<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2000
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                             COMMISSION FILE NUMBER

   MSI HOLDINGS, INC. (HEREIN REFERRED TO AS "REGISTRANT", "COMPANY", "APERIAN",
"MSI", "WE", "US", AND "OUR") (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                 UTAH                                          87-0280886
(STATE OF INCORPORATION OR ORGANIZATION)                 (IRS EMPLOYER I.D. NO.)

      1121 EAST 7TH 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:
                          COMMON STOCK, PAR VALUE $.10

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Check whether the Issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days. (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-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $1,752,012

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.

Based on the closing price for the Company's Common Stock at June 22, 2000 of
$9.13 per share, the market value of shares held by non-affiliates would be
approximately $331,019,106.

As of June 22, 2000 the Registrant had 36,631,604 shares of Common Stock issued
and outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

  Definitive Proxy Statement for 2000 Annual Meeting of Shareholders (Part III)


Transitional Small Business Disclosure Format        Yes [  ] No [X]


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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

FORWARD-LOOKING STATEMENTS

    This Annual Report on Form 10-KSB contains forward-looking statements
regarding the Company, its business, prospects and results of operations and
views with respect to future events and performance. These forward-looking
statements are subject to risks and uncertainties posed by many factors and
events that could cause the Company's actual business, prospects and results of
operations to differ materially from historical results or those that may be
anticipated by such forward-looking statements. Words used in this Report such
as "anticipate," "believe," "effect," "may," "will" and similar expressions are
intended to identify forward-looking statements but are not exclusive means of
identifying such statements. Factors that might cause such a difference include,
but are not limited to, those discussed herein as well as those discussed under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as those discussed elsewhere in the Report.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Report. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. In addition, the
disclosures under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risk Factors that May Affect Future
Results" consist principally of a brief discussion of risks that may affect
future results and are, in their entirety, forward-looking in nature. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this Report, as well as the Company's annual, periodic and current
reports filed with the Commission, and those described from time to time in the
Company's press releases and other communications, which attempt to advise
interested parties of the risks and factors that may affect the Company's
business.

OVERVIEW

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

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

    Our solution set includes:

Hosting:

o        Web Hosting / Co-location. We offer a full range of hosting services in
         our GTE/BBN certified data center physically co-located next to the
         point-of-presence ("POP") of two Tier-1 Internet backbones.

Access:

o        Internet Connectivity. By physically locating our data center next to a
         Tier-1 POP, we provide our customers with a direct connection to a
         Tier-1 Internet backbone through our proprietary Direct Optical
         Co-location Connection (DOCCtm) infrastructure. This infrastructure
         eliminates the costs, constraints and failure points associated with
         the standard local loop Internet connectivity model.

o        Data Packet Routing Optimization Technology. Through our strategic
         relationships with Genuity and UUNet, we leverage their networking
         routing optimization software to ensure our data traffic reaches the
         correct end point in the most efficient manner.


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o         xDSL Connectivity. Through Constant.com Aperian is able to sell
          nationwide DSL service. This enables Aperian to provide end-to-end
          connectivity without being burdened with investment in costly DSL
          infrastructure, implementation, and support. Constant.com provides
          implementation and support of customers, using Aperian facilities and
          bandwith.

Value Added Services:

o         Professional Services. We provide network management, Web hosting
          infrastructure, security, e-commerce and help desk services.

o         Broadband Webcasting. We offer production and Webcasting services for
          audio/video broadcasting over the Internet.

o         ASP Infrastructure. We are also developing an ASP infrastructure
          platform to expedite and simplify the deployment of applications over
          the Web. The components of this platform will include security,
          billing, database management and a software development environment.
          With the development of an ASP platform, we believe we will be one of
          the first companies to offer a complete packaged ASP solution.

    In August 1999, we began providing Internet infrastructure services from our
40,000 square foot data center located in Austin, Texas, which is directly
connected to Genuity's Global Network Infrastructure ("GNI") point-of-presence.
The GNI is one of the largest and most technologically sophisticated fiber optic
Internet backbones in the United States. We have signed direct connect
agreements with Genuity in Austin, Dallas, Tampa, Atlanta, Denver, Philadelphia,
Charlotte, Los Angeles, Reno and Phoenix. Our Dallas and Tampa data centers
opened in April 2000, and the Atlanta center is scheduled to open in July 2000.
We have either signed or are finalizing leases for new data centers in the other
cities. We expect the remaining data center sites listed to become operational
during fiscal year 2000. We are in the process of reviewing and selecting
additional data center sites that would broaden our national data center
presence. Additionally, in April 2000 we announced the signing of a five-year,
multi-million dollar contract with MCI WorldCom utilizing their subsidiary
UUNet's Tier-one Internet backbone. The contract allows our data centers to
utilize our Direct Optical Co-location Connection (DOCC(TM)) technology and
access UUNet's Internet network. Under the terms of the contract, UUNet will
provide us with direct access to its Internet network in three cities
immediately, including Austin, Dallas and Tampa. We have planned a nationwide
expansion to be completed in the next 18 months that will include Atlanta,
Chicago, New York, Phoenix, Portland, Salt Lake City, Seattle and Washington,
D.C., with additional cities to be announced in the near future.

    In March 2000, the Company began offering its services under the name of
Aperian. The Company's Common Stock was approved for trading on the Nasdaq
National Market System under the symbol "APRN", and began trading on May 31,
2000. Prior to this approval, our Common Stock traded on the Over-the-Counter
Bulletin Board under the trading symbol "MSIA".

    As of June 22, 2000, we had 172 customers, including Web-centric businesses,
ISPs, ASPs and DSL customers. Please see a brief listing of our customers in the
Customers section of this document.

INDUSTRY BACKGROUND

    Increasing Demand for Internet Access and Internet-Related Outsourced
    Services

    The Internet has experienced rapid growth in the 1990's and has emerged as a
global medium for communications and commerce. Internet access and
Internet-related outsourced services have been two of the fastest growing
segments of the telecommunications services market. For example:

     o    International Data Corporation estimates that Internet users worldwide
          will increase from approximately 142 million in 1998 to 502 million by
          2003.

     o    Forrester Research estimates that by 2003 there will be over 26
          million subscribers with broadband access to the Internet.

     o    International Data Corporation estimates that the revenue from
          Web-hosting services in the United States was approximately $770
          million in 1998 and is expected to grow to approximately $12 billion
          by 2002.

     o    International Data Corporation believes that the ASP market in the
          United States will grow from $23.1 million in 1998 to over $2.0
          billion by 2003.


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    Accelerating Demand for Bandwidth

    The increasing demand for bandwidth is being driven by a combination of
factors. First, the number of Internet users is growing rapidly. Second,
end-users are quickly adopting broadband access technologies that allow users to
access the Internet at speeds six to 30 times greater than 56.6 Kbs dial-up
access modems. Broadband access is driving the increasing demand for full motion
video/audio content and applications. The result is greater demand for broadband
access and related value added services needed to deliver multimedia content to
a global marketplace. ISPs will have to offer high-speed Internet access and
content providers will need more bandwidth in order to remain competitive.
End-user adoption of recently introduced broadband access technologies like DSL
and cable modem reflects this demand.

    The Need for Cost-Effective High-Speed Internet Access

    End-user demand is growing for broadband Internet access. As a consequence,
ISPs are being required to offer their customers high-speed, broadband
technologies, like DSL and cable modems. ISPs must also connect their customers
to the Internet, typically by purchasing fixed bandwidth connections through a
local loop. Because the bandwidth is typically fixed, the ISP must either
purchase enough capacity to cover peak usage, which will remain mostly unused at
non-peak usage times, or fail to meet end-user requirements at peak usage times.
Both the infrastructure necessary to provide high-speed Internet access from the
ISP to its customers, and the infrastructure necessary to maintain peak usage
bandwidth from the ISP to the Internet, may be cost prohibitive for many smaller
ISPs. As an analogy, instead of the information superhighway only needing more
lanes to handle congestion, it now also needs to have wider lanes for larger
vehicles, and the ability to expand into overflow lanes at peak travel times. In
addition, many ISPs are required to connect to the Internet over local loops
where congestion and network failure account for a large part of Internet delay.
To remain competitive, smaller ISPs will need to provide high-speed, reliable
Internet access to their customers, while retaining their branding but freed of
the burden of making the capital expenditures and using the other resources
necessary to build and maintain the systems required to provide access.

    Demand for Web-Hosting and Co-Location

    The Internet can provide an effective and efficient means for businesses to
increase their revenues, but the infrastructure required to use the Internet
effectively is becoming more complex and challenging to manage. Ensuring the
quality, reliability and availability of Internet operations typically requires
substantial investments in developing Internet operations and applications and
hardware expertise. However, such a significant investment can often be an
inefficient use of business resources. As a result, businesses are seeking
outsourcing arrangements that can increase performance, provide continuous
operation of their Web sites, reduce Internet operating expenses and eliminate
the need for expensive and dedicated information technology staff. These
businesses are also seeking service providers who can host their Web sites in a
secure location with a controlled environment and active around-the-clock
monitoring.

    We categorize the market for outsourced Web hosting services into the
following segments:

    o   Co-location Hosting. Customers own their hardware, software and network
        equipment, which is housed at the Web site hosting company's facilities.
        The customers retain responsibility for the installation, management,
        scalability and security of their Web sites. However, co-location has
        been and remains an attractive option for Web-centric companies with
        advanced in-house Internet expertise that do not want the capital
        expenses of maintaining a secure environment with high bandwidth access.

    o   Dedicated Hosting. Customers are provided a complete Web site hosting
        solution. Unlike co-location, the service provider supplies the
        hardware, software, network equipment and support necessary to run the
        Web site. As Web sites have become more complex, even large and
        technically astute businesses have found Internet technologies and
        solutions a challenge to manage. For such companies, including many
        Fortune 2000 companies, dedicated Web site hosting has become a
        preferred alternative.

    o   Shared Hosting. Customers share server hardware and bandwidth with other
        customers. Shared hosting provides a price competitive entry point for
        individuals and businesses desiring a simple Web site.

    o   Application Hosting. Customers are provided the services of dedicated
        Web site hosting along with the management of Web-enabled business
        applications supporting such common business processes as customer
        service, procurement, human resource management and sales force
        automation. The service provider implements and configures the business
        applications


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        to meet the specific needs of its customers. For large and small
        businesses alike, application hosting offers numerous benefits,
        including faster time-to-market, access to advanced application skills
        and significantly lower costs of operation.

    A variety of companies, such as ISPs and large systems integrators, offer
products and services that attempt to address enterprises' Internet outsourcing
needs. However, we believe the solutions offered by these companies generally
fail to address certain elements required to ensure that customers'
mission-critical Internet operations are reliable, scalable and responsive. ISPs
have traditionally focused on providing Internet access and many have not
developed the technical expertise and physical resources to support
mission-critical Web sites. In addition, many large systems integrators focus
primarily on large enterprises and traditional information technologies. These
firms often lack the network and Internet expertise required to provide
mission-critical solutions. As a result, we believe a significant opportunity
exists for a highly-focused company to provide a combination of complex Web site
hosting, outsourced applications management and professional consulting services
that enable mid-size businesses to implement reliable, high performance and cost
effective Internet strategies.

APERIAN SOLUTION

    We provide hosting, access and value added services, and we are developing
an ASP infrastructure platform, for companies looking to outsource the
increasingly complex infrastructure needed to utilize the Internet effectively.
We believe that we are positioned to become an industry leader in high-bandwidth
Internet infrastructure services for the next generation of enriched content. We
eliminate existing data transmission constraints by enabling customers to
connect Internet servers directly to the Internet backbone, completely bypassing
the local loop that other Web hosting and co-location companies typically use.
Since we are not constrained by local loop connections and have access to
virtually unlimited bandwidth, our customers can deliver large amounts of
high-bandwidth content as needed.

The benefits to our customers are:

    o   Bandwidth Burstability. Our customers can "burst" to high levels of
        bandwidth usage on demand without having to add and then remove
        additional local loop circuits, which typically takes 45 to 60 days to
        obtain and results in significant costs. This ability is critical for
        high-bandwidth applications, such as Webcasting and full-motion
        audio/video.

    o   Response Time. Direct fiber-optic access to the Internet backbone allows
        our customers to get to other Internet providers' networks with fewer
        switches (hops) between carriers and routers.

    o   Elimination of Local Loop. Through our unique DOCC infrastructure, we
        provide all of our customers including ISPs "one hop" connectivity to
        the Internet. This direct access to a Tier-1 Internet backbone
        eliminates the need for data to travel over local loops and its related
        cost, congestion, and failure points.

    o   Usage-based Billing. Our customers are billed only for the bandwidth
        actually consumed, rather than flat-rate fixed-capacity billing.

    o   Scalability and Flexibility. Our services are designed to be highly
        scalable and flexible in order to meet the needs of our customers as
        their Internet operations expand. Our network is designed to scale
        bandwidth quickly to meet our customers' needs. We also provide
        flexibility for our customers by supporting most leading Internet
        hardware and software systems vendor platforms.

    o   Reliability. Our data center and infrastructure are certified as meeting
        GTE/BBN technology and service quality standards for network
        architecture, security architecture and facilities design.

    o   High Performance and Enhanced Connectivity. We are able to address the
        high bandwidth needs and rapid growth of our customers' mission-critical
        operations by maintaining direct peering interconnections, including
        peering relationships with Tier-one network providers such as GTE and
        UUNet. In order to provide our customers with uncongested bandwidth
        during network traffic spikes, we have access to the available capacity
        of two of the largest fiber optic high-speed networks in the United
        States.

    o   Sophisticated Network Management Services and Tools. By leveraging the
        knowledge gained from supporting many leading-edge Internet operations,
        we provide sophisticated network management and monitoring services on a
        24x7 basis.


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        We monitor all of our direct and indirect network connections for
        latency and packet loss, allowing our network engineers to reroute
        traffic to avoid congested points. We are able to identify and resolve
        many potential problems before they impact an Internet site's
        availability or performance.

    o   Fault Tolerant Facilities. We have built fault tolerant facilities
        designed to enable the uninterrupted operations necessary for
        mission-critical Internet operations. Our facility is equipped with an
        uninterruptible DC or AC power supply and back-up generators for power
        redundancy, multi-tiered fire suppression systems, seismically braced
        racks, separate and redundant cooling zones and security systems.

    o   Cost Effective Solution. Our customers benefit from leveraging the
        significant capital, operating and labor investments that we have made
        to support distributed, mission-critical Internet operations. Most
        enterprises today do not have the infrastructure that Internet
        operations require, including data centers located adjacent to major
        Internet connection points, 24x7 operations and specialized Internet
        technology expertise. We believes that our solutions to optimize
        enterprises' Internet operations are significantly more cost-effective
        than most in-house solutions.

