U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 10-Q


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

For the quarterly period ended  March 31, 1999

                                       OR

[ ]  TRANSITON  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934


For the transition period from _____________  to  _________________


Commission file number: 0-9358


                               3Si Holdings, Inc.
             (Exact Name of Registrant as specified in its charter)


          Wyoming                                                83-0245581
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                           Identification No.)


6886 S. Yosemite Street
Englewood, Colorado                                        80112
(Address of principal executive offices)                 (Zip Code)


                                 (303) 741-9123
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_  No ___

At March 31, 1999,  33,898,298  shares of the Registrant's $.01 par value common
stock were outstanding.

                                        1
<PAGE>
                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

           Attached.

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

Financial Condition
Subsequent  to December 31, 1998 and again  referenced  in the December 31, 1998
SEC 10-Q report, the Company's  revolving line of credit lender gave the Company
notice of its intent to terminate the  Company's  revolving  line.  The Company,
however,  continued  to obtain  the  necessary  credit  facilities  to  continue
operations beyond the anticipated  termination  date. The extensions  granted by
the lender were due to the  Company's  pending sale of assets to the  Technology
Integration  Group (TIG) and are  discussed  further  below in this report.  The
company further  terminated  discussions with other financial  institutions as a
result of this change.

As of March 31, 1999, the Company had a working capital deficit of approximately
$1,575,116 and a negative cash flow from operating  activities of  approximately
$133,013 for the quarter ended March 31, 1999.

Reduction of Bank Line
During the quarter  ended  March 31,  1999,  the  Company's  lender  reduced the
Company's line limit from $3.0 million to $2.5 million.

Acquisition of Substantially All Its Assets
On March 10,  1999,  3Si received a Letter of Intent from PC  Specialists,  Inc.
(also  known  as TIG) in San  Diego,  CA to  purchase  substantially  all of the
Company's  assets,  excluding but not limited to its accounts  receivables,  its
software  subsidiary  (also known as KEWi.net),  and the information  management
software. The Board of Directors moved to present the sale to the shareholder in
a special  meeting  of  shareholders  April 30,  1999.  On April 30,  1999,  the
shareholders of 3Si Holdings voted to approve and ratify this  acquisition.  The
transaction is expected to close in the near future.

As part of the  acquisition,  Mr.  Larry  Valdez's  position  with  3Si  will be
terminated.  Mr. Valdez has been offered a position as Sales and Service Manager
with TIG. Mr.  Valdez will continue to serve as Chairman and Board member of 3Si
Holdings.

Ratification  and Approval to Separate the Software  Division from 3Si Holdings,
Inc. In a special meeting of shareholders, the Board of Directors and management
of 3Si proposed and gained  approval to separate the software  division from 3Si
Holdings into a newly formed Colorado subsidiary,  KEWi.net,  Inc. ("KEWi.net"),
in exchange for the stock of KEWi.net.  KEWi.net will be offering and issuing up
to  750,000  additional  shares of stock in the  company  pursuant  to a private
offering qualifying under Regulation D.


                                        2
<PAGE>
KEWi.net,  Inc.  will focused on developing  and  marketing  its  Internet-based
customer support product (KEWi).  Mr. Frank Backes has been appointed  President
of this company in addition to accepting  additional  responsibilities  with 3Si
Holdings, Inc.

Results of Operations

Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998

Overview
The Company realized a net loss from operations of ($995,782)  versus a net loss
of ($137,502) during the quarters ended March 31, 1998. The net loss was created
by a decrease in sales, an increase in the company's bad debt reserve, and lower
gross profits on product sales.

The company sold its government  division for $500,000 to Storage Area Networks,
Inc.  (SAN).  The value paid of $500,000 was  primarily  for the  company's  GSA
contract.  The  company  also wrote off the  amortized  goodwill as of March 31,
1999.

Comparative Analysis
Sales were  $5,443,472 and  $6,568,890  during the quarters ended March 31, 1999
and 1998,  respectively.  Total sales decreased of  approximately  $1,125,528 or
17.1%.  The  decrease is  primarily  the result of an  increase in  competition,
restrictions  on the  company's  revolving  line  of  credit,  diversion  of the
Company's  senior resources away from sales to focus on financing needs, and the
sale of the restructuring of the company (including sales of both the government
and commercial divisions).

