SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                             -----------------------
                                   FORM 10-KSB

(Mark One)

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

For the fiscal year ended:          March 31, 2000

                                       OR

_____    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934.

For the transition period from _____ to _____

                         Commission file number 0-21907

                             NEWSTATE HOLDINGS, INC.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                  Delaware                              84-1182875
------------------------------------------         ---------------------------
(State or Other Jurisdiction of                     (I.R.S. Employer
Incorporation or Organization)                     Identification No.)

156 West 56th Street, Suite 2005
         New York, New York                                10019
------------------------------------------         --------------------------
(Address of Principal Executive Offices)           (Zip Code)


                                 (212) 245-5801
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


         Securities registered under Section 12(b) of the Exchange Act:

               None

         Securities registered under Section 12(g) of the Exchange Act:

               Common Stock, $0.01 par value per share

         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 past 90 days.
[_X_] Yes [___] No


         Check if there is no  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. [_X_]

         The registrant's revenues as of March 31, 2000 was $_____________.

         The aggregate  market value of the common stock of the registrant  held
by non-affiliates  as of June 27, 2000 was  approximately  $3,684,118  based on
the  average  bid and asked  prices for such  common  stock as  reported  on the
Over-The-Counter  Bulletin  Board.  The number of shares of common  stock of the
registrant outstanding as of June 27, 2000 was 11,508,684.

                   (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS)

         Check whether the issuer has filed all  documents and reports  required
to be  filed  by  Section  12,  13 or  15(d)  of  the  Exchange  Act  after  the
distribution of securities under a plan confirmed by a court. Yes [__] No [__]

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

                       DOCUMENTS INCORPORATED BY REFERENCE

         No annual report to security holders, proxy or information statement or
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 is
incorporated herein by reference.


<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                 Page
PART I                                                                          -------

<S>                                                                             <C>
Item 1. Description of Business                                                 4
Item 2. Description of Properties                                               14
Item 3. Legal Proceedings                                                       14
Item 4. Submission of Matters to a Vote of Security Holders                     15

PART II


Item 5. Market for Common Equity and Related Stockholder Matters                15
Item 6. Management's Discussion and Analysis or Plan of Operation               17
Item 7. Financial Statements                                                    17
Item 8. Change In and Disagreements With Accountants on Accounting
         and Financial Disclosure                                               17

PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act                      18
Item 10. Executive Compensation                                                 20
Item 11. Security Ownership of Certain Beneficial Owners and Management         21
Item 12. Certain Relationships and Related Transactions                         23
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K        23

SIGNATURES


</TABLE>


                    Statement Regarding Forward-Looking Statements

                    Statements   contained  in  this  document   which  are  not
historical in nature are  forward-looking  statements  within the meaning of the
Private  Securities   Litigation  Reform  Act  of  1995.  These  forward-looking
statements can be identified by the use of  forward-looking  terminology such as
"believes," "expects," "may," "should", or "anticipates" or the negative thereof
or other  variations  thereon or comparable  terminology,  or by  discussions of
strategy.

                  Such  forward-looking  statements  involve  certain  risks and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
anticipated results.  These risks and uncertainties include, but are not limited
to,  regulatory  constraints,  changes  in laws  or  regulations  governing  the
Company's products, services and international trade, the ability of the Company
to market successfully its products and services in an increasingly  competitive
worldwide  market,  changes  in the  Company's  operating  strategy,  failure to
consummate or successfully  integrate product developments,  the general economy
of the  United  States and the  specific  global  markets  in which the  Company
competes,  the  availability of financing from internal and external sources and
other  factors as may be identified  from time to time in the Company's  filings
with the Securities and Exchange  Commission or in the Company's press releases.
No assurance can be given that the future results covered by the forward-looking
statements  will be achieved.  Other factors could also cause actual  results to
vary  materially  from  the  future  results  covered  in  such  forward-looking
statements.   The  Company   assumes  no   obligation   for  updating  any  such
forward-looking statements at any time.

         All  references  in this Form 10-KSB to "the  Company,"  "we," "us," or
"our" are to NewState  Holdings,  Inc. and its subsidiaries,  unless the context
requires otherwise.

                                     PART I

ITEM 1:  DESCRIPTION OF BUSINESS

                  BUSINESS OVERVIEW

                  NewState  Holdings,  Inc.  is the  holding  company and parent
corporation for its network of financial  services  companies in the Republic of
Korea. We were originally incorporated under the name Racom Systems, Inc. in the
State of Delaware on June 3, 1991 and in  September  1999 we changed our name to
NewState Holdings, Inc. The Company has principal executive offices in New York,
New York and Seoul,  Korea.  Our principal  business  operations  are located in
Korea.

                  Our principal operating subsidiary in Korea,  NewState Capital
Co., Ltd. (formerly known as Dongsuh Finance Co., Ltd.) ("NewState Capital"), is
registered  with the Korean  Financial  Supervisory  Commission  as a "specialty
finance company" under the Credit  Specialized  Financial  Business Act of 1997.
NewState  Capital was acquired by our present  management  in December  1998 and
restructured  to specialize  in the  origination  and  servicing of  residential
mortgage loans to individual borrowers in Korea.

                  Our  current  business  plan is to expand  NewState  Capital's
mortgage  origination efforts throughout Korea, develop and offer innovative new
mortgage  products to Korean  middle-income  families  and  individuals,  and to
securitize and sell its mortgage loan portfolio as mortgage-backed securities to
public  investors in Korea. We seek to become the leading  residential  mortgage
originator in Korea by providing highly efficient,  responsive and sophisticated
loan servicing to Korean homebuyers.

                  We currently  manage and service  approximately  74.2 billion
Korean Won (US$70 million) in residential  mortgage assets as of March 31, 2000.
We expect our mortgage loan  portfolio to expand to be about 200 billion  Korean
Won (US$180  million) by the end of our 2000  fiscal year (March 31,  2001).  We
anticipate  that NewState  Capital will build an additional  five branch offices
besides  the  corporate  headquarters  in Seoul,  Korea and the other six branch
offices,  and plan to have one regional office in each major  metropolitan  area
throughout  Korea  within  fiscal year 2000.  We expect that the total number of
branch offices in Korea will be 15 and 150  additional  full time employees will
be hired in the same time period. This aggressive  expansion plan is designed to
enable  NewState  Capital  to build  relationships  with  customers  in order to
maximize the rate of market penetration.