OUR STRATEGY

    Our objective is to strengthen our position as a leading provider of fast
and reliable Internet infrastructure solutions targeted at bandwidth intensive
mid-market businesses seeking to maximize the performance of critical
Internet-based applications. Our strategy to achieve our objective is to:

    o   Invest in Infrastructure and Additional Data Centers. We intend to
        continue to make significant investments to expand and improve our
        infrastructure and capitalize on the trend by corporate information
        technology departments to outsource critical Internet operations. We
        have strategic relationships with Genuity and UUNet which allows us to
        select additional POP sites in which to build out data centers to
        provide our DOCC infrastructure to area customers. Initially, our build
        out will focus on large metropolitan areas in which Genuity and UUNet
        have an existing POP, and we have the opportunity for multi-homing
        capabilities. Our next target markets are Denver, Philadelphia, Phoenix,
        Chicago, Charlotte, San Diego, and Los Angeles. Through these additional
        data centers, we intend to establish a national presence to better serve
        our customers.

    o   Create Multi-Homed Networks. Our connectivity strategy is centered
        around redundancy, load-sharing and balance between multiple networks.
        We anticipate that each DOCC data center will be connected to two
        networks: the Genuity GNI Internet backbone and the UUNet Internet
        backbone. We intend to leverage our relationships with Genuity and MCI
        WorldCom to take advantage of their peering capabilities and to provide
        bi-directional exchange of Tier-one traffic. Our goal is to move traffic
        along the most efficient routes available.

    o   Become Outsourced Solution Provider to Other Internet Backbone
        Providers. We will seek to establish relationships similar in scope to
        GTE and MCI WorldCom with other Internet backbone providers. These
        relationships will enable us to position ourselves as the preferred
        outsourced solution to these other providers to address the needs of
        their mid-market customers. We believe that there are other Internet
        backbone providers who would like to offer broadband web-hosting
        services to the mid-market but are not yet in the position to do so on a
        cost effective basis. We believe that we can fill this demand by
        leveraging our expertise in this market and provide a cost effective
        outsourced solution to these other providers.

    o   Establish Brand Recognition. We believe that brand recognition will
        continue to be important in our attracting customers. We intend to
        leverage aggressively our GTE/BBN certification, our DOCC infrastructure
        to the Internet backbone and our full range of value-added solutions
        through an advertising campaign using traditional media, press tours,
        trade shows, speaking engagements and strategic co-marketing
        relationships. We intend to focus on an "informed strategy"
        differentiating the benefits and flexibility of a direct connection to
        the Internet compared to the problems associated with local loop access.

    o   Expand Customer Base. We intend to expand our base of approximately 172
        customers by increasing our sales and marketing efforts. In each city
        where we operate a data center, we intend to maintain a direct sales
        force. We will extend frequent invitations to target customers to visit
        our data centers and leverage the visual and technical impact of our
        DOCC infrastructure.

    o   Make Strategic Alliances and Acquisitions. For many businesses,
        co-location and Web-hosting are transparent parts of packaged solutions.
        Companies that sell these packaged applications benefit from a
        relationship with co-location and


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        Web-hosting companies. We intend to form a number of alliances to result
        in additional reseller or agent relationships, including Web design
        firms, application developers, Web-hosting companies, ISPs and
        consulting firms. In addition, we may make strategic acquisitions of
        other Internet service companies to increase our market presence, expand
        our service offerings and facilities and obtain key business
        relationships.

    o   Develop an ASP Infrastructure. We are developing an ASP infrastructure
        platform to simplify and expedite the deployment of applications over
        the Web. The components of this platform include security, billing,
        database management and a development environment.

    o   Provide Value-Added Services. In addition to establishing a presence as
        a premier provider of Internet bandwidth, co-location and Web-hosting
        services, we intend to aggressively introduce and expand value-added
        service offerings and build our customer support services. We have
        developed various other value-added services, which we believe
        significantly enhance the availability and effectiveness of our
        customers' Websites. Examples of some of these services include
        e-commerce solutions such as security, network management, caching and
        backup and recovery. We believe that we can enhance our profitability
        and attract and retain additional customers through these value-added
        service offerings.

PRODUCTS AND SERVICES

    We currently offer the following products and services:

    Hosting Services

    o   Broadband Co-location. We offer co-location services for customers who
        prefer to own and have physical access to their servers but require the
        high performance, reliability and security of our data center.
        Co-location customers are typically larger enterprises employing more
        sophisticated Internet hardware and software and possessing the
        expertise to maintain their Web sites and related equipment. Our
        co-location services include fault-tolerant physical facilities and
        reliable, high-bandwidth Internet access tailored to meet the
        outsourcing needs of our customers' critical Internet operations. We
        support most leading Internet hardware and software platforms. Our
        multi-vendor flexibility enables us to offer our customers a broad range
        of technology best suited for their needs. Customers have 24x7 physical
        and remote access to the data center to administer, upgrade and maintain
        their own equipment, or they may engage us to provide systems
        administration and maintenance.

    o   Dedicated Web Server Hosting. We also offer dedicated Web-hosting
        solutions for customers that require greater server capacity than is
        offered by a shared Web-hosting arrangement. Our dedicated Web-hosting
        solutions provide customers with dedicated servers that we own and
        maintain within our data center. This service is offered at various
        price levels, depending on the required hardware and service.

    o   Shared Server Web-Hosting. We offer a variety of shared server
        Web-hosting solutions that provide customers with servers that we own
        and maintain within our data center and that are shared with other
        customers. We offer shared server Web-hosting at various price levels,
        depending on the customer's hardware and service requirements.

    Access

    o   Internet Connectivity. We offer high-speed direct Internet connectivity
        and data transport and provide our customers access to virtually
        unlimited bandwidth on-demand, up to the available capacity of one of
        the largest fiber optic high-speed networks in the United States. Our
        DOCC infrastructure provides a direct Ethernet connection to a Tier-1
        Internet backbone through GTE's POP at speeds of 10 to 10,000 Mbps. We
        offer our customers a usage-based billing system where they pay only for
        bandwidth actually consumed, versus flat-rate, fixed-capacity billing.
        All of our Internet access customers receive 24x7 customer and technical
        support.

    o   Digital Subscriber Lines (DSL). Through Constant.com Aperian is able to
        sell nationwide DSL service. This enables Aperian to provide end-to-end
        connectivity without being burdened with investment in costly DSL
        infrastructure, implementation, and support. Constant.com provides
        implementation and support of customers, using Aperian facilities and
        bandwith.


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    Value Added Services

    o   Broadband Webcasting. Broadband Internet access enables end-users to
        receive audio and visual streams which approach the quality of
        television and radio. While these end-users are finding it easier to
        download these streams, content providers are finding it more difficult
        to send them due to bandwidth constraints. By providing access to large
        amounts of bandwidth, we seek to become one of the leading providers of
        streaming media services. Our services will be aimed at content
        providers, offering completely integrated, in-house services. These
        services include the three main components of streaming media
        technology: production; encoding; and hosting of live or pre-recorded
        media.

    o   Systems Monitoring. We provide all of our Web-hosting customers with
        24x7 network and systems administration, maintenance and security
        monitoring. We also offer our Web-hosting customers the ability to
        control and update their sites remotely, monitor Web site performance,
        track the number of site visits, review account billing information and
        evaluate the overall effectiveness of their Web sites. In addition, all
        host Web servers will have regular back-up procedures to protect
        customer files.

    o   Other Value Added Solutions. We are continuing to develop various other
        value-added services which we believe significantly enhances the
        availability and effectiveness of our customers' Websites. Examples of
        some of these services include security, network, database and operating
        system management, caching and backup and recovery. In addition, we are
        developing an ASP infrastructure to simplify and expedite the deployment
        of ASP applications over the Internet. These services enable our
        customers the ability to focus on their core competencies rather than
        their Internet infrastructure. In addition these services enable our
        customers the ability to seamlessly integrate the various components of
        an Internet solution.

SALES AND MARKETING

    Our sales and marketing objective is to position ourselves on a national
basis as a premium provider of broadband infrastructure services. We
differentiate ourselves by offering complete infrastructure solutions. Using a
consultative approach, our sales team works with our customers to understand
their critical business issues. Our sales and marketing efforts focus on
bandwidth intensive companies, ISPs and ASPs. As of June 22, 2000, we employed
42 persons in sales and marketing.

    Direct Sales Force

    We primarily market our services through a direct sales force. As of June
22, 2000, we had a sales force of 11 persons selling into our Austin, Texas data
center, 6 persons selling into our Tampa, Florida data center, and 5 persons
selling into our Dallas, Texas data center. Additionally we have a sales force
of 5 persons principally responsible for sales to wholesales market customers.
Our core sales strategy is to work with leading application developers, network
equipment providers and Web-design firms to offer complete e-business solutions.

    Our target markets include businesses with significant Internet
applications, ASPs and ISPs. We are our retail customers' solutions provider of
choice due to our ability to provide end-to-end outsourced infrastructure
services, thus allowing them to focus on their Website content. Our wholesale
customers choose us because of our ability to provide direct Tier-1 access to
the Internet using our DOCC infrastructure. By extending frequent invitations to
target customers to visit our data centers, we intend to leverage the visual and
technical impact of our DOCC infrastructure.

    We intend to build our sales force aggressively in each region in which we
operate data centers. Our direct sales professionals will be supported by a
telesales group that generates leads. The telesales group will also be used to
offer basic Web-hosting solutions. As we expand our strategic partnerships and
capabilities, the sales force will be structured along financial, medical,
entertainment, education and retail markets.

    Indirect Channels

    We leverage the effectiveness of our retail sales force by developing close
working relationships with application developers, web design firms, venture
capital firms, the Big Five accounting firms, leading technology law firms and
hardware vendors. We intend to deploy relationship executives in each of our
markets to focus on building these partnerships. We expect that indirect channel
relationships will range from simple sales lead exchanges to full reseller
relationships. We are currently a Cisco Powered Network partner and a Hewlett
Packard Covision partner, which provide us substantial marketing assistance.


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    Marketing

    Our marketing program is intended to build national and local Aperian brand
awareness. We intend to aggressively leverage our GTE/BBN Certification, our
DOCC infrastructure to the Internet backbone and our full range of value-added
solutions through an advertising campaign using traditional media, press tours,
trade shows, speaking engagements and strategic co-marketing relationships. Our
marketing strategy will focus on differentiating the benefits and flexibility of
a direct connection to the Internet compared to the problems associated with
local-loop access to the Internet. Through speaking engagements, networking
events, and partnerships, we intend to establish ourselves as a leader within
each community in which we operate. We also intend to establish a program to
evaluate the efficiency of our marketing efforts through sales force automation
software, telemarketing, reader responses and Web responses.

CUSTOMERS

    Our customers can be classified in four categories:

    o   Web-centric Companies. Internet-related businesses depend on their Web
        site or Internet access for a significant portion of their revenues. We
        offer these businesses a GTE/BBN-certified facility specifically
        designed to provide a high level of broadband quality, reliability and
        access. Our web-centric customers include iBooks.com, StreamWaves,
        Global Ticket Exchange, Coursenotes.com., Shops.com and TheWest.com

    o   Non-Web-centric Companies. We provide a cost effective and efficient
        Internet infrastructure outsourced solution. Our customers benefit from
        leveraging off of the significant capital, operating and labor
        investments that we have made to support distributed, mission-critical
        Internet operations. Our non-Web-centric customers include Catapult,
        Teledynamics, Aim Technologies, Boundless Technologies and Esoterix.

    o   Internet Service Providers. ISPs provide end-users with access to the
        Internet. We provide ISPs virtually unlimited Internet bandwidth and
        bill only for the bandwidth actually consumed. Our ISP customers include
        OuterNet Connection Strategies, Inc., Real Time Communications, Inc.,
        Infinity Interactive, SVIWeb.com and Business Network Services, Inc.

    o   Application Service Providers. ASPs deploy applications over the
        Internet and typically use a subscription or timeshare billing model.
        ASPs typically struggle with infrastructure issues such as billing,
        security, database management, latency and application communication
        issues. We combine our hosting infrastructure with value-added tools to
        help ASPs solve these business issues. Our ASP customers include
        Question.com, Coremetrics, Champion and iAutoparts.com.

STRATEGIC RELATIONSHIPS

    We plan to take advantage of the following strategic relationships:

    o   Genuity GNI (Global Network Infrastructure). In Austin, Genuity has
        placed its POP in our building. By locating its POP within our facility,
        Genuity provides us a direct connection to a Tier-1 Internet backbone.
        Genuity also provides a direct connection into our data centers located
        in Dallas and Tampa and will provide direct connections to other Aperian
        data centers as the expansion continues.

    o   MCI WorldCom. We have executed a five year connectivity agreement with
        MCI WorldCom providing our data centers with a direct connection to use
        their subsidiary UUNet's Tier-1 Internet backbone.

    o   GTECC (GTE Communications Corp.). GTECC is the subsidiary of GTE that
        sells bundled services to the general public. These services include
        premise equipment (PBX), long distance, wireless, help desk, and
        dedicated access to the Internet but do not include co-location. Our
        services are complementary to GTECC's services and, therefore, GTECC and
        we maintain a customer lead exchange program.

    o   GTE/BBN Technologies. GTE/BBN Technologies has over 30 years of
        experience at building reliable, fault-tolerant data centers. We use
        GTE/BBN Technologies to provide consulting and design services in the
        construction and operation of our facilities. GTE/BBN is one of the
        originators of the ARPANET (the predecessor to the Internet) and has
        built much of the United States government's high security defense
        network.


                                       8
<PAGE>   10


    o   Constant.com. Through Constant.com Aperian is able to sell nationwide
        DSL service. This enables Aperian to provide end-to-end connectivity
        without being burdened with investment in costly DSL infrastructure,
        implementation, and support. Constant.com provides implementation and
        support of customers, using Aperian facilities and bandwith.

    o   Cisco Systems, Inc. We have been selected and certified as a member of
        the Cisco Powered Network program. In addition, we have executed with
        Cisco a lease financing agreement for $9.2 million, which will enable
        the rapid deployment of our expansion. The Cisco Powered Network program
        is the network industry's highest standard that ensures the service
        quality of its elite group of members. By featuring the Cisco Powered
        Network branding on Aperian marketing campaigns, Aperian is assuring
        existing and potential customers that it is using predominantly Cisco
        technology end-to-end in its network architecture.

    o   Hewlett Packard. We are an HP Covision partner. These strategic partner
        designations provide us with significant technical and marketing
        assistance, preferred pricing, vendor financing and access to potential
        customers.

DATA CENTER INFRASTRUCTURE

    We operate highly secure, fault-tolerant data centers, and are developing
additional data centers, designed for the 24x7 hosting of Web sites and
Web-based applications. We anticipate that each of our data centers will have a
targeted minimum of 10,000 square feet. Our data centers will combine the
predictability and control of traditional mainframe-based data centers with the
network access and capacity required for today's bandwidth intensive
Internet-based computing. Our data centers will be designed to allow customers
to deploy new and strategic applications rapidly without substantially
increasing cost or incurring risk of service failure.

    The physical infrastructure and security controls of our data centers have
been designed to satisfy rigorous requirements for secure data storage and
processing. Specifically, our data center offers the following major benefits to
our customers:

    o   Direct access to a high-performance POP. Our DOCC infrastructure
        provides a direct optical connection to a Tier-1 Internet backbone
        through Genuity and UUNet's POPs at speeds of 10 to 10,000 Mbps. Our
        DOCC infrastructure connects our customers directly to the OC-192
        (10Gbps) backbone. By having our facilities located next to a Genuity or
        UUNet POP, our clients bypass the local loop infrastructure, increasing
        efficiency, reducing cost and failure rates.

    o   State-of-the-art physical security. We have implemented state of the art
        physical security through tightly controlled security zones requiring
        card key entry. Surveillance cameras record movement through the data
        centers and security guards provide real-time visibility. Access to our
        data centers is further restricted to our employees and
        customer-authorized personnel.

    o   Redundant networking equipment, utilities and environmental control. Our
        network has been designed to provide redundancy, security, reliability
        and disaster recovery. Our data centers have been GTE/BBN certified for
        technology and service quality standards, including network
        architecture, security architecture and facilities design. In addition,
        the network has been certified by Cisco as a Cisco-Powered Network,
        which gives us quick access to the latest Cisco hardware and technical
        resources. We use computer controlled environmental systems to maximize
        cooling, humidity control and energy efficiency. We use an INERGEN Clean
        Agent Fire Extinguishing System. We use redundant uninterruptible power
        supply systems and redundant generators, to ensure the power system is
        capable of maintaining power to the data center in the event of
        component failure.

    o   Multi-home Network. Through our relationships with Genuity and UUNet and
        our unique DOCC infrastructure, we can leverage private network peering
        points without having to build a costly network. Our strategy of
        dividing traffic between Genuity and UUNet is designed to give us a
        highly reliable solution. We expect to be able to access private network
        peering points without relying on local telephone loops and while
        maintaining a second access point for redundancy and reliability.