The Company's gross margin  declined  overall  between  quarters,  changing from
32.5% of sales in 1998 to 8.6% in 1998, due primarily to stiff  competition  and
extremely low margins related to government sales.

Selling,  general and administrative  expenses decreased  approximately $811,943
compared to March 31, 1998 due  primarily to the  reduction of expenses  through
the reduction of the Company's workforce and cost reduction efforts.

Interest expense  decreased from $57,355 in the third quarter of 1998 to $40,482
in the third quarter of 1999.  The decrease was due to the  Company's  decreased
borrowings on its revolving line. Interest income decreased due to the Company's
decrease in its excess cash balances between quarters.

Cash flow provided by operating  activities  decreased from a negative cash flow
of ($389,729) to a negative cash flow of ($133,013) in third  quarters of fiscal
years 1998 and 1999, respectively.

Cash  used for  investing  activities  in the  third  quarter  of 1998 was lower
compared to the third quarter of 1999, as the company was no longer investing in
software development, since the KEWi product was completed and sales had begun.

Cash used for financing  activities differs between the quarters ended March 31,
1999 and 1998,  due primarily to lower usage on the Company's line of credit and
the conversion of some accounts receivable to short term debt.

                                        3
<PAGE>
On March 31, 1999,  the Company had 118  employees,  including 79 servicing  the
USPS sub-contract in Raleigh, North Carolina and 2 in Wyoming, versus having had
141 in total at September 30, 1997 including 80 servicing the USPS sub-contract.

Fiscal Nine Months Ended March 31, 1999  Compared to Nine Months Ended March 31,
1998.

The same dynamics which effected the quarter (and discussed above), impacted the
fiscal year-to-date.

Sales were  approximately  $19,045,132  and  $21,737,146  during the nine months
ended March 31, 1999 and 1998,  respectively.  The  decrease  is  primarily  the
result of an increase in competition,  restrictions  on the company's  revolving
line of credit,  diversion of the company's  senior resources away from sales to
focus  on  financing  needs  and the  sale of the  assets  (including  both  the
government and commercial divisions).

The  company's  gross  margin  declined  from 31.1% to 20.6% in the nine  months
ending March 31, 1998 and 1999  respectively.  The declining gross profit margin
was due to the low margins on sale of product, especially the government sales.

Selling,  General and  Administrative  expenses  decreased by  $1,552,807 in the
third  quarter of 1999,  compared  to the third  quarter  of 1999,  due to lower
cutbacks in staffing  and cost cutting  measures.  In  addition,  expenses  were
further lowered due to the sale of the field service  division at the end of the
FY1998.

Interest  expense  decreased from  approximately  $35,373 during the nine months
ended March 31,  1999,  compared to the prior  period,  due  primarily to higher
usage of the line of credit.

Cash flow  provided by  operating  activities  decreased  from  ($1,128,554)  to
$1,416,281 in first nine months of FY1998 and FY1999, respectively. The increase
was primarily due to higher accounts payable.

Cash used for  investing  activities  decreased in the first nine months of 1999
compared to same time in FY1998.  The decrease was due  primarily to the sale of
the government division,  which was significantly offset by costs related to the
development of the company's  preparatory  software  (KEWi).  Development  costs
related to this product ceased at the end of the second quarter in FY1998,  when
the product was completed.

Cash provided for financing  activities differs between the first nine months of
FY1999 and FY1998 due  primarily  to accounts  payable  converted  to short term
debt.


Part II - OTHER INFORMATION

Item 1. Litigation

During the quarter ended  September 30, 1997, the Company entered into a Federal
Master  Assignment  Agreement with a leasing company to effect the  government's
leasing of certain equipment.  Under the terms of the assignment  agreement,  if
the government  terminated the lease for any reason other than  "Termination for
Convenience or  Non-appropriation,"  the Company would be liable for the present
value of the discounted cash flows then owed under the lease.

                                        4
<PAGE>
On July 31, 1998, the Federal  government  terminated the lease for convenience.
The  leasing  company  has  filed  suit to  recover  the  present  value  of the
discounted cash flows under the lease from the Company,  which are approximately
$385,000,  plus attorneys fees and interest.  The Company has documentation from
the Federal government indicating its "Termination for Convenience."