                  ACQUISITION OF NEWSTATE CAPITAL

                  On July 20, 1999, we acquired 99.6% (4,958,000  shares) of the
issued and outstanding  capital stock of NewState Capital,  which was formerly a
subsidiary  of NewState  Capital  Corp, a  privately-held  New York  corporation
("NewState  NY"), in exchange for issuing  8,000,000 shares of our common stock,
representing  approximately  80% of our total issued and  outstanding  shares of
common stock, to NewState NY. We also assumed a $5,000,000 liability of NewState
NY to a bank which we repaid in full in August 1999. The terms and conditions of
the  acquisition  are  more  fully  set  forth  in the  Agreement  and  Plan  of
Reorganization,  dated as of July 14, 1999 (the "Acquisition Agreement"), by and
among the Company, NewState NY, NewState Capital and a newly formed wholly-owned
subsidiary of the Company,  NSK Holdings,  Inc.  ("NSK"),  which is incorporated
herein by reference to our Form 8-K filed with the Commission on July 21, 1999.

                  As a result of the Acquisition Agreement, (i) NewState Capital
became a 99.6% owned  subsidiary of NSK, our wholly-owned  subsidiary,  and (ii)
NewState  NY  became  the  owner  of  approximately  80%  of our  common  stock.
Immediately  following the reverse acquisition,  we revised our business plan to
focus on the residential mortgage lending business of NewState Capital.

                  OUR MORTGAGE BUSINESS


                  The Korean  residential  mortgage loan process is divided into
three primary areas:


                  -  mortgage   origination   -   sourcing,   verification   and
documentation of mortgage loans;


                  - mortgage funding - underwriting,  funding and selling closed
loans to mortgage loan purchasers; and


                  -    servicing    -   ongoing    billing,    collection    and
foreclosure/collateral management.


                  We believe that the  residential  mortgage market in Korea has
experienced a recession in recent years as a result of the government's  control
over real estate investment on certain  properties.  It is our belief,  however,
that the Korean residential  mortgage market now faces a turning point due an to
extensive  government  deregulation  plan and the  enactment  of new laws by the
Korean government to encourage the growth of the real estate market. The current
residential  mortgage  market  in Korea  can be  categorized  into  two  primary
sectors:  (i) the publicly  funded  housing  loan sector and (ii) the  privately
funded housing loan sector.  The National Housing Fund,  Korean Housing Bank and
Kookmin  Bank  are   government-controlled   financial   institutions  primarily
responsible  for offering  public  residential  mortgage  loans to middle or low
income  households.  Life insurance  companies,  commercial  banks and specialty
finance  companies have been responsible for providing  private housing loans to
all other qualified individuals.

                  Mortgage Products

                  We plan to become the leading mortgage originator and servicer
in the Korean  residential  mortgage  industry.  NewState  Capital  offers first
mortgages to homebuyers and homeowners  seeking to refinance.  NewState  Capital
handles all aspects of loan origination, including quoting rates, collecting and
verifying  borrower data, locking the rate,  pre-underwriting  the loan package,
and  arranging  for  appraisal  and  settlement  services for the  borrower.  In
addition,   NewState  Capital  can  provide  complete  transaction  fulfillment,
including  underwriting,  funding and packaging  loans for sale to the secondary
markets  in Korea.  Through  one of  NewState  Capital's  branch  offices or its
website,  NewState  Capital  currently  offers  a wide  array of  mortgage  loan
products,  including 30 and 15-year  fixed rate loans,  a variety of  adjustable
rate  mortgages,  balloon  mortgages and other loan products.  NewState  Capital
offers assistance to prospective borrowers in making their home buying decisions
in each phase of the loan application process.

                  Mortgage Origination and Underwriting

                  NewState  Capital  originates,  underwrites,  funds  and sells
mortgage  loans to  homebuyers.  Loan  applications  generally  are  prepared by
NewState  Capital's  loan  officers  located  at  one  of  its  branch  offices.
Verification  procedures,  include, among other things,  obtaining:  (i) written
confirmations of the applicant's income and bank deposits,  (ii) a formal credit
report on the applicant from an unaffiliated  credit reporting  agency,  (iii) a
preliminary  title  report,  and (iv) a real estate  appraisal.  Appraisals  for
mortgage  loans are prepared by third  party,  unaffiliated  appraisers  who are
pre-approved based upon their experience, education and reputation.

                  Completed loan  applications  are then transmitted to NewState
Capital's underwriting  department.  NewState Capital's underwriting  department
contains   experienced  staff  who  verify  the  completeness  and  accuracy  of
application  information,  and determine its  compliance  with its  underwriting
criteria  and  those  of  applicable  government  agencies.  NewState  Capital's
guidelines for underwriting mortgage loans comply with the underwriting criteria
employed by non-bank  mortgage  lenders in Korea  under the  supervision  of the
Financial  Supervisory  Commission.  NewState Capital's  underwriting  personnel
function  independently of its loan  origination  personnel and do not report to
any  individual  directly  involved in the loan  origination  process.  NewState
Capital  considers the following  general  underwriting  criteria in determining
whether to approve a loan application:

                           -        employment and income;

                           -        credit history;

                           -        property value and characteristics; and

                           -        available assets.

                  NewState  Capital is  currently  in the  process  of  adopting
United States  underwriting  and loan servicing  standards and is converting its
servicing  software  to meet these  servicing  guidelines.  In order to meet the
growing  demand for  residential  mortgages in Korea,  management is instituting
more responsive  customer  services and faster and  easy-to-use  loan processing
systems,  including  the  recent  introduction  of our online  loan  application
process through our website.