NETWORK OPERATIONS CONTROL CENTER

    Our Network Operations Control Center ("NOCC") performs operations support
for our network and infrastructure components on a 24x7 basis. The NOCC is
equipped with sophisticated Internet traffic management and reporting systems
that provide diagnostic tools allowing for the optimum bi-directional delivery
of data. Each client network device is monitored using the latest, most
sophisticated technologies. The NOCC serves three primary functions:


                                        9
<PAGE>   11


    o   Monitoring and routing data traffic to and from the Internet. Our NOCC
        continuously monitors and manages our DOCC infrastructure. Most
        importantly, the NOCC takes advantage of our fast and efficient routing
        platform, which places traffic on either Genuity's OC-192 fiber Tier-one
        network or UUNet's fiber Tier-one Internet backbone. From our Austin,
        Texas NOCC or other NOCCs, we will monitor our DOCC infrastructures
        throughout the United States. The monitoring is accomplished utilizing
        proven methodologies and systems that ensure our customers' content is
        being routed and delivered over the Internet from source to destination
        in the fastest, most efficient path possible.

    o   Monitoring client equipment and Web sites. Our 24x7 monitoring of
        customer Web sites allows our engineering staff to take immediate action
        to isolate malfunctions in our customer's equipment and provide swift
        problem resolution. Issues are typically identified and resolved prior
        to content delivery being impacted or the customer noticing the problem.
        We provide our clients with 24 hour access to their systems data via a
        Web-access interface. In addition, we provide our customers with a
        single point of contact for support-related issues and complete 24 hour
        access to engineering assistance. We believe that our Internet-related
        skill set combined with our approach to providing superior customer
        service in a timely and methodical manner creates a significant
        advantage over our competitors.

    o   Value-Added Monitoring. On a custom basis, we monitor Web site
        thresholds and other processes. For example, a customer doing a Webcast
        of a live event may want to monitor sound quality and streaming video
        delivery. Some customers may ask us to monitor thresholds of how many
        users are accessing their Web site or how many transactions are
        occurring. In this manner, the NOCC acts a revenue center while helping
        customers outsource what would normally be internal monitoring.

COMPETITION

    We are not aware of any company that currently duplicates our business model
in full. While many companies will provide strong competition in any one
component of our spectrum of offerings, few companies offer our solutions. Our
individual product offerings face competition from a variety of organizations:

    o   Broadband Co-location and Web-hosting. Our unmanaged co-location and
        advanced managed Web-hosting services compete with companies such as
        Metromedia Fiber/AboveNet Communications, Inc. and Exodus
        Communications, Inc., as well as internal information services
        departments. Unlike us, their connectivity and bandwidth capabilities
        are limited by a reliance on either local loop or SONET ring connections
        to the Internet.

    o   Broadband Webcasting. Our broadband Webcasting service competes with
        organizations like Broadcast.com. Unlike us, they do not have a direct
        Tier-one connection to the Internet, which constrains their bandwidth.
        In addition, their Web site formats act as an aggregation point, meaning
        all content is accessed from the same site, which limits the content
        providers from branding an individual Web site.

    o   Internet connectivity. Our connectivity services face competition
        primarily from ISPs. We intend to license ISPs to resell broadband
        access via DSL based on strategic alliances with Southwestern Bell,
        Covad Communications and other providers. We believe we can provide a
        competitive advantage in speed, bandwidth, credibility and reliability.

GOVERNMENT REGULATIONS

    We provide Internet services, in part, through transmissions over public
telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communications. For regulatory purposes, we
are classified as an ISP, and are not subject to direct regulation by the FCC or
any other agency, other than regulations applicable to business generally.

    The FCC recently reaffirmed that ISPs should be classified as unregulated
"information service providers" rather than regulated "telecommunications
providers" under the terms of the 1996 Telecommunications Act. Thus, we are not
subject to regulations applicable to telephone companies and similar carriers
merely because, to some extent, we provide our serves via telecommunications
networks. We also are not required to contribute to the universal service fund,
which subsidizes phone service for rural and low income consumers and supports
Internet access among schools and libraries. This FCC action also may discourage
states from regulating ISPs as telecommunications carriers or imposing similar
subsidy obligations.


                                       10
<PAGE>   12


    Nevertheless, Internet-related regulatory policies are continuing to
develop. It is possible that we could be exposed to regulation in the future.
For example, the FCC has stated its intention to consider whether to regulate
voice and fax telephony services provided over the Internet as
"telecommunications" even though Internet service itself would not be regulated.
The FCC is also considering whether such Internet-based telephone services
should be subject to the universal service support obligations discussed above
or should pay carrier access charges on the same basis as traditional
telecommunications companies. Access charges are assessed by local telephone
companies to long distance companies for the use of the local telephone network
to originate and terminate long distance calls, generally on a per-minute basis.
We currently do not offer telephony and so are not directly affected by these
developments. However, should we offer telephony in the future, we may be
affected by these issues. Additionally, we cannot predict whether consideration
of these issues will cause the FCC to reconsider its current policy of not
regulating ISPs.

    The FCC also proposed rules that could make it more difficult for ISPs to
access DSL and other high-speed data technology services provided by local
telephone carriers. If the FCC ultimately adopted this proposal or similar
proposals, our access to DSL and other high-speed data technology could be
curtailed. Such curtailment could have a material adverse effect on us.

    Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, privacy, pricing, encryption
standards, consumer protection, e-commerce, taxation, copyright infringement and
other intellectual property issues. We cannot predict the impact, if any, that
any future regulatory changes or development may have on us. Changes in the
regulatory environment relating to the Internet industry, including regulatory
changes that directly or indirectly affect telecommunication costs or increase
the likelihood or scope of competition from regional telephone companies or
others, could have a material adverse affect on us.

EMPLOYEES

         At June 22, 2000, we had a total of 106 employees, of which 103 were
full-time employees. None of our employees are subject to a collective
bargaining agreement, and we believe our relations with our employees are good.
We believe that our future success will depend in part on our continued ability
to attract, hire and retain qualified personnel. Competition for such personnel
is intense, and we may not be able to identify, attract and retain such
personnel in the future.

ITEM 2. DESCRIPTION OF PROPERTY

    Our three facilities in Austin, Texas consist of approximately 40,000 square
feet, 20,000 square feet and 12,000 square feet, respectively, of leased office
and warehouse space with the leases expiring in 2008, 2005, and 2004,
respectively. The first two leases contain an option for renewal for an
additional ten years, while the last lease contains an option for renewal for an
additional five years. The largest of the facilities is designed for
co-location/web-hosting, production, system integration services and depot
repair. The 20,000 square foot facility is currently a warehouse, which we are
trying to sublease. The 12,000 square foot facility is our corporate office.
Additionally, we currently lease temporary office space in the Dallas area to
house certain employees.

    The first phase of the data center construction in Dallas and Tampa was
completed by March 31, 2000 as was the second phase of the Austin data center..
Additional phases will be completed in these centers as needed. The first phase
of construction of the data center in Atlanta is currently in progress. We have
executed additional leases to construct new data centers in Denver, Phoenix, and
Chicago. The first phase of construction of Denver, Phoenix, and Chicago is
being scheduled at this time.

    We obtained a trademark for the Direct Optical Co-location Connection. This
mark is used to describe the advantage that we are able to provide to its
customers through the connections to the Genuity and UUNet Internet backbones.

ITEM 3. LEGAL PROCEEDINGS

    On July 28, 1999, the Company was sued by its former President and its
former Chief Technology Officer seeking more than $50,000, excluding cost and
attorneys' fees. A settlement was reached during mediation on September 20,
1999. Formal settlement documents have been executed by the parties in the
lawsuit. The terms of the settlement are confidential, but were not material.

    We may from time to time be parties to various legal actions. We are not
currently parties to any material actions.


                                       11
<PAGE>   13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of security holders of the Company
during the quarter ended March 31, 2000.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

    The Company's Common Stock has been trading on the Nasdaq National Market
System under the symbol "APRN" since May 31, 2000. Prior to that date the stock
traded on the NASD OTC Bulletin Board under the symbol "MSIA." The table below
shows the high and low bid prices of the Common Stock for the periods indicated.
The bid prices reflect inter-dealer prices, without retail markup, mark-down or
commission, and may not represent actual transactions. The source of the bid
information is FinancialWeb.com.

<TABLE>
<CAPTION>
       FISCAL YEAR ENDED MARCH 31, 2000               HIGH      LOW
                                                      ----      ---
<S>                                                   <C>       <C>
       First Quarter                                  $10.75    $4.19
       Second Quarter                                  $7.00    $3.75
       Third Quarter                                   $7.44    $3.94
       Fourth Quarter                                 $45.00    $5.88

       FISCAL YEAR ENDED MARCH 31, 1999

       First Quarter                                   $9.03    $2.38
       Second Quarter                                 $12.88    $4.06
       Third Quarter                                   $7.75    $6.06
       Fourth Quarter                                 $10.50    $3.25
</TABLE>


HOLDERS

As of March 31, 2000 there were approximately 5,361 stockholders of record of
the Common Stock.


DIVIDEND POLICY

    The Company has never declared or paid any cash dividends on its Common
Stock, and the Company currently intends to retain any future earnings to fund
the development of its business and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. Future declaration
and payment of dividends on its Common Stock, if any, will be determined in
light of the then-current conditions, including the Company's earnings,
operations, capital requirements, financial conditions, restrictions in
financing agreements, and other factors deemed relevant by the Board of
Directors. However, the Company is obligated to pay cumulative dividends on a
quarterly basis with respect to all Series B, C, D and E Preferred shares
outstanding. As of June 22, 2000, there are no shares of preferred stock
outstanding.

    Preferred Stock dividends were paid upon the conversion of the Preferred
Stock into Common Stock. The Preferred Stock dividends were valued at the
previous thirty day average closing bid price per share of Common Stock and paid
as follows:

<TABLE>
<CAPTION>
                                        SHARES     AMOUNT
                                        ------    --------
<S>                                     <C>       <C>
         Year ended March 31, 2000      13,801    $ 81,339
         Year ended March 31, 1999      72,016    $363,904
</TABLE>


RECENT SALES OF UNREGISTERED SECURITIES

         Presented below is certain information concerning all sales of
securities by the Company during the fiscal year ended March 31, 2000 that were
not registered under the Securities Act of 1933 (the "Securities Act") and that
have not been previously reported in our Annual Reports on Form 10-KSB and
10-KSB/A and our Quarterly Reports on Form 10-QSB and 10-QSB/A.


                                       12
<PAGE>   14


         On February 15, 2000, the Company completed a private placement and
received gross proceeds of $55,000,000 for 9,166,667 shares of Common Stock at a
purchase price of $6.00 per share. The Company paid the underwriters of the
private placement, Janney Montgomery Scott LLC and Tejas Securities Group, Inc.,
commission fees of $2,750,000. The private placement was conducted pursuant to
Rule 506 of Regulation D of the Securities Act and shares were offered only to
accredited investors.

    During February 2000, the Company issued 336,198 shares of Common Stock to
TSG Financial Limited Partnership in repayment of $2,000,000 in principal plus
accrued interest on a secured convertible promissory note dated January 14,
2000.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

    The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our financial statements, the
notes to our financial statements and the other financial information contained
elsewhere in this document. In addition to the historical information, this
Management Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this document contain forward-looking information
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated by the forward-looking information as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
document.

OVERVIEW

    We provide high-speed Internet connectivity solutions - direct access to the
Internet backbone and virtually unlimited bandwidth on demand with pricing based
on usage and co-location/web-hosting services to businesses with critical
Internet applications and Internet service providers (ISPs). We currently
deliver our services from data centers in Austin, Texas, Dallas, Texas, and
Tampa, Florida. Each of these data centers is directly connected to the Internet
backbone. We intend to expand our operations to multiple data centers. We have
been providing these services since August 1999.

    MSI was formed in 1969 as Mountain States Resources Corporation, a Utah
corporation that engaged in the exploration and production of mineral resources.
However, in 1993, MSI ceased operations and became a development stage company.
In June 1997, MSI acquired all of the outstanding securities of Micro-Media
Solutions, Inc., a Texas corporation formed in 1993, in exchange for 9,310,000
shares of MSI's Common Stock. Micro-Media Solutions was founded to provide
computer hardware, software programming, system installation and support,
maintenance and media duplication to the public and private sectors. Since the
acquisition of Micro-Media Solutions, MSI's revenue has been derived from the
sale of hardware and software and the performance of technical services,
including the installation and maintenance of computer networks.

    We made our decision to change our business focus to capitalize on the
opportunities existing in the Internet access market. In July 1998, we entered
into a renewable ten year sublease with Genuity under which we agreed to lease a
portion of our Austin, Texas facilities to Genuity for installation of Genuity's
POP equipment. On May 29, 1998, we entered into a three year subscription to
Genuity's Internet Advantage version 5.1 Connection Service (upgraded to
Genuity's Internet Advantage version 6.0 on September 29, 1998) granting us
access to Genuity's POP. We have also subscribed to Genuity's DiaLinx Services,
allowing for the resale of Internet access by us to end-users.

    To capitalize on the opportunities existing in the Internet access market
and our physical proximity to the Genuity point-of-presence (POP), we have
focused our resources on providing bandwidth and Internet-related services.
Additionally, since March 1999, we have added members to our management team and
board of directors with Internet services expertise. During the fiscal year
ended March 31, 1999, our revenues were derived entirely from the sale of
computer hardware and peripherals, and network system integration, service and
support. Sales of these products and services ceased by September 30, 1999.

    Throughout the last half of fiscal year 1999, in conjunction with GTE/BBN
Professional Services consultants, we designed and implemented our Direct
Optical Co-location Connection (DOCCtm). Our DOCC accelerates end-to-end
Internet connectivity, increasing the user's proximity to the Internet's content
through direct connection via an Internet POP. The DOCC allows direct access to
virtually unlimited bandwidth on demand and eliminates the need for costly local
loop circuits. Our DOCC was operational on a commercial basis in July 1999 and
was officially unveiled on August 25, 1999.

    Since our DOCC has become operational, we derive our revenues primarily from
direct Internet access, web-hosting, co-location, and DSL services, as well as
other value-added services. The largest component of our revenues is derived
from providing our customers with direct high-speed Internet access. Our
Internet access, co-location and web-hosting customers typically sign one to
two-year contracts that provide for a minimum bandwidth usage. We also derive
revenues from web site hosting and co-location


                                       13
<PAGE>   15


services based upon a customer's bandwidth requirements. We provide DSL
connectivity to ISPs who wish to offer this service to their subscribers. We
receive a portion of the monthly DSL fee charged to the subscriber by the ISP.
Other value-added services are charged on a fixed price or time-and-materials
basis.

    Based on our relationships with Genuity and MCI WorldCom, we are in the
process of establishing a national data center presence serving metropolitan
areas with our DOCC technology. The building of data centers requires
substantial financial resources. Expenditures related to a data center commence
well before the data center is opened and it may take an extended period of time
for us to approach break-even capacity utilization at each site. As a result, we
expect that individual data centers will experience losses for in excess of one
year from the time they are opened. We expect to make investments in expanding
our business rapidly into new geographic regions, which, while potentially
increasing our revenues in the long-term, will lead to significant losses for
the foreseeable future.

    We intend to invest in new data centers and other sites, product
development, sales and marketing programs, and therefore believe that we will
continue to experience net losses on a quarterly and annual basis for the
foreseeable future.