The Company intends to vigorously defend against this action. Although it is not
possible to predict with  certainty  the outcome of any  litigation,  management
believes it is unlikely that the ultimate  disposition  of the matter above will
have a material adverse effect on the Company's consolidated financial position,
liquidity, cash flows or results of operations for any year.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Not applicable.

(b) A Form  8-K was not  required  to be  filed in the  period  covered  by this
report.




                                   SIGNATURES

Pursuant  to the  requirements  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.

                                  3Si Holdings, Inc.
                                  (Registrant)


Date:  May 17, 1999                 By:  /s/ Felipe L. Valdez,
                                         -----------------------
                                             Felipe L. Valdez,
                                             Chief Executive Officer and
                                             Chairman of the Board



Date:  May 17, 1999
                                    By:  /s/ Frank W. Backes,
                                         -----------------------
                                             Frank W. Backes,
                                             Assistant Secretary





                                        5
<PAGE>




                               3Si Holdings, Inc.


                          Index to Financial Statements



         Consolidated Balance Sheets, at March 31, 1999 (Unaudited)
                  and June 30, 1998 . . . . . . . . . . . . . . . . . . . . .F-1
         Consolidated Statements of Operations for the quarter and
                  nine months ended March 31, 1999 and 1998 (Unaudited) . . .F-2
         Consolidated Statements of Cash Flows for the quarter and
                  nine months ended March 31, 1999 and 1998 (Unaudited)  . . F-3
         Notes to Consolidated Interim Financial Statements (Unaudited).. .  F-4










                                        6


<PAGE>











                                     Item 1


                        CONSOLIDATED FINANCIAL STATEMENTS

                               3Si Holdings, Inc.



                                 March 31, 1999






<PAGE>
                               3Si Holdings, Inc.
<TABLE>
<CAPTION>
                           Consolidated Balance Sheets
                  March 31, 1999 (Unaudited) and June 30, 1998

                                                     March 31,1999     June 30,
                                                      (Unaudited)        1998
<S>                                                  <C>                 <C>   
         ASSETS  
CURRENT ASSETS
Cash and cash equivalents ........................   $   253,564         13,843
Accounts receivable - trade ......................     5,902,930      6,142,390
Inventory ........................................       207,643        225,741
Deferred income taxes ............................       171,000        171,000
Other current assets .............................       373,996        193,029
                                                     -----------    -----------
Total current assets .............................     6,909,134      6,746,003

PROPERTY AND EQUIPMENT, AT COST
Computer systems (note 1) ........................       837,153        674,118
Furniture and fixtures ...........................       170,178        169,178
Leasehold improvements ...........................        92,492         92,034
                                                     -----------    -----------
Total property and equipment .....................     1,099,823        935,330
Less accumulated depreciation and amortization ...      (447,139)      (366,319)
                                                     -----------    -----------
Net property and equipment .......................       652,685        569,011

OTHER ASSETS
Other assets .....................................        31,330         31,330
Software Development Costs (Note 2) ..............       562,565        239,082
Goodwill (Note 3) ................................          --          591,146
                                                     -----------    -----------
Total other assets ...............................       593,896        861,558

Total assets .....................................   $ 8,155,714      8,176,572
                                                     -----------    -----------

         LIABILITIES AND
         STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Revolving line of credit (Note 4) ................   $ 1,063,483      2,858,337
Short-term debt (Note 5) .........................       673,216           --
Current portion of capital lease .................        25,253         25,340
Accounts payable - trade .........................     6,329,760      3,742,603
Income taxes payable .............................          --           15,000
Customer deposits ................................          --           98,185
Accrued liabilities ..............................       392,537        203,756
                                                     -----------    -----------
Total current liabilities ........................     8,484,250      6,943,221

LONG-TERM DEBT ...................................        25,709         40,948
DEFERRED INCOME TAXES ............................       102,000        102,000

STOCKHOLDERS' EQUITY (notes 5 and 6)
Common stock - authorized 50,000,000
        shares of $.01 par value; issued
 39,984,924; outstanding 39,984,924 ..............       399,849        399,849
Additional paid in capital .......................     2,380,044      2,380,044
Retained earnings (deficit) ......................    (2,124,851)       167,863
Treasury stock, at cost, 6,050,626
        shares (45,000 at June 30, 1997) .........    (1,857,353)    (1,857,353)
                                                     -----------    -----------
Total stockholders' equity .......................      (456,244)     1,090,403