                  Mortgage Servicing

                  NewState  Capital devotes  significant  resources to providing
personalized,  timely  customer  service and support to minimize  the  potential
uncertainty,  anxiety  and  inconvenience  of the  loan  process.  By  combining
high-tech   communications  with  highly  personalized  attention,  the  Company
believes that NewState  Capital provides a level of customer service superior to
that experienced in the traditional loan application and servicing process.

                  The primary  goal of loan  portfolio  servicing  is to collect
loan payments in full from  borrowers  when due and payable.  Any deviation from
this objective is considered a default.  NewState Capital's  portfolio servicing
team is directly  responsible  for managing and preventing  these  deviations or
defaults.  In  order  to  maximize  servicing  efficiency,   NewState  Capital's
portfolio servicing team operates an advanced computer tracking system named the
Delinquency  Information  Management System ("DIMS"),  which it adopted from the
U.S. version of the DIMS. DIMS provides  delinquency  reports which itemizes the
amounts and days past due per borrower.  DIMS  classifies  our loan portfolio by
level of  creditability,  and  organizes  the  information  relating  to payment
reminders,  enforcement letters, and foreclosure documents in an orderly fashion
to maximize collection efforts.  DIMS also manages our foreclosure  information,
including  the  procedure  schedule,   courts  dates,  decisions  and  follow-up
schedules.

                  NewState Capital's  portfolio servicing team constantly trains
its staff of highly sophisticated mortgage debt management  specialists.  During
the mandatory  portfolio  servicing  training program,  trainees are required to
attend  classes on mortgage  operations,  servicing  procedure,  real estate and
mortgage  law,  housing  rental  law and other  similar  courses.  Comprehensive
in-the-field  training is also offered to strengthen the skills of the servicing
team.  NewState  Capital's  portfolio  servicing team is continuously  attending
outside  lectures and seminars  regarding the real estate market and industry in
an effort to keep abreast of current  economic and legal issues  developing  and
affecting the mortgage industry.

                  Marketing Strategy

                  We  believe  that it is  critically  important  for  financial
service  providers  to  establish  themselves  as  household  names.  With  this
objective  in mind,  we  continuously  strive to promote  and  support  NewState
Capital's   corporate  image  as  the  mortgage  company  that  reaches  out  to
individuals  and families in Korea by placing the  customer's  needs  first.  We
believe that our mortgage  products and services will change the way that people
live by improving  the quality of their  lives.  Establishing  a reputation  for
prompt and  responsive  service is another  integral  component of our marketing
strategies.  We  believe  that that the  ability to  process  loan  applications
quickly provides a distinct advantage over its competitors.

                  An extensive  media  campaign is scheduled for the fiscal year
2000.  The  primary  media  through  which we will  promote  NewState  Capital's
products and services will be television,  radio,  newspapers,  and  billboards.
Advertising  will be focused on raising  customer  awareness and  recognition of
NewState  Capital's  name  and  mission.  The  primary  goal of the  advertising
campaign will be to separate NewState Capital from our competitors. In addition,
we will send out by direct mail to prospective  customers  such as  construction
companies,  home  buyers,  and existing  homeowners  to promote its products and
services.  In addition,  our website will also be utilized as marketing tools as
well as  channels to reach  Internet  users.  The home page has an on-line  loan
application and on-line banking system.

                  Geographical Distribution of Loans

                  We  currently  manage and service  approximately  74.2 billion
Korean Won (US$70 million) in residential  mortgage assets as of March 31, 2000.
We expect our mortgage loan  portfolio to expand to be about 200 billion  Korean
Won (US$180  million) by the end of our 2000 fiscal year (March 31,  2001).  The
following  table sets forth the geographic  distribution by province of NewState
Capital's loan originations as of March 31, 2000.

<TABLE>
<CAPTION>


                           DISTRIBUTION BY PROVINCE OF

                      NEWSTATE CAPITAL'S LOAN ORIGINATIONS

                                 March 31, 2000

             -------------------------------------------------------


          Region              Number of   % of          Total Principal    TPB in US Dollars     % of TPB
                               Assets       Assets      Balance ("TPB")
                                                        in Korean Won
<S>                            <C>         <C>         <C>                   <C>                     <C>
-----------------------------------------------------------------------------------------------------------
                  Seoul           352      11.26       W14,305,748,186       $12,911,325             19.28
-----------------------------------------------------------------------------------------------------------
                  Pusan           237       7.58         5,420,483,134         4,892,133              7.31
-----------------------------------------------------------------------------------------------------------
                  Taegu           917      29.33        21,547,261,539        19,446,987             29.04
-----------------------------------------------------------------------------------------------------------
                In-Chon           135       4.32         3,068,049,173         2,768,997              4.13
-----------------------------------------------------------------------------------------------------------
            Kyung-Gi Do           505      16.15        11,547,209,833        10,421,670             15.56
-----------------------------------------------------------------------------------------------------------
       Kyungsang Nam Do           339      10.84         6,872,265,001         6,202,405              9.26
-----------------------------------------------------------------------------------------------------------
      Kyungsang Book Do           155       4.96         2,914,641,323         2,630,543              3.93
-----------------------------------------------------------------------------------------------------------
           Junla Nam Do            56       1.79           927,483,756           837,079              1.25
-----------------------------------------------------------------------------------------------------------
          Junla Book Do            69       2.21         1,225,861,873         1,106,374              1.65
-----------------------------------------------------------------------------------------------------------
            Kang-Won Do           246       7.87         4,469,856,441         4,034,166              6.02
-----------------------------------------------------------------------------------------------------------
    Choong-Chung Nam Do           104       3.33         1,554,933,963         1,403,370              2.10
-----------------------------------------------------------------------------------------------------------
                 Others            11       0.35           346,673,109           312,882              0.47
-----------------------------------------------------------------------------------------------------------
      Total :                   3,126     100.00       W74,200,467,331       $66,967,931            100.00
-----------------------------------------------------------------------------------------------------------


</TABLE>


                  FUNDING OF MORTGAGE LOANS

                  NewState Capital currently funds most of the mortgage loans it
originates through short-term  borrowings under  collateralized  loan agreements
with several commercial banks, merchant banks,  investment trust companies,  and
insurance companies, which provide primary credit facilities upon which NewState
Capital  relies.  These  agreements  are generally  terminable at will by either
party and are refinanced by new borrowings as they become due. These  borrowings
are in turn repaid with proceeds received by NewState Capital when such mortgage
loans are sold or repaid by the  borrowers.  Management  believes  that NewState
Capital  will  continue to borrow  funds on a  short-term  basis for  operations
through renewals of existing borrowing arrangements.