RESULTS OF OPERATIONS

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

    The revenues for this new business are grouped under Broadband Internet
Services in our Consolidated Statements of Operations, contained in our audited
financial statements. We received our final revenues from providing hardware and
systems integration services in September 1999. Aggregate revenues from
providing hardware and systems integration services were $795,276 for the year
ended March 31, 2000. These revenues totaled $3,550,722 in the fiscal year ended
March 31, 1999. Revenues from Broadband Internet Services aggregated $956,736
for the year ended March 31, 2000. These revenues have increased each quarter
since June 1999 when our first data center in Austin, Texas began operations.
Quarter by quarter revenues are:

<TABLE>
Broadband Internet Revenues by quarter:               Amount    % Growth by Qtr.
---------------------------------------              --------   ----------------
<S>                                                  <C>        <C>
Quarter ended June 30, 1999                          $  9,077
Quarter ended September 30, 1999                       85,650              844%
Quarter ended December 31, 1999                       278,455              225%
Quarter ended March 31, 2000                          583,554              110%
</TABLE>

    To date, we have had limited revenues and have not shown a profit in our
operations. During fiscal 2000, our total revenues were only $1.8 million of
which $956,736 came from our new Internet infrastructure business. We expect our
losses, which were $22.0 million in 2000 to increase during 2001, and possibly
beyond, as we continue to expand our operations. As of March 31, 2000, our
accumulated deficit was approximately $46.0 million. Approximately $12.9 million
of the accumulated deficit relates to preferred stock discounts and dividends.
Approximately $33.1 million of the deficit relates to losses from operations. Of
the current year net loss from operations, approximately $8.7 million was due to
non-cash charges for issuances of common stock, stock options, and stock
warrants to employees and non-employees. We cannot predict when profitability
might be achieved, if at all. If we are able to become profitable, we may not be
able to sustain it. If we are unable to obtain profitability or sustain it, we
may have to discontinue operations.

    Selling, general and administrative expenses, excluding interest expense,
for the year ended March 31, 2000, were $19,066,179. The selling, general and
administrative expenses, excluding interest expense, for the year ended March
31, 2000, represents an increase of $12,852,946, over the year ended March 31,
1999. $7,450,890 of the increase is attributable to the increase in salaries and
benefits, including $4,901,140 in non-cash stock compensation expense for common
stock and options granted to certain employees of the Company. Staff additions
include executive management, specialized technical personnel, sales, finance
and project management. These increased expenditures were and will continue to
be required as we build the Company into a multinational premier provider of
broadband Internet infrastructure services. The increase in other expenses is
attributable to the transformation and expansion of the business to


                                       14
<PAGE>   16
providing broadband Internet infrastructure services. Some of these expenses are
travel, office and other supplies, settlement of business obligations, and other
miscellaneous expenses. The increase in professional fees of $3,046,653 is
largely attributable to non-cash compensation expenses for options granted to
non-employees for various services rendered, fees for technical consulting
related to the design and implementation of the broadband Internet services
product offering described above, and fees incurred while obtaining GTE/BBN
certification. Occupancy expense and depreciation and amortization increased
approximately $746,174 and $264,428, respectively, due to increasing the
nationwide footprint of our data centers and expansion of the data center in
Austin. Advertising expenses also increased $321,603 due to branding the Company
as a premier provider of broadband Internet infrastructure services.

    Interest expense for the year ended March 31, 2000, was $2,990,232. Interest
expense increased $2,451,002 primarily as a result of amortization of debt
discount charged to interest relating to senior convertible debt issued for
cash. Interest expense for the year ended March 31, 1999, was $539,230.

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

LIQUIDITY AND CAPITAL RESOURCES

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

    At March 31, 2000, our principal source of liquidity was approximately
$48.8 million in cash and cash equivalents. This cash was raised primarily
through various private placements of common stock with the Company receiving
net proceeds of $56.5 million. As of March 31, 2000, our current liabilities
were approximately $7.4 million.

    Net cash used in operating activities for the year ended March 31, 2000 was
approximately $5.2 million, primarily due to net losses and increases in
accounts receivable from affiliates and other assets. These amounts were offset
in part by depreciation and amortization expense, amortization of debt discount,
non-cash stock compensation to employees and non-employees, increases in
accounts payable, deferred rent, and other accrued expenses. This compares to
net cash used in operating activities for the year ended March 31, 1999 of $4.9
million, which was primarily due to net losses offset in part primarily by an
increase in accounts payable.

    Net cash used in investing activities for the year ended March 31, 2000 was
approximately $9.0 million, primarily due to capital expenditures for the
continued construction of Internet data centers. This compares to the net cash
provided by investing activities for the year ended March 31, 1999 of
approximately $500,000, primarily due to the decrease in short-term investments
offset in part by the capital expenditures for the construction of our first
Internet data center in Austin, Texas.

    Net cash provided by financing activities for the year ended March 31, 2000
was approximately $62.9 million, primarily due to approximately $56.5 million of
proceeds from our issuance of common stock, approximately $4.4 million of
proceeds from the exercise of stock options and warrants, approximately $4.1
million of proceeds from the issuance of notes payable, and approximately
$500,000 of proceeds from the private placement of preferred stock. This was
offset in part by approximately $2.4 million in repayments on a bank loan, notes
payable, and capital leases.

    As of March 31, 2000 we had commitments under capital leases and under
noncancellable operating leases of approximately $1.8 million and approximately
$20.3 million, respectively, through 2011. During the fiscal year, we were
approved for lease financing with Cisco Systems Capital Corporation for $9.2
million. This financing will be used to purchase equipment for the data center
expansion plans of the Company. As of March 31, 2000, approximately $8.6 million
was available under this facility.

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


                                       15
<PAGE>   17


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

RISK FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

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

Risks Related to Our Business

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

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

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

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

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

         To date, we have had limited revenues and have not shown a profit in
our operations. During fiscal 2000, our total revenues were only $1.8 million of
which $956,736 came from our new Internet infrastructure business. We expect our
losses, which were $22.0 million in 2000 to increase during 2001, and possibly
beyond, as we continue to expand our operations. As of March 31, 2000, our
accumulated deficit was approximately $46.0 million. Approximately $12.9 million
of the accumulated deficit relates to preferred stock discounts and dividends.
Approximately $33.1 million of the deficit relates to losses from operations. Of
the current year net loss from operations, approximately $8.7 million was due to
non-cash charges for issuances of common stock, stock options, and stock
warrants to employees and non-employees. We cannot predict when profitability
might be achieved, if at all. If we are able to become profitable, we may not be
able to sustain it. If we are unable to obtain profitability or sustain it, we
may have to discontinue operations.

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

         We are planning to build out new data centers across a wide range of
geographic regions. The build out of data centers is a key element of our
business strategy. Each data center takes approximately 60 to 90 days to
complete. Any delays in the build out of new data centers could significantly
harm our expansion plans. Many of the risks associated with significant
expansion projects are beyond our control and could delay the build out of
additional data centers. These risks include cost estimation errors or overruns,
equipment and material delays or shortages, and the inability to obtain
necessary permits on a timely basis, if at all.


                                       16
<PAGE>   18


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

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

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

         Several members of our calendar year 1999 management team are no longer
with us, and many of our senior managers have only recently been hired. We are
continuing to build a new management team. This team has not had the opportunity
to work together in the past. There is no assurance the new management team will
be able to successfully lead us into profitability.

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

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

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

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

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

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

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

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

Risks Related to Our Industry

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

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


                                       17
<PAGE>   19


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

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

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

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

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

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

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

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

ITEM 7. FINANCIAL STATEMENTS

    The information for this Item is included beginning on Page F-1 of this
Annual Report on Form 10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    On August 4, 1999, the Company's auditors, Brown Graham & Company, PC.
Georgetown, Texas, were dismissed as independent accountants to the Company,
upon the recommendation of the Board of Directors.

    The former accountants' reports for the fiscal years ended March 31, 1998
and March 31, 1999 did not contain an adverse opinion or a disclaimer of
opinion, but such reports were modified to include an explanatory paragraph as
to uncertainty concerning the Company's ability to continue as a going concern.
During the Company's two most recent fiscal years audited by Brown, Graham &
Company, PC and subsequent interim periods preceding the dismissal of Brown,
Graham & Company, PC, the Company had no disagreements with Brown, Graham &
Company, PC, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.


                                       18
<PAGE>   20
    The Company engaged Ernst & Young LLP as its independent auditors on August
4, 1999.

                                    PART III

ITEM 9. EXECUTIVE OFFICERS AND DIRECTORS


ITEM 10. EXECUTIVE COMPENSATION


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information called for by Items 9 through 12 is incorporated by
reference from our definitive Proxy Statement, which involves the election of
directors, in accordance with General Instruction E to the Annual Report on Form
10-KSB. Such definitive Proxy Statement shall be filed with the Securities and
Exchange Commission not later than July 29, 2000.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibit Index

<TABLE>
<CAPTION>
EXHIBIT NO.    EXHIBIT DESCRIPTION                               LOCATION
-----------    -------------------                               --------
<S>            <C>                                               <C>
3.1            Revised Articles of Incorporation, as             Incorporated by reference to Exhibit 3.2
               amended on September 26, 1997 (1)                 of Registrant's Form SB-2/A filed
                                                                 December 15, 1998 (File No. 333-60051)

3.2            Article of Amendment, dated October 13,           Incorporated by reference to Exhibit 3.1
               1998 (1)                                          of Registrant's Form 10-QSB/A filed
                                                                 November 12, 1998 (File No. 0-8164)

3.3            Amended and Restated Bylaws of MSI                Exhibit 3.3
               Holdings, Inc. (2)

4.0            Specimen of Securities (1)                        Incorporated by reference to Exhibits
                                                                 Nos. 1A and 1B of Registrant's Form 8-A
                                                                 Registration Statement (File No. 0-8146)

4.1            MSI Holdings, Inc. 2000 Stock Option              Incorporated by reference to Exhibit 4.1
               Plan (1)                                          of Registrant's Form S-8/A filed June
                                                                 19, 2000 (File No. 333-31700)

10.1           MMH Investments, Inc. settlement and              Incorporated by reference to Exhibit
               release agreement, dated October 15,              10.1 of Registrant's Form 10-QSB filed
               1999 (1)                                          February 14, 2000 (File No. 0-8164)

10.2           Entrepreneurial Investors, Ltd. and               Incorporated by reference to Exhibit
               Equity Services, LTD settlement                   10.2 of Registrant's Form 10-QSB filed
               agreement, dated February 1, 2000 (1)             February 14, 2000 (File No. 0-8164)

10.3           Cisco Systems Capital Corporation master          Incorporated by reference to Exhibit
               agreement to lease equipment, dated               10.3 of Registrant's Form 10-QSB filed
               January 24, 2000 (1)                              February 14, 2000 (File No. 0-8164)

10.4           Robert Hersch employment agreement,               Incorporated by reference to Exhibit
               dated October 1, 1999 (1)                         10.4 of Registrant's Form 10-QSB filed
                                                                 February 14, 2000 (File No. 0-8164)

10.5           Robert Gibbs employment agreement, dated          Incorporated by reference to Exhibit
               June 29, 1999 (1)                                 10.5 of Registrant's Form 10-QSB filed
                                                                 February 14, 2000 (File No. 0-8164)

10.6           Form of GTE Internetworking direct                Incorporated by reference to Exhibit
               connect agreement (1)                             10.6 of Registrant's Form 10-QSB filed
                                                                 February 14, 2000 (File No. 0-8164)
</TABLE>


                                       19
<PAGE>   21

<TABLE>
<S>            <C>                                               <C>
10.7           Form of bridge financing promissory note         Incorporated by reference to Exhibit
               (1)                                              10.7 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.8           Form of bridge financing warrant to              Incorporated by reference to Exhibit
               purchase common stock (1)                        10.8 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.9           Form of private equity unit financing            Incorporated by reference to Exhibit
               registration rights agreement (1)                10.9 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.10          Form of private equity financing warrant         Incorporated by reference to Exhibit
               to purchase common stock (1)                     10.10 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.11          TSG Financial Limited Partnership                Incorporated by reference to Exhibit
               secured convertible promissory note,             10.11 of Registrant's Form 10-QSB filed
               dated January 14, 2000 (1)                       February 14, 2000 (File No. 0-8164)

10.12          TSG Financial Limited Partnership                Incorporated by reference to Exhibit
               security agreement, dated January 14,            10.12 of Registrant's Form 10-QSB filed
               2000 (1)                                         February 14, 2000 (File No. 0-8164)

10.13          TSG Financial Limited Partnership                Incorporated by reference to Exhibit
               warrant to purchase common stock, dated          10.13 of Registrant's Form 10-QSB filed
               January 14, 2000 (1)                             February 14, 2000 (File No. 0-8164)

10.14          Contract between San Felipe Del Rio              Incorporated by reference to Exhibit
               Consolidated ISD and MSI, dated July 7,          10.1 of Registrant's Form 10-QSB/A filed
               1998 (1)                                         June 14, 1999 (File No. 0-8164)

10.15          Master Agreement for Internetworking             Incorporated by reference to Exhibit
               Services between GTE and MSI, dated May          10.2 of Registrant's Form 10-QSB/A filed
               29, 1998 (1)                                     June 14, 1999 (File No. 0-8164)

10.16          Service Schedule Internet Advantage              Incorporated by reference to Exhibit
               Connection Services between GTE and MSI,         10.3 of Registrant's Form 10-QSB/A filed
               dated May 29, 1998 (1)                           June 14, 1999 (File No. 0-8164)

10.17          Service Schedule Consulting Services            Incorporated by reference to Exhibit
               between GTE and MSI, dated October 15,          10.4 of Registrant's Form 10-QSB/A filed
               1998 (1)                                        June 14, 1999 (File No. 0-8164)

10.18          Amendment One to Service Schedule               Incorporated by reference to Exhibit
               Consulting Services between GTE and MSI,        10.5 of Registrant's Form 10-QSB/A filed
               dated November 13, 1998 (1)                     June 14, 1999 (File No. 0-8164)

10.19          Employment Agreement effective as of            Incorporated by reference to Exhibit
               March 24, 1999, between Roger M. Lane           10.6 of Registrant's Form 10-QSB/A filed
               and MSI (1)                                     June 14, 1999 (File No. 0-8164)

10.20          Lease Agreement for Facilities, dated           Incorporated by reference to Exhibit
               August 12, 1998 (1)                             10.1 of Registrant's Form 10-QSB/A filed
                                                               November 12, 1998 (File No. 0-8164)

10.21          Sublease dated July 27, 1998 between GTE        Incorporated by reference to Exhibit
               Intelligent Network Services, Inc and           10.2 of Registrant's Form 10-QSB/A filed
               MSI (1)                                         November 12, 1998 (File No. 0-8164)

10.22          MSI Purchase Order dated May 29,1998 For        Incorporated by reference to Exhibit
               GTE Internetworking's Internet Advantage        10.3 of Registrant's Form 10-QSB/A filed
               Version 5.1 (Quote Number 38561.9719.1)         November 12, 1998 (File No. 0-8164)
               (1)

10.23          MSI Purchase Order dated September 30,          Incorporated by reference to Exhibit
               1998 for GTE Internetworking's Internet         10.4 of Registrant's Form 10-QSB/A filed
               Advantage Version 6.0 (Quote Number             November 12, 1998 (File No. 0-8164)
               76512.9719.1) (1)

10.24          Master Agreement for Internetworking            Incorporated by reference to Exhibit
               Services dated May 29, 1998 between GTE         10.5 of Registrant's Form 10-QSB/A filed
               Internetworking and MSI (1)                     November 12, 1998 (File No. 0-8164)

