellogic Trace, Inc.
and Datapoint Corporation, both of San Antonio Texas. He holds a Bachelors of
Science degree in Mechanical Engineering from the University of Maine at Orono,
and a Masters of Science degree in Management (Inventory and Production Control)
from Rensselaer Polytechnic Institute, Troy, New York.

         As of March 31, 1999, the Company has 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 MSI, 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 MSHI's Common Stock to MSHI, that
MSHI tender $250,000 to Argus and that MSHI issue the balance of 92,935 shares
of Common Stock as restricted shares. The parties have agreed to cancel the

<PAGE>   26

two promissory notes from MSHI to Argus and release all other claims among the
parties.

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

         On June 2, 1999, a group of the Company's Common Stock shareholders
filed a Schedule 13-D for the sole purpose of acting as a group to exercise a
change in control of the Company's Board of Directors. The group filing the
Schedule 13-D consists of 25 shareholders with an aggregate of 10,324,499 shares
of the Company's Common Stock or 47.36% of the 21,802,016 shares of Common Stock
outstanding as of May 31, 1999.


                          PART II: Other Information


ITEM 1: LEGAL PROCEEDINGS
=========================

For a discussion of Legal Proceedings, refer to Note 3, Contingencies, in the
Notes to 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 2,
Stockholders' Equity, in the Notes to Consolidated Financial
Statements in Part I

ITEM 3: DEFAULT UPON SENIOR SECURITIES
======================================

NONE

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
===========================================================

NONE


Item 5. OTHER INFORMATION
=========================

A shareholder who wishes to make a proposal at the 1999 Annual Meeting of
Shareholders without complying with the requirements of the SEC's Rule 14a-8
(and therefore without including the proposal in the Company's proxy materials)
should notify the Company's Secretary, at the Company's principal executive
offices, of that proposal by July 1, 1999. If a shareholder fails to give notice
by that date, then the persons named as proxies in the proxy cards solicited by
the Company's Board of Directors for that meeting will be entitled to vote the
proxy cards held by them regarding that proposal, if properly raised at the
meeting, as directed by the Company's management.

The Company's former Chief Financial Officer, David Hill, is no longer employed
by the Company and is pursuing other business interests.



<PAGE>   27



ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
========================================

a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                 EXHIBIT DESCRIPTION                         LOCATION
-----------                 -------------------                         --------
<S>                  <C>                                              <C>
10.1                  Contract between San Felipe Del                  Exhibit 10.1
                      Rio Consolidated ISD and MSI,
                      dated July 7, 1998.

10.2                  Master Agreement for                             Exhibit 10.2
                      Internetworking Services
                      between GTE and MSI, dated May
                      29, 1998.

10.3                  Service Schedule Internet                        Exhibit 10.3
                      Advantage Connection Services
                      between GTE and MSI, dated May
                      29, 1998.

10.4                  Service Schedule Consulting                      Exhibit 10.4
                      Services between GTE and MSI,
                      dated October 15, 1998.

10.5                  Amendment One to Service                         Exhibit 10.5
                      Schedule Consulting Services
                      between GTE and MSI, dated
                      November 13, 1998.

10.6                  Employment Agreement effective                   Exhibit 10.6
                      as of March 24, 1999, between
                      Roger M. Lane and MSHI
</TABLE>

B) REPORTS ON FORM 8-K

None



<PAGE>   28



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.





Date  06/11/99                  By: /s/ ROGER M. LANE
                                        ROGER M. LANE, President


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

<TABLE>
<CAPTION>
Signature                          Capacity                  Date
<S>                         <C>                           <C>
/s/  Ernesto Chavarria                                    06/11/1999
     Ernesto Chavarria       Chairman Of The Board Of
                              Directors


/s/ Blandina Cardenas                                     06/11/1999
    Blandina Cardenas        Director


/s/ Daniel Dornier                                        06/11/1999
    Daniel Dornier           Director


/s/ Jon J. King                                           06/11/1999
    Jon J. King              Director


/s/ Roger M. Lane                                         06/11/1999
    Roger M. Lane            President And
                             Chief Operating Officer


/s/ Stephen Hoelscher                                     06/11/1999
    Stephen Hoelscher        Controller And
                             Chief Accounting Officer
</TABLE>


<PAGE>   29
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                 EXHIBIT DESCRIPTION                         LOCATION
-----------                 -------------------                         --------
<S>                  <C>                                              <C>

10.1                  Contract between San Felipe Del                  Exhibit 10.1
                      Rio Consolidated ISD and MSI,
                      dated July 7, 1998.

10.2                  Master Agreement for                             Exhibit 10.2
                      Internetworking Services
                      between GTE and MSI, dated May
                      29, 1998.

10.3                  Service Schedule Internet                        Exhibit 10.3
                      Advantage Connection Services
                      between GTE and MSI, dated May
                      29, 1998.

10.4                  Service Schedule Consulting                      Exhibit 10.4
                      Services between GTE and MSI,
                      dated October 15, 1998.

10.5                  Amendment One to Service                         Exhibit 10.5
                      Schedule Consulting Services
                      between GTE and MSI, dated
                      November 13, 1998.

10.6                  Employment Agreement effective                   Exhibit 10.6
                      as of March 24, 1999, between
                      Roger M. Lane and MSHI
</TABLE>


B)   REPORTS ON FORM 8-K

     None