                  NewState Capital has relied upon a few significant  lenders to
provide the primary credit facilities for its loan originations.  Any failure to
renew or obtain  adequate  funding  under the existing  financing  facilities or
other financing  arrangements,  or any  substantial  reduction in the size of or
increase in the cost of such facilities, could have a material adverse effect on
our business,  results of  operations  and  financial  condition.  To the extent
NewState  Capital  is  not  successful  in  maintaining  or  replacing  existing
financing,  we may have to curtail our mortgage loan  originations,  which could
have a  material  adverse  effect on our  business,  results of  operations  and
financial condition.

                  LOAN SECURITIZATION

                  The  primary  source of capital  in Korea for the  residential
mortgage industry has been through private and government loans, corporate bonds
and private  placements  of equity.  Although  the Korean  residential  mortgage
market has grown significantly over the last few years, the development in Korea
of a  mortgage-backed  securities  market in the finance  industry  has remained
virtually  undeveloped.  The  implementation  by the  government  of a long term
housing  finance  system  such as a mortgage  backed  securities  system that is
generally used in other countries has been well overdue.

                  In  January  1999,  in an effort to  strengthen  the  national
housing  finance  market through a long-term and stable supply of housing funds,
the Korean government  passed the  Mortgage-Backed  Securities  Company Act (the
"MBS Act") to establish and operate a mortgage-backed securitization company and
to issue mortgage-backed  securities. To that end, in September 1999, the Korean
government   established  Korean Mortgage  Company  (the  "KoMoCo"),   the  only
mortgage-backed   securitization  company  to  have  obtained  authorization  of
securitization   business  from  the  Korean  Financial  Supervisory  Commission
("FSC"),  to  facilitate  the  spirit of the MBS Act.  The  KoMoCo has a paid-in
capital of one hundred point one (100.1) billion Korean Won (US$89,434,889). The
Korean  government  holds forty-five (45) percent of the interest in the KoMoCo,
making it the controlling shareholder.  The remaining interests are held by four
major Korean financial institutions.

                  The MBS Act's scheme of securitization requires originators of
the mortgage loans to prepare and file registration  statements with the FSC and
to follow  certain  guidelines  for the transfer of mortgage  loan assets to the
KoMoCo.  The KoMoCo,  which can be characterized as a permanent  special-purpose
vehicle that is organized in such a way that the likelihood of its bankruptcy is
remote, only purchases  residential  mortgage loans from financial  institutions
that seek to raise  cash.  As a special  purpose  vehicle,  the KoMoCo  does not
engage in the  origination  of  mortgage  loans,  but rather  limits its role to
buying only residential mortgage loans. The KoMoCo, and not the selling company,
will then issue  mortgage-backed  securities to raise cash and those  securities
are intended to be payable from collections on the receivables  purchased by the
KoMoCo.

                  The  KoMoCo  may  guarantee  the  payment  of  mortgage-backed
securities,   including   mortgage-backed   securities   issued   by  a  private
securitization  company,  within the amount not exceeding twenty times of equity
capital of the securitization  company. This mechanism of guaranteeing repayment
of mortgage-backed securities to investors provides a special added assurance to
the investors.

                  We intend to take full  advantage of the MBS Act to dispose of
NewState  Capital's  portfolio  of mortgage  loan assets and to maintain  better
liquidity in the future. We have structured  NewState  Capital's  operations and
processes specifically for the purpose of efficiently originating, underwriting,
and servicing  loans for  securitization  in order to meet the  requirements  of
credit rating agencies.  NewState Capital  generally intends to enter the public
mortgage-backed securitization market on a periodic basis.

                  On March 21, 2000,  NewState  Capital issued through a private
special purpose securitization company ("SPC") mortgage-backed securities in the
principal  amount of 58.9  billion  Won  (US$53.6  million) in Korea with Daewoo
Securities  Co.,  Ltd.  as the lead  manager and  Housing  and  Commercial  Bank
(formerly  Korea  Housing  Bank) as the trustee and back-up  servicer.  NewState
Capital issued four senior  tranches of MBS and one  subordinated  tranche which
was retained by NewState Capital. The mortgage-backed securities have a maturity
of 1-10 years and an interest rate of 10.17 - 12.61 percent.  With this issuance
of  mortgage-backed  securities,  NewState  Capital  became the first  issuer of
mortgage-backed securities in Korea. A general summary of the principal terms of
the MBS prospectus and the mechanics of the  securitization  itself is discussed
below.

                  COMPETITION

                  Competition  for  residential  mortgage loan  originations  is
intense  in  Korea  in  this  new  era of  governmental  deregulation.  We  face
significant   competition  from  government  funded  institutions,   established
commercial banks,  insurance companies and other private mortgage  companies.  .
Many of these competitors are substantially larger than us and have more capital
and other resources, as well as a lower cost of funds. However,  competition can
take many forms,  including  convenience in obtaining a loan,  customer service,
marketing and distribution  channels,  terms provided and interest rates charged
to borrowers.  The following  summarily  discusses the major competitors in this
rapidly developing and evolving industry.

                  National  Housing Fund and Housing & Commercial Bank (formerly
Korea Housing Bank). Both of these financial  institutions are controlled by the
Korean  government  and were the first  entrants into the  residential  mortgage
market in Korea.  They also hold the most  significant  share of the residential
mortgage  market  in  Korea.  Both  institutions   primarily  provide  financial
assistance  to middle or lower  income  households.  Consequently,  the mortgage
loans  are  typically  small and are to  individual  borrowers  in lower  income
brackets.  Management  believes that their market share is decreasing because of
the introduction of private company funding to the market and expect their share
to decline even further if the mortgage market is continually deregulated by the
Korean government.