10.25          Quotation for GTE Internetworking               Incorporated by reference to Exhibit
               Dialinx Service dated October 29, 1998          10.6 of Registrant's Form 10-QSB/A filed
               between GTE Internetworking and MSI (1)         November 12, 1998 (File No. 0-8164)

10.26          Basic Agreement between Siemens Nixdorf         Incorporated by reference to Exhibit
               Information Systems, Inc. and MSI (1)           10.7 of Registrant's Form 10-QSB/A filed
                                                               November 12, 1998 (File No. 0-8164)
</TABLE>


                                       20
<PAGE>   22

<TABLE>
<S>            <C>                                               <C>
10.27          Addendum to Lease Agreement on 501              Incorporated by reference to Exhibit
               Waller Austin, Texas dated June 6, 1998         10.8 of Registrant's Form 10-QSB/A filed
               Between WBH, Ltd And MSI (1)                    November 12, 1998 (File No. 0-8164)

10.28          Value Added Reseller's Agreement between        Incorporated by reference to Exhibit
               MSI and Hewlett-Packard, Inc. dated,            10.9 of Registrant's Form 10-QSB/A filed
               June 1, 1995 (1)                                November 12, 1998 (File No. 0-8164)

10.29          Placement Agreement dated November 11,          Incorporated by reference to Exhibit
               1997, by and between Equity Services,           10.10 of Registrant's Form 10-QSB/A
               Ltd and MSI (1)                                 filed November 12, 1998 (File No.
                                                               0-8164)

10.30          Placement Agreement dated January 31,           Incorporated by reference to Exhibit
               1998 by and between Equity Services, Ltd        10.11 of Registrant's Form 10-QSB/A
               and MSI (1)                                     filed November 12, 1998 (File No.
                                                               0-8164)

10.31          Placement Agreement dated April 30, 1998        Incorporated by reference to Exhibit
               by and Between Equity Services, Ltd and         10.11 of Registrant's Form 10-QSB/A
               MSI (1)                                         filed November 12, 1998 (File No.
                                                               0-8164)

10.32          First Amendment to the Placement                Incorporated by reference to Exhibit
               Agreement dated April 30, 1998, by and          10.12 of Registrant's Form 10-QSB/A
               between Equity Services, Ltd And MSI (1)        filed November 12, 1998 (File No.
                                                               0-8164)

10.33          Placement Agreement dated October 13,           Incorporated by reference to Exhibit
               1998, by and between Equity Services,           10.13 of Registrant's Form 10-QSB/A
               Ltd and MSI (1)                                 filed November 12, 1998 (File No.
                                                               0-8164)

10.34          MCI WorldCom On-Net Voice Agreement,             Exhibit 10.34
               dated April 19, 2000 (2)

10.35          Purchase Agreement, dated February 15,           Exhibit 10.35
               2000 (2)

16.1           Letter on change in certifying                   Incorporated by reference to
               accountant by Brown, Graham & Company,           Registrant's Form 8-K, filed August 10,
               PC, dated August 4, 1999 (1)                     1999 (File No. 0-8164)

23.1           Consent of Ernst & Young LLP (2)                 Exhibit 23.1

27.1           Financial Data Schedule(2)                       Exhibit 27.1
</TABLE>




(1)     Previously filed with the Securities and Exchange Commission and
        incorporated by reference pursuant to Rule 12b-32 of the Securities
        Exchange Act of 1934.

(2)     Filed herewith.

b. Reports on Form 8-K

1. Form 8-K filed with the Commission on January 10, 2000 with reference to the
   announcement of a proposed private placement of Common Stock.

2. Form 8-K filed with the Commission on February 17, 2000 with reference to the
   announcement of the consummation of a private placement of Common Stock and
   certain other matters.


                                       21
<PAGE>   23

                                   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.

Date: June 29, 2000          BY: /s/ Robert J. Gibbs Robert J. Gibbs,
                                 President and Chief Executive Officer

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

<TABLE>
<CAPTION>
             SIGNATURE              TITLE                               DATE
             ---------              -----                               ----
<S>                                <C>                             <C>
     /s/ Stephen J. Metzger        Director                        June 29, 2000
-----------------------------
         Stephen J. Metzger

     /s/ Davinder Sethi            Director                        June 29, 2000
-----------------------------
         Davinder Sethi

                                   Director                        June __, 2000
-----------------------------
         Ernesto Chavarria

                                   Director                        June __, 2000
-----------------------------
         Blandina Cardenas

     /s/ Daniel Dornier            Director                        June 29, 2000
-----------------------------
         Daniel Dornier

     /s/ Humbert Powell, III       Director                        June 29, 2000
-----------------------------
         Humbert Powell, III

     /s/ Christopher Brickler      EVP - Marketing & Business      June 29, 2000
-----------------------------      Development, and Director
         Christopher Brickler

     /s/ Robert J. Gibbs           President, Chief Executive      June 29, 2000
-----------------------------      Officer, and Director
         Robert J. Gibbs

     /s/ Douglas W. Banister       Secretary & Chief               June 29, 2000
-----------------------------      Financial Officer
         Douglas W. Banister

     /s/ Elizabeth Montoya         Controller                      June 29, 2000
-----------------------------
         Elizabeth Montoya
</TABLE>



                                       22
<PAGE>   24
                        MSI Holdings, Inc. (dba Aperian)

                   Index To Consolidated Financial Statements


<TABLE>
<S>                                                                      <C>
  Report of Independent Auditors                                          F-2

  Consolidated Balance Sheet as of March 31, 2000                         F-3

  Consolidated Statements of Operations for the years ended March 31,     F-4
     2000 and 1999

  Consolidated Statements of Stockholders' Equity  for the years ended    F-5
     March 31, 2000 and 1999

  Consolidated Statements of Cash Flows for the years ended March 31,     F-7
     2000 and 1999

  Notes to Consolidated Financial Statements                              F-9
</TABLE>


                                      F-1

<PAGE>   25

                         Report Of Independent Auditors


The Board of Directors
MSI Holdings, Inc. (dba Aperian)

    We have audited the accompanying consolidated balance sheet of MSI Holdings,
Inc. (dba Aperian) as of March 31, 2000, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years ended March
31, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MSI Holdings,
Inc. (dba Aperian) at March 31, 2000 and the consolidated results of its
operations and its cash flows for each of the years ended March 31, 2000 and
1999, in conformity with accounting principles generally accepted in the United
States.


                                    /s/   ERNST & YOUNG LLP

Austin, Texas
June 26, 2000


                                      F-2

<PAGE>   26

                        MSI Holdings, Inc. (dba Aperian)
                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                         MARCH 31,
                                                                                            2000
                                                                                        ------------
                 ASSETS

<S>                                                                                     <C>
                 Current assets:
                   Cash..............................................................   $ 48,759,109
                   Accounts receivable - trade ......................................        489,074
                   Accounts receivable - affiliates .................................        383,197
                   Other current assets .............................................        413,647
                                                                                        ------------
                                                                                          50,045,027
                 Property and equipment, net ........................................     10,930,428
                 Deposits and other assets ..........................................        196,158
                                                                                        ------------
                                                                                        $ 61,171,613

                 LIABILITIES AND STOCKHOLDERS' EQUITY

                 Current liabilities:
                   Accounts payable - trade..........................................   $  6,021,000
                   Other accrued expenses ...........................................        584,195
                   Notes payable ....................................................        504,818
                   Current portion of obligations under capital leases ..............        283,751
                                                                                        ------------
                                                                                           7,393,764
                 Long-term liabilities:
                   Obligations under capital leases .................................        826,066
                   Deferred rent ....................................................        709,500
                                                                                        ------------
                                                                                           1,535,566
                 Commitments and contingencies ......................................             --
                                                                                        ------------
                                                                                           8,929,330

                 Stockholders' equity:
                   Preferred stock; 10,000,000 shares authorized:
                     Convertible preferred stock series B; $5.30 stated
                       value; 490,000 shares authorized; zero shares
                       issued and outstanding .......................................             --
                     Convertible preferred stock series D; $10.60 stated
                       value; 279,657 shares authorized; zero shares
                       issued and outstanding .......................................             --
                     Convertible preferred stock series E; $30.00 stated
                       value; 157,500 shares authorized; 1,000 shares
                       issued and outstanding .......................................         30,000
                   Common stock at $0.10 par value; 50,000,000 shares
                     authorized; 36,497,788 shares (excluding 5,087 shares
                     held in treasury) issued and outstanding .......................      3,649,779
                   Additional paid-in capital .......................................     95,288,392
                   Shareholder receivable ...........................................       (500,000)
                   Deferred stock compensation ......................................       (238,312)
                   Accumulated deficit ..............................................    (45,987,576)
                                                                                        ------------
                 Total stockholders' equity .........................................     52,242,283
                                                                                        ------------
                 Total liabilities and stockholders' equity..........................   $ 61,171,613
                                                                                        ============
</TABLE>

                             See accompanying notes.



                                      F-3

<PAGE>   27

                        MSI Holdings, Inc. (dba Aperian)
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31
                                                                   2000            1999
                                                               ------------    ------------
<S>                                                             <C>            <C>
Revenues:
  Broadband Internet Services ..............................   $    956,736    $         --
  Hardware, software and peripherals .......................        122,404       1,479,984
  Networks, LAN/WAN ........................................        310,341       1,597,279
  Service, support and integration .........................        362,531         473,459
                                                               ------------    ------------
                                                                  1,752,012       3,550,722
Cost of goods and services sold:
  Broadband Internet Services ..............................        976,411              --
  Hardware, software and peripherals .......................        187,923       1,522,365
  Networks, LAN/WAN ........................................        375,326       1,883,417
  Service, support and integration .........................        163,754         849,679
                                                               ------------    ------------
                                                                  1,703,414       4,255,461
Gross margin (deficit) .....................................         48,598        (704,739)

Selling, general and administrative expenses:
  Salaries and benefits ....................................      9,905,188       2,454,298
  Professional fees and consultants ........................      5,471,250       2,424,597
  Advertising ..............................................        474,523         152,920
  Occupancy ................................................      1,240,563         494,389
  Depreciation and amortization ............................        559,425         294,997
  Vehicle expense ..........................................         86,232         106,593
  Other expense ............................................      1,328,998         285,439
                                                               ------------    ------------
                                                                 19,066,179       6,213,233
Operating loss .............................................    (19,017,581)     (6,917,972)
Interest expense, net ......................................      2,990,232         539,230
                                                               ------------    ------------
Net loss ...................................................   $(22,007,813)   $ (7,457,202)
                                                               ============    ============

Preferred stock dividends and discounts ....................     (2,025,527)     (8,947,337)
                                                               ------------    ------------
Net loss to common stockholders ............................   $(24,033,340)   $(16,404,539)
                                                               ============    ============

Basic and diluted net loss per share .......................   $      (1.01)   $      (1.30)
                                                               ============    ============
Basic and diluted weighted average shares outstanding ......     23,828,156      12,622,673
                                                               ============    ============
</TABLE>



                             See accompanying notes.




                                      F-4

<PAGE>   28

                        MSI Holdings, Inc. (dba Aperian)
                 Consolidated Statements of Stockholders' Equity


<TABLE>
<CAPTION>
                                                   PREFERRED                     PREFERRED                     PREFERRED
                                                    SERIES B                      SERIES C                      SERIES D
                                                   ---------                     ---------                     ---------
                                             SHARES         AMOUNT         SHARES         AMOUNT         SHARES         AMOUNT
                                           -----------    -----------    -----------    -----------    -----------    -----------

<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
Balances at April 1, 1998 ..............       490,000    $ 2,597,000         99,057    $ 1,050,004             --    $        --
Preferred stock issuance ...............            --             --             --             --        279,657      2,964,364
Preferred stock beneficial conversion
  discount on series B and C offerings .            --             --             --             --             --             --
Preferred stock conversion to common ...       (90,000)      (477,000)       (99,057)    (1,050,004)       (83,317)      (883,160)
Issuance of common stock ...............            --             --             --             --             --             --
Common stock issued as preferred
   stock dividends .....................            --             --             --             --             --             --
Conversion of class A warrants .........            --             --             --             --             --             --
Discount on convertible debt ...........            --             --             --             --             --             --
Common stock and stock options issued
 as compensation .......................            --             --             --             --             --             --
Warrants issued for purchase of ........            --             --             --             --             --             --
equipment
Treasury stock .........................            --             --             --             --             --             --
Net loss ...............................            --             --             --             --             --             --
                                           -----------    -----------    -----------    -----------    -----------    -----------
Balance at March 31, 1999 ..............       400,000      2,120,000             --             --        196,340      2,081,204
                                           -----------    -----------    -----------    -----------    -----------    -----------

Preferred stock issuance ...............            --             --             --             --             --             --
Preferred stock conversion to common ...      (400,000)    (2,120,000)            --             --       (196,340)    (2,081,204)
Issuance of common stock ...............            --             --             --             --             --             --
Common stock issued for convertible debt            --             --             --             --             --             --
Beneficial conversion discount .........            --             --             --             --             --             --
Common stock issued as preferred
   stock dividends .....................            --             --             --             --             --             --
Common stock and stock options issued as
  compensation to employees ............            --             --             --             --             --             --
Common stock, stock options and warrants
  issued as compensation to                         --             --             --             --             --             --
non-employees
Common stock warrants issued in
  connection with debt ................             --             --             --             --             --             --
Common stock options exercised .........            --             --             --             --             --             --
Common stock warrants exercised ........            --             --             --             --             --             --
Treasury stock .........................            --             --             --             --             --             --
Net loss ...............................            --             --             --             --             --             --
                                           -----------    -----------    -----------    -----------    -----------    -----------
Balance at March 31, 2000...............            --    $        --             --    $        --             --    $        --
                                           ===========    ===========    ===========    ===========    ===========    ===========

<CAPTION>

                                                    PREFERRED                PREFERRED STOCK
                                                     SERIES E                   SUBSCRIBED
                                                    ---------                ---------------
                                              SHARES          AMOUNT       SHARES        AMOUNT
                                            -----------   -----------   -----------    -----------

<S>                                         <C>           <C>           <C>            <C>
Balances at April 1, 1998 ..............             --   $        --            --    $        --
Preferred stock issuance ...............        146,252     4,387,560       (20,000)      (600,000)
Preferred stock beneficial conversion
  discount on series B and C offerings .             --            --            --             --
Preferred stock conversion to common ...             --            --            --             --
Issuance of common stock ...............             --            --            --             --
Common stock issued as preferred
   stock dividends .....................             --            --            --             --
Conversion of class A warrants .........             --            --            --             --
Discount on convertible debt ...........             --            --            --             --
Common stock and stock options issued
 as compensation .......................             --            --            --             --
Warrants issued for purchase of ........             --            --            --             --
equipment
Treasury stock .........................             --            --            --             --
Net loss ...............................             --            --            --             --
                                            -----------   -----------   -----------    -----------
Balance at March 31, 1999 ..............        146,252     4,387,560       (20,000)      (600,000)
                                            -----------   -----------   -----------    -----------

Preferred stock issuance ...............             --            --        20,000        600,000
Preferred stock conversion to common ...       (145,252)   (4,357,560)           --             --
Issuance of common stock ...............             --            --            --             --
Common stock issued for convertible debt             --            --            --             --
Beneficial conversion discount .........             --            --            --             --
Common stock issued as preferred
   stock dividends .....................             --            --            --             --
Common stock and stock options issued as
  compensation to employees ............             --            --            --             --
Common stock, stock options and warrants
  issued as compensation to                          --            --            --             --
non-employees
Common stock warrants issued in
  connection with debt ................              --            --            --             --
Common stock options exercised .........             --            --            --             --
Common stock warrants exercised ........             --            --            --             --
Treasury stock .........................             --            --            --             --
Net loss ...............................             --            --            --             --
                                            -----------   -----------   -----------    -----------
Balance at March 31, 2000...............          1,000   $    30,000            --    $        --
                                            ===========   ===========   ===========    ===========
</TABLE>




                             See accompanying notes.