Total liabilities and stockholders' equity .......   $ 8,155,714    $ 8,176,572
                                                     -----------    -----------
</TABLE>

      See accompanying notes to interim consolidated financial statements.
                                       F-1

<PAGE>
                               3Si Holdings, Inc.
<TABLE>
<CAPTION>
                      Consolidated Statement of Operations
                 For the Quarters and Nine Months March 31, 1999

                                   (Unaudited)

                                          Quarter Ended                 Nine Months Ended
                                             March 31,                       March 31,
                                        1999            1998            1999           1998
                                        ----            ----            ----           ----
<S>                              <C>                <C>            <C>             <C>       
Product sales ................   $  3,932,025       4,510,300      13,935,304      15,360,578
Consulting and other
 service revenue .............      1,511,447       2,058,590       5,109,828       6,376,568
                                 ------------    ------------    ------------    ------------

   Net sales .................      5,443,472       6,568,890      19,045,132      21,737,146

Cost of products sold ........      4,886,001       4,104,541      14,307,598      13,952,006
Costs of contract labor ......         91,262         327,917         813,327       1,033,510
                                 ------------    ------------    ------------    ------------

Total cost of sales ..........      4,977,263       4,432,458      15,120,925      14,985,516

  Gross profit ...............        466,209       2,136,432       3,924,207       6,751,630

Selling and administrative
        expenses .............      1,461,991       2,273,934       5,244,457       6,797,264
                                 ------------    ------------    ------------    ------------

Earnings (loss) from
        operations ...........       (995,782)       (137,502)     (1,320,250)        (45,634)


Other income (expense):
Interest income ..............            500           2,473           4,756          60,790
Interest expense .............        (40,482)        (64,887)       (160,009)       (124,636)
Write-off of Prepaid Royalties       (575,522)           --          (575,522)           --
Sale of Government Division ..        500,000            --           500,000            --
Misc. Income .................           --               310           4,378           6,881
                                 ------------    ------------    ------------    ------------

Loss before income
        taxes ................     (1,111,286)       (199,606)     (1,546,648)       (102,599)

Income taxes .................           --              --              --              --   
                                 ------------    ------------    ------------    ------------


Net loss .....................     (1,111,286)       (199,606)     (1,546,648)       (102,599)
                                 ------------    ------------    ------------    ------------


Loss per common share ........          (0.01)          (0.01)           (0.0)          (0.00)
                                 ------------    ------------    ------------    ------------

Shares outstanding(note 8) ...     39,984,924      39,984,924      39,984,924      35,054,921
                                 ------------    ------------    ------------    ------------
</TABLE>


      See accompanying notes to interim consolidated financial statements.

                                       F-2
<PAGE>
                               3Si Holdings, Inc.
<TABLE>
<CAPTION>
                     Consolidated Statements of Cash Flows
         For the Quarters and Nine Months Ended March 31, 1999 and 1998

                                   (Unaudited)

                                                             Quarter Ended               Nine Months Ended
                                                                March 31,                     March 31,
                                                           1999           1998           1999          1998
                                                           ----           ----           ----          ----
<S>                                                  <C>               <C>          <C>              <C>      
Operating activities:
  Net loss .......................................   $(1,611,286)      (199,606)    (2,046,648)      (102,599)
Reconciling adjustments:
 Depreciation and amortization ...................        29,940         34,753         96,445        104,258
 Gain on sale of equipment .......................          --             --             --            2,665
Change in operating assets and liabilities:
  Accounts receivable ............................      (759,438)       749,793         64,261     (1,598,350)
  Inventory ......................................        32,509        397,050         18,098        342,072
  Other assets ...................................       622,374          9,483        622,871        (25,994)
   Accounts payable ..............................     1,413,956       (952,200)     2,587,157        470,370
  Other liabilities ..............................       177,932       (425,759)        74,097       (320,976)
   Total adjustments .............................     1,451,332        (81,649)     3,366,483     (1,132,878)

Net cash provided by operating                       ___________     __________    ___________     __________
        activities ...............................      (133,013)      (389,729)     1,416,281     (1,128,554)