                  Commercial   Banks.   Management   believes   that   increased
participation  by the commercial  banks in the housing loan business is expected
in  the  future  as a  result  of  the  government's  deregulation  initiatives.
Commercial banks currently enjoy the competitive  advantage of having secure and
established  customer  bases.  Because of their strong name  recognition  in the
business,  commercial  banks can enter new markets simply by targeting their own
customer bases. In addition,  commercial banks typically have a broad network of
branch offices that are easily located near a prospective borrowers home.

                  Citibank,  one of the fastest growing foreign commercial banks
in  Korea,  has  one  of the  most  systematic  mortgage  operations  in  Korea.
Citibank's key advantage is name recognition and brand awareness. As a result of
its large  capital and  customer  base,  we believe  that loan  applicants  view
Citibank  as one of the safest  financials  institutions  in Korea.  We believe,
however,  that Citibank's  marketing  efforts have primarily  targeted middle to
high income borrowers which significantly limits the full potential reach of its
mortgage loan portfolio. In addition, we believe that the application process is
too difficult for many individual borrowers to complete.

                  Insurance Companies.  Insurance companies have a broad network
system and direct sales force in Korea.  These key factors give  customers  easy
and convenient access to their mortgage lending services.  The Company believes,
however,  that due to the  insurance-related  image of  insurance  companies  in
Korea, borrowers have generally preferred other financial institutions for their
mortgage banking needs.

                  Mortgage Companies.  Residential mortgage companies (including
NewState  Capital)  have been in operation  in Korea since 1997.  As a result of
their recent entrance into this developing new private lending market, no single
mortgage company has successfully  penetrated the mortgage market.  However,  we
expect the number of private  mortgage  companies  in the market to grow rapidly
over the  next  few  years.  Mortgage  companies  are  characterized  as  having
convenient  loan  processing  systems and are focused on providing  high quality
customer service at every level. We believe that their principal  weaknesses are
relatively  low  capital  bases  and  liquidity   problems.   Because  of  these
weaknesses,  mortgage  companies  must  charge  higher  interest  rates to their
borrowers,  which  gives  them a  significant  disadvantage  compared  to  other
competitors in the mortgage industry.

                  RECENT DEVELOPMENTS


                  NewState Holdings, Inc. (formerly Racom Systems, Inc.)


                  On October 18, 1999, we adopted a fiscal year  consistent with
the fiscal year of NewState Capital, our recently acquired Korean subsidiary. As
a result of this change, our fiscal year now ends on March 31 of each year. This
is  different  from the fiscal  year  reflected  in our prior  filings  with the
Securities and Exchange Commission.


                  On March 23, 2000,  we approved:  (i) the  dismissal of Arthur
Andersen  LLP as the  independent  accountants  for the  Company,  and  (ii) the
engagement of Young Wha Corporation, the Ernst & Young International member firm
in  Korea,  as the  independent  accountants  that will  audit our  consolidated
financial statements for the fiscal year ended March 31, 2000.


                  NewState Capital Co., Ltd. (Korea)


                  On December 20,  1999,  Youngnam  Finance Co.,  Ltd., a Korean
specialty-finance  company,  merged into NewState  Capital under the laws of the
Republic of Korea.


                  On March 21, 2000,  NewState  Capital  issued  mortgage-backed
securities ("MBS") in the principal amount of 58.9 billion Won (US$53.6 million)
in Korea with Daewoo  Securities  Co.,  Ltd. as the lead manager and Housing and
Commercial  Bank as the trustee and back-up  servicer.  NewState  Capital issued
four  tranches  of senior  MBS and one  tranche  of  subordinated  MBS which was
retained  by  NewState  Capital.  The MBS have a  maturity  of 1-10 years and an
interest  rate of 10.17 - 12.61  percent.  With this  issuance of MBS,  NewState
Capital took the honor of becoming the first issuer of MBS in Korea.


                  REGULATION OF THE MORTGAGE INDUSTRY


                  Our business  operations in Korea are subject to the rules and
restrictions  imposed by Korea's  legal and  economic  system as well as general
economic  and  political  conditions  in Korea.  In the  past,  Korea has had an
unstable economy with rigid economic  controls imposed by the Korean  government
on the mortgage loan industry. More recently, however, Korea has begun to pursue
economic reform and development policies which have improved business conditions
in Korea for  credit-specialized  finance businesses including companies engaged
in the  business  of credit  card  financing,  facilities  leasing,  installment
financing and venture capital.  Korean law categorizes our residential  mortgage
lending  business as a form of installment  financing  business and,  therefore,
subjects our operations to the laws and regulations affecting credit-specialized
finance  businesses.  There can be no assurance that the Korean  government will
continue to pursue such policies, or that such policies will be successful.

                  As a result, our operations in Korea may be adversely affected
by one or more of the following:

                  - new laws or  regulations,  or  different  interpretation  of
existing laws and regulations;

                  - our ability to timely obtain the necessary administrative or
regulatory approvals;

                  -  our  ability  to  comply  with  applicable   administrative
requirements; and

                  - currency devaluations.

                  NewState  Capital  has  registered  with the Korean  Financial
Supervisory Commission ("FSC") as a "specialty finance company" under the Credit
Specialized  Financial  Business  Act of 1997 (the "Act").  NewState  Capital is
therefore  subject to the supervision of the FSC and certain  regulations  under
the Act, including the following:

                           - it must maintain a minimum  paid-capital and equity
                           capital in the amount of twenty (20)  billion  Korean
                           Won (US$17.9  million)  (NewState  Capital  currently
                           maintains   twenty  four  (24)  billion   Korean  Won
                           (US$21.4 million) of paid-in capital);

                           - in making mortgage loans, it must follow  specified
                           procedures  designed to inform and protect borrowers;
                           and

                           - it can only  acquire  real estate  according to the
                           specific provisions set forth under the Act.