                                       F-5


<PAGE>   29

                        MSI Holdings, Inc. (dba Aperian)
           Consolidated Statements of Stockholders' Equity (Continued)


<TABLE>
<CAPTION>
                                                                              ADDITIONAL                     DEFERRED
                                                     COMMON STOCK              PAID-IN      SHAREHOLDER        STOCK
                                                SHARES         AMOUNT          CAPITAL       RECEIVABLE     COMPENSATION
                                             ------------    ------------    ------------    ------------    ------------

<S>                                          <C>            <C>              <C>             <C>             <C>
Balances at April 1, 1998 ................     11,506,846    $  1,150,685    $    698,057    $         --    $         --
Preferred stock issuance .................             --              --       5,648,161              --              --
Preferred stock beneficial conversion
  discount on series B and C offerings ...             --              --       1,831,509              --              --
Preferred stock conversion to common .....      2,723,740         272,374       2,137,790              --              --
Issuance of common stock .................         50,000           5,000          48,000              --              --
Common stock issued as preferred
   stock dividends .......................         72,016           7,201         356,703              --              --
Conversion of class A warrants ...........        420,000          42,000         291,900              --              --
Discount on convertible debt .............             --              --         371,000              --              --
Common stock and stock options issued
 for compensation ........................         46,000           4,600         579,783              --              --
Warrants issued for purchase of equipment.             --              --          81,300              --              --
Treasury stock ...........................       (200,250)        (20,025)        (61,879)             --              --
Net loss .................................             --              --              --              --              --
                                             ------------    ------------    ------------    ------------    ------------
Balance at March 31, 1999 ................     14,618,352       1,461,835      11,982,324              --              --
                                             ------------    ------------    ------------    ------------    ------------
Preferred stock issuance .................             --              --         526,800              --              --
Preferred stock conversion to common .....      7,415,920         741,592       7,817,172              --              --
Issuance of common stock .................     10,712,478       1,071,248      55,385,317              --              --
Common stock issued for convertible debt .        336,198          33,620       1,983,568              --              --
Beneficial conversion discount ...........             --              --       1,344,188              --              --
Common stock issued as preferred
   stock dividends .......................         13,801           1,380          79,959              --              --
Common stock and stock options issued as
  compensation to employees ..............         16,426           1,643       5,137,809              --        (238,312)
Common stock, stock options and warrants
  issued as compensation to non-employees.        225,200          22,520       3,750,390              --              --
Common stock warrants issued in
   connection with debt ..................             --              --       2,847,107              --              --
Common stock options exercised ...........        187,850          18,785         964,448        (500,000)             --
Common stock warrants exercised ..........      2,976,650         297,665       3,637,200              --              --
Treasury stock ...........................         (5,087)           (509)       (167,890)             --              --
Net loss .................................             --              --              --              --              --
                                             ------------    ------------    ------------    ------------    ------------
Balance at March 31, 2000 ................     36,497,788    $  3,649,779    $ 95,288,392    $   (500,000)   $   (238,312)
                                             ============    ============    ============    ============    ============

<CAPTION>

                                                ACCUMULATED
                                                  DEFICIT          TOTAL
                                               ------------    ------------

<S>                                            <C>             <C>
Balances at April 1, 1998 ................     $ (5,549,697)   $    (53,951)
Preferred stock issuance .................       (6,751,924)      5,648,161
Preferred stock beneficial conversion
  discount on series B and C offerings ...       (1,831,509)             --
Preferred stock conversion to common .....               --              --
Issuance of common stock .................               --          53,000
Common stock issued as preferred
   stock dividends .......................         (363,904)             --
Conversion of class A warrants ...........               --         333,900
Discount on convertible debt .............               --         371,000
Common stock and stock options issued
 for compensation ........................               --         584,383
Warrants issued for purchase of equipment.               --          81,300
Treasury stock ...........................               --         (81,904)
Net loss .................................       (7,457,202)     (7,457,202)
                                               ------------    ------------
Balance at March 31, 1999 ................      (21,954,236)       (521,313)
                                               ------------    ------------
Preferred stock issuance .................         (600,000)        526,800
Preferred stock conversion to common .....               --              --
Issuance of common stock .................               --      56,456,565
Common stock issued for convertible debt .               --       2,017,188
Beneficial conversion discount ...........       (1,344,188)             --
Common stock issued as preferred
   stock dividends .......................          (81,339)             --
Common stock and stock options issued as
  compensation to employees ..............               --       4,901,140
Common stock, stock options and warrants
  issued as compensation to non-employees.               --       3,772,910
non-employees
Common stock warrants issued in
   connection with debt ..................               --       2,847,107
Common stock options exercised ...........               --         483,233
Common stock warrants exercised ..........               --       3,934,865
Treasury stock ...........................               --        (168,399)
Net loss .................................      (22,007,813)    (22,007,813)
                                               ------------    ------------
Balance at March 31, 2000 ................     $(45,987,576)   $ 52,242,283
                                               ============    ============
</TABLE>

                             See accompanying notes.

                                      F-6

<PAGE>   30



                        MSI Holdings, Inc. (dba Aperian)
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                    YEAR ENDED MARCH 31
                                                                                    2000             1999
                                                                                ------------    ------------
<S>                                                                            <C>             <C>
                 Cash flows from operating activities:
                   Net loss .................................................   $(22,007,813)   $ (7,457,202)
                     Adjustments to reconcile net loss to net cash used in
                      operating activities:
                           Depreciation and amortization expense ............        559,425         294,997
                           Amortization of debt discount ....................      2,991,279         371,923
                           Common stock and stock options issued for
                              compensation to employees .....................      4,901,140         330,871
                           Common stock, stock options, and warrants issued
                               for compensation to non-employees ............      3,772,910         253,512
                           Common stock issued as interest upon conversion ..         17,188              --
                           Write-down of inventory ..........................             --         232,000
                           (Gain) loss on disposal of property ..............        174,398            (652)
                     Changes in operating assets and liabilities:
                         Accounts receivable - trade ........................         86,156        (424,379)
                         Accounts receivable - affiliates ...................       (383,197)             --
                         Other current assets ...............................       (276,432)          2,769
                         Other assets .......................................       (196,158)             --
                         Accounts payable - trade ...........................      4,247,789       1,473,176
                         Deferred rent ......................................        517,216          46,664
                         Other accrued expenses .............................        440,710         (25,851)
                                                                                ------------    ------------
                   Net cash used in operating activities ....................     (5,155,389)     (4,902,172)
                                                                                ------------    ------------

                 Cash flows from investing activities:
                   Purchase of property, plant and equipment ................     (8,990,685)       (844,844)
                   Proceeds - sales of property .............................         23,500              --
                   Change in short term investment ..........................             --       1,350,000
                                                                                ------------    ------------
                  Net cash provided by (used in) investing activities .......     (8,967,185)        505,156
                                                                                ------------    ------------

                 Cash flows from financing activities:
                   Payments on bank line of credit, net .....................       (200,000)     (1,028,966)
                   Payments on notes payable ................................     (1,968,425)       (429,864)
                   Payments on obligations under capital leases .............       (248,757)       (114,626)
                   Proceeds - private placement of preferred stock, net .....        526,800       5,648,161
                   Proceeds - issuance of common stock, net .................     56,456,565          53,000
                   Proceeds - exercise of stock options .....................        483,233              --
                   Proceeds - exercise of warrants ..........................      3,934,865         333,900
                   Proceeds - notes payable .................................      4,057,330              --
                   Repurchase of common stock ...............................       (168,399)        (81,904)
                                                                                ------------    ------------
                 Net cash provided by financing activities ..................     62,873,212       4,379,701
                                                                                ------------    ------------

                 Net change in cash .........................................     48,750,638         (17,315)
                 Cash at the beginning of the fiscal year ...................          8,471          25,786
                                                                                ------------    ------------
                 Cash at end of the fiscal year .............................   $ 48,759,109    $      8,471
                                                                                ============    ============
</TABLE>




                             See accompanying notes.


                                      F-7

<PAGE>   31


                        MSI Holdings, Inc. (dba Aperian)
                Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31
                                                                   2000            1999
                                                               ------------   ------------

<S>                                                            <C>            <C>
Supplemental disclosure:
  Cash paid during the year for:
    Interest ...............................................   $    339,439   $    196,990
                                                               ============   ============

Supplemental schedule of non-cash investing and financing
 activities:
     Common stock warrants issued in connection with debt ..   $  2,847,107   $         --
     Common stock issued for preferred stock dividends .....         81,339        363,904
     Beneficial conversion discount on private placement ...      1,344,188             --
     Discount on preferred stock issued ....................        600,000      8,583,433
     Preferred stock issued for placement agent fees .......             --        338,680
     Purchase of equipment with long-term leases ...........        541,726        804,010
     Stock options or warrants issued for  purchase of
         equipment with long-term leases ...................             --         81,300
</TABLE>





                             See accompanying notes.


                                      F-8

<PAGE>   32


                        MSI Holdings, Inc. (dba Aperian)
                   Notes To Consolidated Financial Statements
                       Years Ended March 31, 2000 and 1999

1.  BUSINESS

    MSI Holdings, Inc. (dba Aperian) or (the "Company") is an Austin, Texas
based technology corporation which provides high-speed Internet connectivity
solutions, and co-location/web-hosting services to businesses with critical
Internet applications and Internet Service Providers (ISPs). The Company
currently delivers services from data centers in Austin, Texas. Each of these
data centers is directly connected to the Internet backbone. In prior years, the
Company was a business solutions technology integrator, offering infrastructure
design and implementation services, and performing computer networking services,
including system integration and local wide-area networking.

    The Company began operating under the name Aperian on March 6, 2000. On
March 24, 2000, the Board approved the formation of Aperian, Inc. as a new
wholly owned subsidiary under the laws of the State of Delaware, and a Plan of
Merger whereby MSI Holdings, Inc. will be merged with and into Aperian, Inc. The
Plan of Merger will be submitted to the stockholders of the Company for their
approval and adoption.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences could be material to the financial statements.

    Principles of Consolidation

    The consolidated financial statements for the years ended March 31, 2000 and
1999, include the accounts and transactions of the Company and its wholly-owned
subsidiaries, Micro-Media Solutions, Inc. and Tele-Vista, Inc., (incorporated in
August 1998). All significant intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial statements.

    Cash Equivalents

    Cash and cash equivalents consist primarily of cash deposits and 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.

    Property and Equipment

    Property and equipment, including items acquired under capital lease
arrangements, are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the related assets,
typically five years. Amortization of leasehold improvements is provided using
the straight-line basis over the shorter of the term of the related lease, or
the useful life of the leasehold improvements, which varies from 5 to 20 years.

    The following table details the Company's property and equipment at March
31, 2000:

<TABLE>
<S>                                                       <C>
          Equipment, furniture and fixtures...........    $    3,995,672
          Vehicles....................................           245,747
          Leasehold improvements......................         7,828,173
                                                          --------------
                                                              12,069,592
          Less - Accumulated depreciation and
          amortization................................        (1,139,164)
                                                          --------------
          Property and equipment, net.................    $   10,930,428
                                                          ==============
</TABLE>

    The Company leases certain equipment to customers under rental contracts of
12 to 24 months. Equipment leased to others of

                                      F-9

<PAGE>   33

$999,703 is included in property and equipment as of March 31, 2000.

    Impairment of Long-Lived Assets

    Long-lived assets consist primarily of computer equipment and leasehold
improvements. The carrying value of these assets is regularly reviewed to verify
they are properly valued. If the facts and circumstances suggest that the value
has been impaired, the carrying value of the assets will be reduced
appropriately.

    Revenue and Cost Recognition

    The Company's Broadband Internet Services revenues consist of (i) monthly
fees from customer use of Internet Data Center sites, network services, managed
services, and professional services and use of equipment and software provided
by the Company, (ii) revenues from sales or rentals of third-party equipment to
customers and (iii) fees for installation and certain professional services.
Revenues (other than installation fees, equipment sales to customers and certain
professional services) are generally billed and recognized ratably over the term
of the contract, which is one to two years. Installation fees are typically
recognized at the time the installation occurs, and equipment revenues are
typically recognized when the equipment is delivered to the customer or placed
into service at an Internet Data Center. The Company sells third-party equipment
to its customers as an accommodation to facilitate their purchase of services.
One-time professional service fees are typically recognized when services are
rendered. Hardware and peripheral sales consist of computers and related
electronic equipment. Software sales represent the resale of prepackaged
software and operating systems from Microsoft and other vendors to the end user.
Substantially all hardware, software and peripherals sales are made without the
right of return. Product returns are minimal and are recorded as a reduction of
sales upon receipt of the product.

    In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements". In March 2000, the SEC issued SAB 101A which deferred the
adoption of SAB 101 until the second quarter of 2000. In June 2000, the SEC
issued SAB 101B which further deferred the adoption of SAB 101 until the fourth
quarter of 2000. The Company is currently evaluating the impact of SAB 101 on
its revenue recognition policy.

    Advertising Costs

    The Company expenses advertising costs as incurred. These expenses were
approximately $474,523 and $152,920 for the years ended March 31, 2000 and 1999,
respectively.

    Income Taxes

    The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Under the liability method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.

    Stock-Based Compensation

The Company has elected to apply the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, the Company accounts for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's Common Stock
at the date of grant over the stock option exercise price. In March 2000, the
Financial Accounting Standards Board (FASB) issued Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25. The Interpretation will be applied
prospectively to new awards, modifications to outstanding awards, and changes in
employee status on or after July 1, 2000, except as follows: (i) requirements
related to the definition of an employee apply to new awards granted after
December 15, 1998; (ii) modifications that directly or indirectly reduce the
exercise price of an award apply to modifications made after December 15, 1998;
and (iii) modifications to add a reload feature to an award apply to
modifications made after January 12, 2000. The Company is evaluating the effect
the application of the Interpretation will have on the financial statements.

    Concentration of Credit Risk

    Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and trade accounts receivable. Many
of the Company's customers are in the computer and telecommunications
industries. The Company performs ongoing credit evaluations on its customers and
generally does not require collateral from its customers. Historically, the


                                      F-10

<PAGE>   34

Company has not experienced significant losses related to receivables from
individual customers or groups of customers in any particular industry or
geographic area. The following customers accounted for more than 10% of
revenues:

<TABLE>
<CAPTION>
                                                         2000              1999
                                                       ---------         --------
<S>                                                    <C>               <C>
                                    Customer A             17%              35%
                                    Customer B             13%              --
                                    Customer C             --               12%
</TABLE>

    Net Loss Per Share

    Basic net loss per share is computed by dividing net loss available to
Common Stockholders by the weighted average number of common shares outstanding
during the period. Diluted net loss per share has not been presented as the
effect of the assumed exercise of stock options, warrants and contingently
issued shares is antidilutive.

    Comprehensive Income

    There are no differences between net loss and comprehensive loss for the
years ended March 31, 2000 or 1999.

3.  LINE OF CREDIT

    The Company had a line of credit with a commercial bank that matured on
April 30, 1999. The Company paid the line of credit in full upon expiration and
did not renew the line of credit.

4.  NOTES PAYABLE

    During 2000, the Company received a total of $4,286,500 in bridge loans from
various accredited individuals, at interest rates from 8.25% to 18% per annum
and maturing at various dates through July 2000 or upon consummation of a public
offering by the Company, whichever is sooner. In connection with these loans,
warrants were issued to purchase an aggregate of 428,650 shares of common stock
with an exercise price of $0.10 per share (see Note 12 for discussion of
warrants). These warrants were valued at $2,847,107 as a debt discount, and are
being amortized to interest expense over the term of the respective loans. The
Company also paid $228,670 in cash for debt issuance costs.