Investing activities:
 Purchases of equipment ..........................         3,029        (16,199)      (164,494)       (93,815)
 Software development costs ......................          --          (65,450)      (323,483)       (65,450)
 Merger costs ....................................          --             --          (53,118)        (8,279)
 Sale of Government Division .....................       500,000           --          500,000           --

Net cash used in investing                           ___________     __________    ___________     __________
        activities ...............................      (503,029)       (81,649)       (41,095)      (167,544)

Financing activities:
 Payments on notes payable .......................       673,216       (102,206)       673,216     (1,258,628)
 Payments on capital lease .......................        (1,500)        (7,149)       (13,826)       (21,843)
 Proceeds (payment) on revolving line ............      (958,885)        (3,243)    (1,794,854)     2,353,655
 Proceeds from exercise of
         options (note 3) ........................          --             --             --           65,660
 Payments on self-tender .........................          --             --             --       (1,851,366)
 Dividends paid, prior to merger .................          --             --             --             --
Net cash used by financing                              ________        _______      _________       ________
        activities ...............................      (287,169)      (109,355)    (1,135,465)      (712,522)

Net change in cash and cash equivalents ..........        82,846       (580,733)       239,721     (2,008,620)

Cash and cash equivalents, beginning .............       170,718        791,258         13,843      2,219,145

Cash and cash equivalents, ending ................   $   253,564         10,525        253,564        210,525
                                                     -----------    -----------    -----------    -----------

Supplemental disclosures of cash flow information:
 Interest paid ...................................   $    40,482         57,355         96,855        114,799
                                                     -----------    -----------    -----------    -----------
</TABLE>

      See accompanying notes to interim consolidated financial statements.

                                       F-3
<PAGE>
                                3Si Holding, Inc.

               Notes to Interim Consolidated Financial Statements

                                   (Unaudited)

         The unaudited  historical  interim  consolidated  financial  statements
reflect,  in the opinion of management,  all  adjustments  (consisting of normal
recurring accruals)  necessary for a fair presentation.  The accounting policies
followed  by the  Company  are set  forth in Note 1 to the  Company's  financial
statements in the Company's report on Form 10-K.

         Operating  results for the quarter and nine months ended March 31, 1999
are not necessarily  indicative of the results that may be expected for the year
ending June 30, 1999.

Presentation
------------

On June 18, 1998,  the  stockholders  approved a change to the  Company's  name.
Effective  September 15, 1998, the Company's name changed from Tyrex Oil Company
to 3Si Holdings, Inc. ("3SiH" or "the Company").

On May 28, 1997, Tyrex Oil Company  ("Tyrex")  acquired 100% of the common stock
of 3Si Inc.  ("3Si").  Under  the  terms of the  merger,  3Si is a wholly  owned
subsidiary of Tyrex (now 3SiH).  The merger has been accounted for as a purchase
of Tyrex by 3Si, since the merger  resulted in 84% of the  outstanding  stock of
Tyrex being held by the 3Si stockholders.

All intercompany balances and transactions have been eliminated in the financial
statements.

The  principal  markets for 3Si's sales and services  have been the U.S.  Postal
Service  and large  corporations  located in  Colorado  and New  Mexico.  3Si is
concentrating  on expanding its sales base  throughout  the United  States.  The
corporate offices are located in Englewood, Colorado. 3Si also maintains offices
in  Albuquerque,  New Mexico;  Raleigh,  North Carolina;  and Colorado  Springs,
Colorado.

Note 1 - Computer Software Costs
--------------------------------
Expenditures  related to the Company's  acquisition  and  implementation  of new
information  management software have been capitalized as computer systems.  For
the nine months ended March 31, 1999, capitalized costs include $94,566 of costs
paid to outside  consultants  and  $52,398 of internal  costs.  With the sale of
significantly  all of the  company's  assets,  the  Company  has  decided not to
implement the system and is attempting to sell the Oracle system.

Note 2 - Software Development Costs
-----------------------------------
During the fiscal year ended June 30, 1998, the Company  completed  research and
development  on  its  first  two  proprietary  software  products  -- a  contact
management database program and a help desk management and call avoidance system
(called "KEWi"). Both programs operate via the Internet.  During the nine months
ended March 31, 1999, the Company capitalized  $323,483 as software  development
costs relative to its proprietary products.