                  These  regulations may limit our ability to respond to certain
development opportunities in Korea. In addition, changes in existing regulations
or policies or adoption  of new  regulations  or policies  could have an adverse
effect on our  operations  in Korea.  We  believe  that  NewState  Capital is in
substantial  compliance  in  all  material  respects  with  the  Act  and  is in
possession of all necessary  licenses to do business in Korea,  except where the
licenses are not material to the our business and operations as a whole.

                  In addition, governmental agencies in Korea may:

                           -  require  NewState  Capital  to  obtain  additional
licenses in order to continue business;

                           -  revoke  the  acceptance  of  our  registration  as
provided under the Act;

                           -  regulate  the  interest  rates  that  we  will  be
permitted to charge for mortgage loans;

                           -  impose  or  change  the  tariffs  or  fees  on our
operations;

                           - subject us to regulation not  specifically  related
to the residential mortgage industry; or

                           - adopt laws or regulations  relating to the internet
and online commerce.

                  Any of these  actions  could  have an  adverse  effect  on our
operations in Korea.

                                    EMPLOYEES

                  At  March  31,  2000,  we  employed  a total  of 34 full  time
employees and 50 commission-based  sales managers. Of these full-time employees,
32 are based in Korea  and 2 are based in the  United  States.  We also  trained
approximately  100 sales agents who are paid on a commission basis. We presently
plan to  expand  our  personnel  base in such  areas as  management,  marketing,
underwriting,   servicing  and  origination.  We  do  not  foresee  any  serious
difficulties  in hiring these  additional  employees.  None of our employees are
covered  by a  collective  bargaining  agreement,  and we believe  our  employee
relations are good.

ITEM 2:  DESCRIPTION OF PROPERTY

                  We currently lease our principal  executive offices located in
Seoul,  Korea  and New York  City.  NewState  Capital  has  entered  into  lease
arrangements  with  Dongsuh  Securities  Co.  for the Seoul  office  and we have
entered into lease  arrangements  with Ombu  Securities  Corporation for the New
York office.  The lease with Dongsuh  Securities Co. is for approximately  1,368
square meters of commercial  space located at 826-24,  Yoksam-Dong,  Kangnam-Gu,
Seoul, Korea.

                  Our lease with Ombu Securities Corporation in New York City is
on a month-to-month basis and is for approximately 600 square feet of commercial
space  located at 156 West 56th Street,  Suite 2005,  New York,  New York 10019.
NewState  Capital has also entered into additional  lease  arrangements  for its
branch  offices in Taegu,  Taeguseo,  Changwon,  Jinju,  Pusan and  Kwangju.  We
believe that our existing  facilities are sufficient for our current needs,  but
additional commercial space will be required as it continues to open more branch
offices throughout Korea.

                  NewState  Capital has recently  entered into an agreement with
Sanyong  Insurance Co. for the purchase of an office building  located in Seoul,
Korea for 3.4 billion Korean Won (US$3 million).  NewState Capital will maintain
its principal  executive  offices in 3,204 square meters of commercial  space at
this new  location.  NewState  Capital  has agreed to assume a  mortgage  in the
amount  of 2.4  billion  Korean  Won  (US$2.14  million)  for  purposes  of this
acquisition.  The closing date was May 31, 2000 and we plan to move into the new
office space on July 7, 2000.

ITEM 3:  LEGAL PROCEEDINGS

                  We are not,  nor are any of our  subsidiaries,  subject to any
material legal  proceedings.  The Company or its  subsidiaries  may from time to
time become a party to various legal proceedings  arising in the ordinary course
of their business.

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

                  There were no  submissions  of  matters to a vote of  security
holders in the fourth  quarter of our 1999 fiscal year ending on March 31, 2000.
Previous  submissions  to a vote of  security  holders in the last three  fiscal
quarters of our 1999 fiscal year have  already  been  reported in our  quarterly
filings.

                                     PART II

ITEM 5:  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                  MARKET INFORMATION

                  Our  common  stock  was  included  for  quotation  on the  OTC
Bulletin  Board under the symbol  "RCOM" on April 15,  1999.  Prior to April 15,
1999 and during  fiscal  1998,  there was  essentially  no trading in the common
stock.  On September  15, 1999, we changed our ticker symbol to refer to our new
name,  NewState  Holdings,  Inc. Our common stock now trades on the OTC Bulletin
Board under the symbol "NSTH."

                  MARKET PRICE

                  The  following  table sets forth the high and low  closing bid
prices for common stock  transactions  on the OTC Bulletin Board for the periods
indicated.  The quotations  shown reflect  inter-dealer  prices,  without retail
mark-up, mark-down or commissions and may not represent actual transactions.



QUARTER           CALENDAR               HIGH BID PRICE            LOW BID PRICE


1998              1Q (1/1 - 3/31)           $149.7656                  $84.375
                  2Q (4/1 - 6/30)           $118.125                   $78.0469
                  3Q (7/1 - 9/30)           $84.375                    $35.8594
                  4Q (10/1 - 12/31)         $59.0625                   $12.6562


1999              1Q (1/1 - 3/31)           $37.9687                   $15
                  2Q (4/1 - 6/30)           $11.25                      $1.875
                  3Q (7/1 - 9/30)           $5.1562                     $2.50
                  4Q (10/1 - 12/31)         $4                          $2


2000              1Q (1/1 - 3/31)           $2.50                       $2



                  HOLDERS

                  As of March 31,  2000,  there were 48 holders of record of our
common stock and 11,508,684 shares of common stock issued and outstanding.

                  DIVIDENDS

                  We did not  declare  any cash  dividends  on our common  stock
during the most recent two fiscal  years.  It is our  present  policy not to pay
cash  dividends on our common stock.  We expect to retain  earnings,  if any, to
fund our growth and expansion. Any payment of cash dividends on our common stock
in the  future  will be  dependent  upon our  financial  condition,  results  of
operations,  current and anticipated cash  requirements and plans for expansion,
as well as other factors that we deem  relevant,  including  adherence to Korean
company law.