    As of March 31, 2000, $1,680,000 of these loans had been repaid in cash, and
$2,000,000 (together with outstanding interest) was converted into 336,198
shares of the Company's common stock.

    Notes payable consisted of the following amounts, which approximate fair
value at March 31, 2000:

<TABLE>
<S>                                                                  <C>
        Promissory notes totaling $606,500, with interest at
        8.25%, principal and interest due at maturity dates
        ranging from June 7, 2000 to July 13, 2000...............    $     606,500

        Less discount on promissory notes payable................         (101,682)
                                                                     -------------
                                                                     $     504,818
                                                                     =============
</TABLE>

5.  OBLIGATIONS UNDER CAPITAL LEASES

    In October 1999, the Company was approved for an initial $1,200,000 in lease
financing with a leasing institution. In January 2000, the Company was approved
for an additional $8,000,000 in lease financing through the same leasing
institution. This financing will be used to purchase equipment and services for
the data center expansion plans of the Company. As of March 31, 2000, $8,658,000
was available under this facility.

    The Company leases transportation, communication and electronic equipment
under capital leases expiring in various years through March 2005. The assets
and liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments or the fair value of the assets. The assets
are depreciated over the shorter of their related lease terms or estimated
productive


                                      F-11

<PAGE>   35

lives. Depreciation of assets under capital leases is included in depreciation
expense.

    Following is a summary of property included in property and equipment, which
is held under capital leases as of March 31, 2000:

<TABLE>
<S>                                                     <C>
               Equipment, furniture and fixtures...     $    1,251,473
               Vehicles............................            207,063
</TABLE>

    Minimum future lease payments under capital leases as of March 31, 2000, for
the next five years and in the aggregate are:

<TABLE>
<S>                                                      <C>
       2001.............................................        $  526,535
       2002.............................................           490,295
       2003.............................................           419,132
       2004.............................................           281,602
       2005.............................................            57,849
                                                                ----------
       Total minimum lease payments.....................         1,775,413
       Less amount representing interest................          (665,596)
                                                                ----------
                                                                 1,109,817
       Less current portion.............................          (283,751)
                                                                ----------
       Long-term obligations under capital leases.......        $  826,066
                                                                ==========
</TABLE>

    The Company issued warrants for and in consideration of a capital lease
obtained during the year ended March 31, 1999. The warrants granted the right to
purchase 30,000 shares of Common Stock (28,000 warrants were exercised, while
2,000 warrants expired during the year ended March 31, 2000, see also Note 12),
at an exercise price of $4.00 per share, and were treated as a discount to the
capital lease obligation. The discount was valued at $81,300 and has an
effective interest rate of 37%. It is being amortized over the life of the
lease, or 5 years. At March 31, 2000 and 1999, the amortization of the discount
totaled $17,183 and $923, respectively.

6.  FEDERAL INCOME TAXES

    Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                       MARCH 31, 2000
                                                       --------------

<S>                                                    <C>
          Deferred tax liability:
              Depreciable assets..............         $        54,000
          Deferred tax assets:
               Net operating loss carryforwards             11,196,000
               Nonqualified stock options.....                 509,000
               Other..........................                  41,000
                                                       ---------------
          Deferred tax asset..................              11,746,000
               Valuation allowance............             (11,692,000)
           Net deferred tax asset.............                  54,000
                                                       ---------------
           Net deferred taxes.................         $            --
                                                       ===============
</TABLE>

    The valuation allowance increased by approximately $7,825,000 during the
year ended March 31, 2000 primarily because the Company generated additional net
operating losses during the year which are not expected to be utilized.

    As of March 31, 2000, the Company had federal net operating loss
carryforwards of approximately $30,261,000, which will expire beginning in 2011,
if not utilized. Utilization of the net operating losses may be subject to a
substantial limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses before utilization.

    The Company's expense (benefit) for income taxes attributable to continuing
operations differs from the expected tax benefit amount by applying the
statutory federal income tax rate of 34% to income before taxes as a result of
the following:


                                      F-12

<PAGE>   36

<TABLE>
<CAPTION>
                                                         TAX AMOUNT          TAX RATE
                                                         ----------          --------
<S>                                                    <C>                 <C>
                  MARCH 31, 2000
                  Federal statutory rate.........      $   (7,509,000)            34.0%
                  Permanent differences..........             632,000             (2.9)%
                  Valuation allowance............           7,825,000            (35.4)%
                  Other..........................            (948,000)             4.3%
                                                       --------------      -----------
                      Total expense (benefit)....      $           --                0%
                                                       ==============      ===========

                  MARCH 31, 1999
                  Federal statutory rate.........      $   (2,535,000)            34.0%
                  Permanent differences..........             126,000             (1.7)%
                  Valuation allowance............           2,409,000            (32.3)%
                                                       --------------      -----------
                      Total expense (benefit)....      $           --              0.0%
                                                       ==============      ===========
</TABLE>

7.  RELATED PARTY TRANSACTIONS

    During the year ended March 31, 2000 and 1999, the Company recognized
expenses totaling $94,282 and $132,356 related to a consulting agreement with an
entity whose President is a Board member of the Company.

    In June 1999, we entered into an employment agreement with Robert Gibbs,
President and Chief Executive Officer. Mr. Gibbs' agreement provides for a
two-year term with a two-year extension and a base salary of $150,000 for the
first year and $240,000 during the second year, and each subsequent term if
extended. In addition, Mr. Gibbs' agreement provides for an option to purchase
up to 1,362,950 shares of common stock at $5.56 per share as follows: (i) an
option to purchase 272,590 shares of common stock vested immediately upon grant
on June 30, 1999, (ii) an option to purchase 272,590 shares of common stock to
vest 91 days after the grant date, (iii) an option to purchase 545,180 shares of
common stock to vest on the first anniversary of the grant date and (iv) an
option to purchase 272,590 shares of common stock to vest on the second
anniversary of the grant date. Mr. Gibbs' agreement also entitles him to receive
a bonus equal to 1.5% of each equity offering consummated by us during his first
year of employment. The bonus is capped at $170,000 and has already been paid in
full. Mr. Gibbs' agreement also provides for a discretionary bonus to be decided
by the board of directors of up to $50,000 during the first year. Additional
bonus opportunities are available in the second year. Upon termination of Mr.
Gibbs' employment for death, disability or without cause, Mr. Gibbs is entitled
to payments over a two-year period equal to $240,000. Mr. Gibbs' agreement also
provides for a $800 monthly transportation allowance. Mr. Gibbs' agreement is
terminable by either party at any time.

    On July 28, 1999, the Company was sued by its former President and its Chief
Technology Officer seeking more than $50,000, excluding costs and attorneys'
fees. A settlement was reached during mediation on September 20, 1999. Formal
settlement documents have been executed by the parties in the lawsuit. The terms
of the settlement are confidential, but there was no material adverse effect on
the Company's results of operations or financial condition from the settlement
terms.

On December 20, 1999, we settled a previously disclosed business obligation
regarding a consulting agreement with Dr. Davinder Sethi, a director, and MMH
Investments, Inc., a company that is principally owned and controlled by Robert
Hersch, our former vice president of corporate finance. Pursuant to the
settlement, we issued 150,000 shares of common stock to MMH Investments, Inc.,
and agreed to immediately register the shares for resale on Form S-3.

8.  COMMITMENTS AND CONTINGENCIES

    The Company leases its principal general offices and data center facilities.
Future minimum lease payments (excluding property taxes) are as follows:

<TABLE>
<CAPTION>
                            YEAR ENDING MARCH 31

                 <S>                                    <C>
                        2001........................    $     1,939,726
                        2002........................          2,115,698
                        2003........................          2,196,036
                        2004........................          2,245,762
                        2005........................          2,256,633
                        Thereafter..................          9,583,132
                                                        ---------------
                                  Total.............    $    20,336,987
                                                        ===============
</TABLE>


                                      F-13

<PAGE>   37

    Certain of the Company's operating leases contain escalation clauses that
have been accounted for on a straight-line basis, resulting in deferred rent in
the accompanying financial statements. The total rental expense for the years
ended March 31, 2000 and 1999 were $976,491 and $227,463, respectively.

    On March 31, 2000, the United States Federal Bureau of Investigation (FBI)
and Department of Justice executed a search warrant at the Company's
headquarters in connection with an investigation relating to criminal charges
that have been brought against a former director of the Company. The FBI and
Department of Justice have confirmed that neither the Company nor any of its
current directors or officers are targets of the investigation.

9.  COMMON STOCK

    As of March 31, 2000, the Company had reserved shares of common stock for
future issuance as follows:

<TABLE>
<S>                                                                  <C>
                        Stock options under 2000 Plan.......         9,812,150
                        Other stock options.................         1,072,604
                        Common stock warrants...............         1,342,500
                        Convertible preferred stock.........            10,000
                                                                --------------
                                                                    12,237,254
                                                                ==============
</TABLE>

    There are no restrictions on the payment of dividends.

    During the third quarter, the Company completed a private sale of 401,250
shares of common stock, at a price of $3.35 per share. Each purchaser also
received warrants to purchase two shares of common stock at an exercise price of
$4.40 per share, for each one share of common stock purchased in the equity
offering. The warrants expire in four years and remain outstanding at year-end
(see Note 12). These warrants were valued at $1,731,075 using the Black-Scholes
model, and the beneficial conversion discount, limited to the net proceeds
received of $1,344,188, was recorded as an in-substance dividend on the
accompanying statement of operations.

    During the fourth quarter, the Company completed a private placement of its
common stock. The Company raised approximately $55 million in gross proceeds and
issued 9,166,667 shares of common stock in the offering. The Company intends to
use the net proceeds of the offering to build out additional data centers,
implement a sales and marketing campaign, hire additional sales and marketing
personnel, repay indebtedness and for general corporate purposes.

10. CONVERTIBLE PREFERRED STOCK

    The Company's convertible preferred stock has the following characteristics:

<TABLE>
<CAPTION>
                                    DIVIDEND              LIQUIDATION                      CONVERSION            VOTING
                 DESCRIPTION        FEATURES              PREFERENCE                        FEATURES             RIGHTS

<S>                               <C>          <C>                                <C>                            <C>
                   Series B           5%       Stated value ($5.30/share) plus    One for ten, subject to         None
                                  cumulative   accrued but unpaid dividends       adjustment as defined, plus
                                                                                  six warrants to purchase
                                                                                  six shares of common for
                                                                                  $1.50/share

                   Series C           6%       Stated value ($10.60/share) plus   One for ten, subject to         None
                                  cumulative   accrued but unpaid dividends       adjustment as defined

                   Series D           6%       Stated value ($10.60/share) plus   One for ten, subject to         None
                                  cumulative   accrued but unpaid dividends       adjustment as defined

                   Series E           6%       Stated value ($30.00/share) plus   One for ten, subject to         None
                                  cumulative   accrued but unpaid dividends       adjustment as defined
</TABLE>

    The Company has 10,000,000 authorized shares of preferred stock. The Company
has issued Series B through Series E Convertible Preferred Stock from 1997
through the first quarter of fiscal 2000. All of the Convertible preferred stock
agreements entered into by



                                      F-14

<PAGE>   38

the Company contained restrictions limiting the conversion of the preferred
stock in order to maintain the Company's status as a Historically Underutilized
Business (HUB). In early 2000 the Company elected not to renew its HUB status
and therefore removed the conversion restrictions on all outstanding preferred
stock.

    At the time of issuance of each series of preferred stock the underlying
value of common stock was "in-the-money". This beneficial conversion feature was
limited to the proceeds of the offering and was accounted for as an increase to
additional paid in capital and an in-substance dividend to the related preferred
stockholders. The Company recognized $600,000 and $8,583,433 in 2000 and 1999,
respectively, related to in-substance preferred stock dividends arising from the
beneficial conversion feature.

    During 1999, the Company received $2,823,204 in exchange for 266,340 shares
of Series D Preferred Stock. The Company paid $349,284 in cash and issued 13,317
shares of Series D Preferred Stock for placement agent fees. Also, options to
purchase 255,850 shares of Common Stock at $1.59 per share were issued as a part
of the agreement. Also during the year ended March 31, 1999, 70,000 shares of
Series D Preferred were converted to 700,000 shares of the Registrant's Common
Stock. During the year ended March 31, 1999 the 13,317 shares of Series D
Preferred issued as placement agent fees were converted to 133,170 shares of the
Registrant's Common Stock.

    During fiscal 1999, the Company concluded the private placement of 119,668
shares of the Series E Preferred Stock at $30 per share. The Company paid
approximately $415,800 in cash and issued 6,584 shares of the Series E Preferred
Stock for placement agent fees. Also, options to purchase 90,584 shares of
Common Stock at $4.50 per share were issued as part of the agreement. The Series
E Preferred offering raised proceeds of $3,590,040 as of March 31, 1999. At
March 31, 1999, an additional $600,000 of gross proceeds (representing 20,000
shares of Series E Preferred) was subscribed from stockholders and was recorded
as Preferred Stock Subscribed in the accompanying financial statements. Expenses
for placement agent fees of $73,200 had not been paid as of March 31, 1999. The
transaction was completed in 2000.

    During fiscal 2000, the Company converted 400,000 shares of Series B
Preferred Stock, 196,340 shares of Series D Preferred Stock, and 145,252 shares
of Series E Preferred Stock into 7,415,920 shares of Common Stock. As of March
31, 2000 only 1,000 shares of Series E Preferred Stock remain outstanding as all
other shares have been converted to common shares.

All preferred stock dividends have been paid through the issuance of common
stock.

11. STOCK OPTIONS

    The Company has granted stock options to employees, outside consultants, and
placement agents. Each stock option granted can be exercised for one share of
Common Stock. Options are generally awarded at the discretion of the Board of
Directors, expire after 1.5 to 10 years, and vest over periods ranging from
immediately to 3 years.

    On August 9, 1999, the stockholders approved an amendment to the 1998 Stock
Option Plan (the 1998 Plan) to increase the number of common shares reserved for
future issuance from 1,500,000 to 4,500,000 shares.

    On August 9, 1999, the stockholders also approved the Non-Employee Directors
Stock Option Plan (The Directors Plan). The Directors Plan provides for the
grant of nonqualified options, as defined by the Internal Revenue Code, to
directors.

    On February 22, 2000, the Board of Directors terminated both the 1998 Plan
and the Directors Plan, and adopted the 2000 Stock Option Plan (the Plan).
Options previously issued under the 1998 Plan or the Directors Plan were
substituted with options under the 2000 Plan with identical terms. On March 24,
2000, the Board of Directors amended the 2000 Plan to increase the number of
authorized shares from 5,500,000 to 10,000,000 shares of Common Stock.