Note 3 - Reduction in Goodwill
------------------------------
The remaining goodwill of approximately $575,500,  which was created in FYE June
30 ,1997 as result as a payment to former 3Si  stockholders to satisfy a License
and Royalty Agreement,  was written off in the third quarter.  This write-off of
the  asset  was  made due to the  anticipated  sale of the  business  operations
related to the royalty payments.

                                       F-4
<PAGE>
Note 4 - Revolving Line of Credit
---------------------------------
Subsequent to December 31, 1998,  and again  referenced in the December 31, 1998
SEC 10-Q report, the Company's  revolving line of credit lender gave the Company
notice of its intent to terminate the  Company's  revolving  line.  The Company,
however,  continued  to obtain  the  necessary  credit  facilities  to  continue
operations beyond the anticipated  termination  date. The extensions  granted by
the lender were due to the  Company's  pending sale of assets to the  Technology
Integration  Group (TIG) and are  discussed  below in this  report.  The company
further terminated  discussions with other financial institutions as a result of
this change.

Note 5 - Short-Term Debt With Vendor
------------------------------------
As part of the agreement of the sale of the government division to SAN, which is
a related entity to Innovative Interfaces,  Inc. (Innovative),  a 3Si vendor, an
agreement was made to convert part of the accounts payables due to Innovative to
a short-term note.

Note 6 - Stock Options and Warrants
-----------------------------------
On June 18, 1998, the Company's  stockholders  approved the Company's 1998 Stock
Option Plan (the "1998 Plan"). Under the terms of the 1998 Plan, the Company may
grant options to acquire up to 5,000,000  shares of the Company's $.01 par value
common stock to employees and directors of the Company.  No options were granted
prior to June 30, 1998.  Subsequent to June 30, 1998, the Company issued options
to acquire up to 1,866,300  shares of the Company's stock at prices ranging from
$.10 to $.133 per share to  employees  of the  Company.  The options vest over a
period of 4 years,  except 1,345,000 shares which vested  immediately upon grant
to two managers and one developer of 3Si, Inc.

No  compensation  expense  was  recognized  related  to these  options  in these
financial statements.

On May 28,  1997,  Tyrex  granted  warrants  to purchase  750,000  shares of the
Company's  common  stock at a price of $.30 per  share.  These  warrants  became
exercisable 90 days after May 28, 1997 and are effective until August 27, 1999.

On October  22,  1997,  the Company  granted  warrants to purchase up to 350,000
shares  of the  Company's  common  stock  at a price of $.16  per  share.  These
warrants  became  exercisable  90 days after  October 22, 1997 and are effective
until June 30,  1999.  The Company also  extended the exercise  date on warrants
previously issued to purchase up to 400,000 shares of the Company's common stock
at $.255 per share from December 31, 1998 to December 31, 1999.

Note 7 - Income Per Share
-------------------------
Net income per share for the quarters ended March 31, 1999 and 1998 was computed
on the basis of the weighted  average  number of common  stock  shares only,  as
shares subject to warrants and stock options would have an antidilutive effect.

Note 8 - Income Taxes
---------------------
At March 31, 1999, the Company had net operating loss  carryforwards  sufficient
to offset any tax liability arising during the period.

Note 9 - Litigation
-------------------
During the quarter ended  September 30, 1997, the Company entered into a Federal
Master  Assignment  Agreement with a leasing company to effect the  government's
leasing of certain equipment.  Under the terms of the assignment  agreement,  if
the government  terminated the lease for any reason other than  "Termination for
Convenience or  Non-appropriation,"  the Company would be liable for the present
value of the discounted cash flows then owed under the lease.


                                       F-5
<PAGE>
On July 31, 1998, the Federal  government  terminated the lease for convenience.
The  leasing  company  has  filed  suit to  recover  the  present  value  of the
discounted cash flows under the lease from the Company,  which are approximately
$385,000,  plus attorneys fees and interest.  The Company has documentation from
the Federal government indicating its "Termination for Convenience."

The Company intends to vigorously defend against this action. Although it is not
possible to predict with  certainty  the outcome of any  litigation,  management
believes it is unlikely that the ultimate  disposition of the matter will have a
material  adverse  effect  on the  Company's  consolidated  financial  position,
liquidity, cash flows or results of operations for any year.










                                       F-6