                  NewState  Capital's  ability to dividend and remit funds to us
is subject to  government  regulation  in Korea and board  approval.  Korean law
imposes  certain  restrictions  upon  dividends  paid by  corporations  to their
shareholders. According to Korean law, dividends can be paid to owners of common
stock only if shareholder equity exceeds paid-in capital. NewState Capital could
not pay any dividends for the fiscal years ending March 31, 2000,  1999 and 1998
as a result of its shareholder equity being less than paid-in capital in each of
those three fiscal years.

                  In  the  event  that  NewState  Capital's  shareholder  equity
exceeds its paid-in  capital,  NewState  Capital's  by-laws  provide that it may
declare dividends on its common stock, either on an interim or annual basis. The
by-laws provide that  shareholders of record on September 30 of each fiscal year
are  eligible for an interim  dividend.  In order for  shareholders  of NewState
Capital to receive an interim dividend,  the NewState Capital board must adopt a
resolution within  forty-five (45) days of September 30.  Shareholders of record
at  fiscal  year end on March 31 of each  year are also  eligible  for an annual
dividend  which is approved at the annual  meeting of  shareholders.  The annual
dividend,  if any, is  generally  paid within one (1) month  thereafter.  In the
event that NewState  Capital is permitted by Korean law to pay dividends and all
required corporate approvals are obtained, then dividends would be paid to us in
Korean Won after  payment  by  NewState  Capital  of  certain  of its  corporate
expenses and then converted by us into U.S. Dollars. It is the Company's present
policy, however, to not pay cash dividends on its common stock.

                  The ability of NewState  Capital to declare and pay  dividends
to its shareholders is further  restricted by the Foreign  Exchange  Transaction
Laws.  Under the Foreign  Exchange  Transaction  Laws, if the Korean  government
believes  that  certain  emergency  circumstances  exist or are likely to occur,
including,  but not limited  to, (i) sudden  fluctuations  in interest  rates or
exchange rates,  (ii) extreme  difficulty in stabilizing the balance of payments
or (iii) a substantial  disturbance in the Korean financial and capital markets,
it may impose any  necessary  and  appropriate  restrictions  such as  requiring
NewState  Capital to obtain  prior  approval  from the  Minister  of Finance and
Economy for repatriation of dividends in Korea to the United States.

                  RECENT SALES OF UNREGISTERED SECURITIES

                  There  were no  sales of  unregistered  shares  in the  fourth
quarter of our 1999 fiscal year ending on March 31, 2000.  Sales of unregistered
shares in the last three  fiscal  quarters of our 1999 fiscal year have  already
been reported in our quarterly filings.

ITEM 6:  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                       MANAGEMENT DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                  This Management Discussion and Analysis of Financial Condition
and Results of Operation includes forward-looking statements which involve risks
and  uncertainties.  Actual events may differ materially from those discussed in
the forward-looking  statements as a result of certain factors,  including,  but
not limited to, changes in interest  rates,  economic  conditions,  loan growth,
loan loss  provisions,  customer  retention,  failure to realize  expected  cost
savings  or revenue  enhancements  from  acquisitions.  The  Company  assumes no
obligation for updating any such forward-looking statements at any time.

                                  [To be Added]

ITEM 7:  FINANCIAL STATEMENTS

                  The financial  statements required pursuant to this Item 7 are
included in this Form 10-KSB as a separate  section  commencing  on page F-1 and
are hereby incorporated by reference into this Item 7. [To be added]

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

                  We dismissed our  independent  auditors,  Arthur Andersen LLP,
effective  March 23,  2000.  On that  date we  appointed  Young Wha  Corporation
("Young  Wha"),  the Ernst & Young  International  member firm in Korea,  as our
independent  auditors.  These actions were approved by our Board of Directors on
March 23, 2000. The dismissal  resulted from a mutual  agreement  between Arthur
Andersen LLP and the Company.

                  We  selected  and  approved   Young  Wha  after  an  extensive
evaluation  process  initiated by our Board of Directors.  We had not sought the
advice of Young Wha on  specific  audit or  accounting  issues  relating  to our
financial statements prior to engagement of that firm.

                  The report of Arthur Andersen LLP on our financial  statements
for the years ended  December 31, 1998 and 1997 were modified due to substantial
doubt about our ability to continue as a going concern.

                  In connection with the audits of our financial  statements for
the two most recent fiscal years and through  March 28, 2000,  there had been no
disagreements  with Arthur Andersen LLP on any matters of accounting  principles
or practices,  financial  statement  disclosure or auditing  scope or procedure,
which if not resolved to the  satisfaction  of Arthur  Andersen LLP,  would have
caused them to make reference thereto in their report on the Company's financial
statements for such years.

                  Arthur Andersen LLP has stated in its letter  addressed to the
SEC its concurrence with the foregoing statements in this paragraph.

                                    PART III

ITEM 9:  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
  COMPLIANCE  WITH SECTION 16(a) OF THE EXCHANGE ACT

                  The  following  table sets forth,  as of March 31,  2000,  the
names,  ages and  positions  of our  executive  officers  and  directors.  Their
respective backgrounds are described below.

NAME                      AGE       CAPACITIES
----                      ---       ----------


Ernest B. Kim             46        Chairman, President and Chief
                                    Executive Officer of NewState
                                    Holdings, Inc. and NewState Capital
                                    Co., Ltd.

Jin Ki Kim                43        Vice President, Secretary and
                                    Director of NewState Holdings, Inc.
                                    and Director of NewState Capital Co.,
                                    Ltd.

Alexander T. Shang        42        Treasurer and Chief Financial
                                    Officer of NewState Holdings, Inc.

Sun W. Young              51        Independent Director of NewState
                                    Holdings, Inc.