                                      F-15
<PAGE>   39
    A summary of the Company's stock options is presented below:

<TABLE>
<CAPTION>
                                                          WEIGHTED
                                                          AVERAGE
                                            NUMBER OF     EXERCISE
                                             OPTIONS       PRICE
                                           ----------    ----------

<S>                                       <C>           <C>
Options outstanding at April 1, 1998 ...      622,170    $     1.72
   Options granted .....................    1,427,934          4.50
   Options forfeited ...................     (275,500)         7.03
                                           ----------    ----------
Options outstanding at March 31, 1999 ..    1,774,604          3.13
                                           ----------    ----------
   Options granted .....................    3,328,950          5.66
   Options exercised ...................     (187,850)         5.37
   Options forfeited ...................     (731,000)         4.12
                                           ----------    ----------
Options outstanding at March 31, 2000 ..    4,184,704    $     4.85
                                           ==========    ==========

Options exercisable at end of period ...    2,182,934    $     3.94
                                           ==========    ==========
</TABLE>

    The weighted-average grant-date fair value of options granted during the
year is as follows:

<TABLE>
<S>                                                                    <C>
    Exercise price less than price of stock on date of grant........    $  13.65
    Exercise price equal to price of stock on date of  grant........        4.70
    Exercise price greater than price of stock on date of grant.....        5.73
</TABLE>

    The following table summarizes outstanding stock options as of March 31,
2000:

<TABLE>
<CAPTION>
                                                       WEIGHTED
                                                        AVERAGE                                                 WEIGHTED
                                     OPTIONS           REMAINING           WEIGHTED             OPTIONS          AVERAGE
              RANGE OF           OUTSTANDING AT       CONTRACTUAL          AVERAGE          EXERCISABLE AT      EXERCISE
           EXERCISE PRICE        MARCH 31, 2000      LIFE IN YEARS      EXERCISE PRICE      MARCH 31, 2000        PRICE
           ---------------       --------------      -------------      --------------      --------------      --------

<S>                              <C>                 <C>                <C>                  <C>               <C>
          $ 1.50 to $ 1.59            830,850             3.3            $  1.53                 830,850        $   1.53
            4.00 to   6.00          2,778,354             6.4               5.28               1,096,222            5.18
            6.06 to   8.63            379,500             9.4               7.08                 161,750            6.80
            9.94 to  10.25            196,000             9.9               9.94                     750           10.25
                                   ----------                                                ----------
            1.50 to  10.25          4,184,704             6.2               4.92               2,089,572            3.85
</TABLE>

    To the extent the exercise price of the option granted was less than the
market price of the stock on the grant date, or the terms of an outstanding
option were modified to the benefit of the employee, compensation expense was
recorded in accordance with APB No. 25 in the amount of $4,806,389 and $177,965
for the years ended March 31, 2000 and 1999, respectively. As of March 31, 2000,
the Company had deferred stock compensation of $238,313, representing the
expense related to unvested stock options which has been deferred to future
periods.

    Stock options to non-employees as included above have been accounted for at
the fair value of the options at the grant date as determined using the
Black-Scholes option-pricing model. Options to non-employees were recorded as
salaries and benefits in the amount of $124,250 for the year ended March 31,
2000. Options to consultants were recorded as professional fees in the amount of
$232,300 and options granted for placement agent fees were valued at $1,496,667
for the year ended March 31, 1999.

    The pro forma compensation expense as defined by SFAS No. 123 for stock
options granted to employees included in the pro forma information below is
determined based on the fair value of the options at the grant date using the
Black-Scholes option-pricing model and the following assumptions: risk-free
interest rates of 4.76% to 6.34%; no dividend yield; volatility of 1.13; and
expected option lives of 2 to 10 years.

    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma net
loss and net loss per share information is as follows:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31,
                                                                     2000                1999
                                                               ----------------------------------
<S>                                                            <C>               <C>
         Pro forma net loss to common stockholders             $  (25,990,115)   $   (17,052,217)
         Pro forma basic and diluted net loss per share                 (1.09)             (1.35)
</TABLE>

    Option valuation models incorporate highly subjective assumptions. Because
changes in the subjective assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a reliable single
measure of the fair value of the

                                      F-16

<PAGE>   40
Company's employee stock options. Because the determination of fair value of all
employee stock options granted after such time as the Company becomes a public
entity will include an expected volatility factor and because, for pro forma
disclosure purposes, the estimated fair value of the Company's employee stock
options is treated as if amortized to expense over the options' vesting period,
the effects of applying SFAS No 123 for pro forma disclosures are not
necessarily indicative of future amounts.

12. WARRANTS

    During fiscal 2000, of the 30,000 warrants issued in connection with fiscal
1999 capital leases (see Note 5), 28,000 were exercised and 2,000 expired, and
the 2,520,000 warrants issued in connection with the 1998 Series B Preferred
Stock Private Placement Agreement were exercised.

    The 428,650 warrants associated with the bridge term loans were exercised
during fiscal 2000 (see Note 4).

    The warrants associated with the private sale of 401,250 shares of common
stock remain outstanding at year end (see Note 9).

    On February 1, 2000, the Company issued 500,000 warrants with an exercise
price of $12 in connection with a settlement agreement that released the Company
from obligations in its previous private placement agreements. The warrants
expire on January 31, 2002 and remain outstanding at year end. These warrants
were valued at $2,360,000 using the Black-Scholes model, and were recorded as
professional fees.

    During fiscal 2000, as part of a settlement agreement with the Company, an
ex-employee was granted 40,000 warrants at an exercise price of $3.75 in
conjunction with the forfeiture of vested stock options granted during his
employment at the Company. The warrants will expire during fiscal 2001. These
warrants were valued at $90,800 using the Black-Scholes methodology, and were
recorded as settlement expense.

13. NET LOSS PER SHARE

    No potentially dilutive securities were included in the basic and diluted
loss per share calculation as they would have been anti-dilutive. The following
table summarizes additional common shares that would, if converted, dilute
earnings. The number of common shares for each item is based on the number of
potentially dilutive securities outstanding as of the end of the year. The
figures presented for the convertible Preferred Stock assume that each preferred
share was converted into 10 common shares.

<TABLE>
<CAPTION>
                                          MARCH 31, 2000       MARCH 31, 1999
                                          --------------       --------------

<S>                                       <C>                 <C>
Series B convertible Preferred Stock                  -           4,000,000
Series D convertible Preferred Stock                  -           1,963,400
Series E convertible Preferred Stock             10,000           1,262,520
Stock options                                 4,184,704           1,774,604
Warrants                                      1,342,500           2,550,000
                                              ---------          ----------
                                              5,537,204          11,550,524
                                              =========          ==========
</TABLE>

14. SUBSEQUENT EVENTS

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


                                      F-17



<PAGE>   41

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.    EXHIBIT DESCRIPTION                               LOCATION
-----------    -------------------                               --------
<S>            <C>                                               <C>
3.1            Revised Articles of Incorporation, as             Incorporated by reference to Exhibit 3.2
               amended on September 26, 1997 (1)                 of Registrant's Form SB-2/A filed
                                                                 December 15, 1998 (File No. 333-60051)

3.2            Article of Amendment, dated October 13,           Incorporated by reference to Exhibit 3.1
               1998 (1)                                          of Registrant's Form 10-QSB/A filed
                                                                 November 12, 1998 (File No. 0-8164)

3.3            Amended and Restated Bylaws of MSI                Exhibit 3.3
               Holdings, Inc. (2)

4.0            Specimen of Securities (1)                        Incorporated by reference to Exhibits
                                                                 Nos. 1A and 1B of Registrant's Form 8-A
                                                                 Registration Statement (File No. 0-8146)

4.1            MSI Holdings, Inc. 2000 Stock Option              Incorporated by reference to Exhibit 4.1
               Plan (1)                                          of Registrant's Form S-8/A filed June
                                                                 19, 2000 (File No. 333-31700)

10.1           MMH Investments, Inc. settlement and              Incorporated by reference to Exhibit
               release agreement, dated October 15,              10.1 of Registrant's Form 10-QSB filed
               1999 (1)                                          February 14, 2000 (File No. 0-8164)

10.2           Entrepreneurial Investors, Ltd. and               Incorporated by reference to Exhibit
               Equity Services, LTD settlement                   10.2 of Registrant's Form 10-QSB filed
               agreement, dated February 1, 2000 (1)             February 14, 2000 (File No. 0-8164)

10.3           Cisco Systems Capital Corporation master          Incorporated by reference to Exhibit
               agreement to lease equipment, dated               10.3 of Registrant's Form 10-QSB filed
               January 24, 2000 (1)                              February 14, 2000 (File No. 0-8164)

10.4           Robert Hersch employment agreement,               Incorporated by reference to Exhibit
               dated October 1, 1999 (1)                         10.4 of Registrant's Form 10-QSB filed
                                                                 February 14, 2000 (File No. 0-8164)

10.5           Robert Gibbs employment agreement, dated          Incorporated by reference to Exhibit
               June 29, 1999 (1)                                 10.5 of Registrant's Form 10-QSB filed
                                                                 February 14, 2000 (File No. 0-8164)

10.6           Form of GTE Internetworking direct                Incorporated by reference to Exhibit
               connect agreement (1)                             10.6 of Registrant's Form 10-QSB filed
                                                                 February 14, 2000 (File No. 0-8164)

10.7           Form of bridge financing promissory note         Incorporated by reference to Exhibit
               (1)                                              10.7 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.8           Form of bridge financing warrant to              Incorporated by reference to Exhibit
               purchase common stock (1)                        10.8 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.9           Form of private equity unit financing            Incorporated by reference to Exhibit
               registration rights agreement (1)                10.9 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.10          Form of private equity financing warrant         Incorporated by reference to Exhibit
               to purchase common stock (1)                     10.10 of Registrant's Form 10-QSB filed
                                                                February 14, 2000 (File No. 0-8164)

10.11          TSG Financial Limited Partnership                Incorporated by reference to Exhibit
               secured convertible promissory note,             10.11 of Registrant's Form 10-QSB filed
               dated January 14, 2000 (1)                       February 14, 2000 (File No. 0-8164)

10.12          TSG Financial Limited Partnership                Incorporated by reference to Exhibit
               security agreement, dated January 14,            10.12 of Registrant's Form 10-QSB filed
               2000 (1)                                         February 14, 2000 (File No. 0-8164)

10.13          TSG Financial Limited Partnership                Incorporated by reference to Exhibit
               warrant to purchase common stock, dated          10.13 of Registrant's Form 10-QSB filed
               January 14, 2000 (1)                             February 14, 2000 (File No. 0-8164)

10.14          Contract between San Felipe Del Rio              Incorporated by reference to Exhibit
               Consolidated ISD and MSI, dated July 7,          10.1 of Registrant's Form 10-QSB/A filed
               1998 (1)                                         June 14, 1999 (File No. 0-8164)

10.15          Master Agreement for Internetworking             Incorporated by reference to Exhibit
               Services between GTE and MSI, dated May          10.2 of Registrant's Form 10-QSB/A filed
               29, 1998 (1)                                     June 14, 1999 (File No. 0-8164)

10.16          Service Schedule Internet Advantage              Incorporated by reference to Exhibit
               Connection Services between GTE and MSI,         10.3 of Registrant's Form 10-QSB/A filed
               dated May 29, 1998 (1)                           June 14, 1999 (File No. 0-8164)

</TABLE>

<PAGE>   42


<TABLE>
<S>            <C>                                               <C>
10.17          Service Schedule Consulting Services            Incorporated by reference to Exhibit
               between GTE and MSI, dated October 15,          10.4 of Registrant's Form 10-QSB/A filed
               1998 (1)                                        June 14, 1999 (File No. 0-8164)

10.18          Amendment One to Service Schedule               Incorporated by reference to Exhibit
               Consulting Services between GTE and MSI,        10.5 of Registrant's Form 10-QSB/A filed
               dated November 13, 1998 (1)                     June 14, 1999 (File No. 0-8164)

10.19          Employment Agreement effective as of            Incorporated by reference to Exhibit
               March 24, 1999, between Roger M. Lane           10.6 of Registrant's Form 10-QSB/A filed
               and MSI (1)                                     June 14, 1999 (File No. 0-8164)

10.20          Lease Agreement for Facilities, dated           Incorporated by reference to Exhibit
               August 12, 1998 (1)                             10.1 of Registrant's Form 10-QSB/A filed
                                                               November 12, 1998 (File No. 0-8164)

10.21          Sublease dated July 27, 1998 between GTE        Incorporated by reference to Exhibit
               Intelligent Network Services, Inc and           10.2 of Registrant's Form 10-QSB/A filed
               MSI (1)                                         November 12, 1998 (File No. 0-8164)

10.22          MSI Purchase Order dated May 29,1998 For        Incorporated by reference to Exhibit
               GTE Internetworking's Internet Advantage        10.3 of Registrant's Form 10-QSB/A filed
               Version 5.1 (Quote Number 38561.9719.1)         November 12, 1998 (File No. 0-8164)
               (1)

10.23          MSI Purchase Order dated September 30,          Incorporated by reference to Exhibit
               1998 for GTE Internetworking's Internet         10.4 of Registrant's Form 10-QSB/A filed
               Advantage Version 6.0 (Quote Number             November 12, 1998 (File No. 0-8164)
               76512.9719.1) (1)

10.24          Master Agreement for Internetworking            Incorporated by reference to Exhibit
               Services dated May 29, 1998 between GTE         10.5 of Registrant's Form 10-QSB/A filed
               Internetworking and MSI (1)                     November 12, 1998 (File No. 0-8164)

10.25          Quotation for GTE Internetworking               Incorporated by reference to Exhibit
               Dialinx Service dated October 29, 1998          10.6 of Registrant's Form 10-QSB/A filed
               between GTE Internetworking and MSI (1)         November 12, 1998 (File No. 0-8164)

10.26          Basic Agreement between Siemens Nixdorf         Incorporated by reference to Exhibit
               Information Systems, Inc. and MSI (1)           10.7 of Registrant's Form 10-QSB/A filed
                                                               November 12, 1998 (File No. 0-8164)

10.27          Addendum to Lease Agreement on 501              Incorporated by reference to Exhibit
               Waller Austin, Texas dated June 6, 1998         10.8 of Registrant's Form 10-QSB/A filed
               Between WBH, Ltd And MSI (1)                    November 12, 1998 (File No. 0-8164)

10.28          Value Added Reseller's Agreement between        Incorporated by reference to Exhibit
               MSI and Hewlett-Packard, Inc. dated,            10.9 of Registrant's Form 10-QSB/A filed
               June 1, 1995 (1)                                November 12, 1998 (File No. 0-8164)

10.29          Placement Agreement dated November 11,          Incorporated by reference to Exhibit
               1997, by and between Equity Services,           10.10 of Registrant's Form 10-QSB/A
               Ltd and MSI (1)                                 filed November 12, 1998 (File No.
                                                               0-8164)

10.30          Placement Agreement dated January 31,           Incorporated by reference to Exhibit
               1998 by and between Equity Services, Ltd        10.11 of Registrant's Form 10-QSB/A
               and MSI (1)                                     filed November 12, 1998 (File No.
                                                               0-8164)

10.31          Placement Agreement dated April 30, 1998        Incorporated by reference to Exhibit
               by and Between Equity Services, Ltd and         10.11 of Registrant's Form 10-QSB/A
               MSI (1)                                         filed November 12, 1998 (File No.
                                                               0-8164)

10.32          First Amendment to the Placement                Incorporated by reference to Exhibit
               Agreement dated April 30, 1998, by and          10.12 of Registrant's Form 10-QSB/A
               between Equity Services, Ltd And MSI (1)        filed November 12, 1998 (File No.
                                                               0-8164)

10.33          Placement Agreement dated October 13,           Incorporated by reference to Exhibit
               1998, by and between Equity Services,           10.13 of Registrant's Form 10-QSB/A
               Ltd and MSI (1)                                 filed November 12, 1998 (File No.
                                                               0-8164)

10.34          MCI WorldCom On-Net Voice Agreement,             Exhibit 10.34
               dated April 19, 2000 (2)

10.35          Purchase Agreement, dated February 15,           Exhibit 10.35
               2000 (2)

16.1           Letter on change in certifying                   Incorporated by reference to
               accountant by Brown, Graham & Company,           Registrant's Form 8-K, filed August 10,
               PC, dated August 4, 1999 (1)                     1999 (File No. 0-8164)

23.1           Consent of Ernst & Young LLP (2)                 Exhibit 23.1

27.1           Financial Data Schedule(2)                       Exhibit 27.1
</TABLE>



(1)     Previously filed with the Securities and Exchange Commission and
        incorporated by reference pursuant to Rule 12b-32 of the Securities
        Exchange Act of 1934.

(2)     Filed herewith.