A. Sungil Noh             40        Independent Director of NewState
                                    Holdings, Inc.

--------------------



NAME OF
OFFICER/DIRECTOR                            EMPLOYMENT HISTORY
----------------                            ------------------


Ernest B. Kim              Mr.  Kim is the  founder of  NewState  Capital
                           Co.,  Ltd. He is the primary  decision  maker for the
                           new  management.  From  December 1998 to the present,
                           Mr.  Kim has been the  chairman  of the board and the
                           chief executive officer of NewState Capital, and from
                           July 1999 to the  present  the  chairman of the board
                           and chief  executive  officer of  NewState  Holdings,
                           Inc.  From  1982 to  1990,  Mr.  Kim  was the  branch
                           manager  for  Mony  Financial  Services,  a  personal
                           financial  consulting  and planning  firm,  and, from
                           1991 to 1998,  Mr. Kim was the  district  manager for
                           Massachusetts  Mutual Financial Services, a financial
                           consulting  and  planning  firm.  In  1977,  Mr.  Kim
                           graduated  from Young Nam  University  in TaeGu City,
                           Korea and studied marketing at New York University in
                           1982.

Jin Ki Kim                 From July 1999 until present, Mr. Kim has been
                           a Vice  President and Director of NewState  Holdings,
                           Inc. Mr. Kim was also  elected  Secretary of NewState
                           Holdings, Inc. on May 1, 2000. From 1996 to 1999, Mr.
                           Kim was manager of mortgage  originations  at NewLife
                           Financial Co., a licensed mortgage broker.  From 1994
                           to 1996,  Mr. Kim was a manager of  export/import  at
                           Grace  International,  Inc.,  a  general  merchandise
                           trading  company.  From 1990 to 1994,  Mr.  Kim was a
                           life  insurance  agent with  Mutual  Life of New York
                           Insurance  Co. Mr. Kim  received a B.A.  in  Graphics
                           Design  in  1983  from  Myung-Ji  University,  Seoul,
                           Korea.

Alexander T. Shang         From July 1999 until present,  Mr. Shang has
                           been the  Treasurer  and Chief  Financial  Officer of
                           NewState Holdings, Inc. From July 1997 to present, he
                           was  Vice   President  of  GEM  Advisors,   Inc.,  an
                           investment   firm  and  a  member  of  the   National
                           Association of Securities Dealers. From 1994 to 1996,
                           he was Vice President in the Fixed Income  Department
                           and the  Capital  Market  Group-Emerging  Markets  at
                           Furman Selz,  Inc. From 1993 to 1996, Mr. Shang was a
                           Vice  President at Financial  Security  Assurance,  a
                           triple-A mono-line insurance company  specializing in
                           providing  credit  enhancement  in  asset-backed  and
                           municipal bond transactions. Mr. Shang graduated from
                           Columbia  University with a B.A. in Economics in 1979
                           and a B.S. in  Computer  Science in 1981.  Mr.  Shang
                           also  received a M.S. in  Management in 1984 from the
                           Sloan  School  of  Management  at  the  Massachusetts
                           Institute of Technology.

Sun W. Young               Mr.  Young has been a Director  of  NewState
                           since  July  1999.  He also  served as  Secretary  of
                           NewState from July 1999 until January 2000. Mr. Young
                           received  his  law  degree  from  Hofstra  University
                           School of Law in 1989 and has been an attorney at law
                           licensed  in the  States  of New York and New  Jersey
                           since that time.  He also  received a Bachelor of Law
                           Degree from Seoul National University in Seoul, Korea
                           in  1971  and   worked  for   several   corporations,
                           including Korean Airlines.

A. Sungil Noh              Mr. Noh has been a  Director  of  NewState
                           since June 9, 2000.  Mr. Noh is the  principal of the
                           accounting firm, A. Sungil Noh, CPA, and practices in
                           the States of New York, New Jersey and Massachusetts.
                           Prior to  establishing  his firm in August  1997,  he
                           worked with two of the world's largest accounting and
                           consulting   firms,   Ernest  &  Young   L.L.P.   and
                           PricewaterhouseCoopers  L.L.P.,  for twelve(12) years
                           as  Practice  Leader  of  Korean  Business  Group and
                           Senior   Manager.   His   responsibilities   included
                           providing  tax  and  consulting   services  to  U.S.,
                           Korean, Japanese, and European companies in a variety
                           of  industries,   including  investment  banking  and
                           broker dealers.  His business and community  services
                           include;  financial  and tax  advisor  to the  Korean
                           Chamber of Commerce  and  Industry  of U.S.A.,  Inc.,
                           internal  auditor of the  Palisades  Park  Chamber of
                           Commerce,  internal accountant of Presbyterian Church
                           of  Palisades,   and  President  of  the   Binghamton
                           University    Korean    Alumni    Association.    His
                           professional affiliations comprise memberships in the
                           American  Institute of Certified  Public  Accountants
                           and the New York State  Society of  Certified  Public
                           Accountants  and a register  CPA of the States of New
                           York, New Jersey and  Commonwealth of  Massachusetts.
                           Mr. Noh graduated from  Binghamton  University with a
                           B.S. in Accounting in 1985..


ITEM 10: EXECUTIVE COMPENSATION.

                  No  compensation  in excess of $100,000 was awarded to, earned
by, or paid to any executive officer of the Company during the fiscal years 1999
and  1998.  The  following  table and the  accompanying  notes  provide  summary
information  for each of the last two fiscal years  concerning cash and non-cash
compensation  paid or accrued by Ernest B. Kim, the  Company's  chief  executive
officer and president for the past two years.

<TABLE>
<CAPTION>


                                                                       LONG TERM COMPENSATION


                           ANNUAL COMPENSATION                           AWARDS         PAYOUTS
---------------------------------------------------   ------------------------------------------------


---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
   NAME AND       YEAR     SALARY     BONUS      OTHER ANNUAL      RESTRICTED     SECURITIES      LTIP            ALL OTHER
   PRINCIPLE                                     COMPENSATION    STOCK AWARD(S)   UNDERLYING      PAYOUTS       COMPENSATION
   POSITION                                                                       OPTIONS/SARs
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
<S>               <C>     <C>           <C>           <C>               <C>             <C>           <C>             <C>
Ernest B. Kim,    1999    $532,881      0             0                 0               0             0               0
CEO and
President
                  1998     $42,000      0             0                 0               0             0               0
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------

</TABLE>


                  BOARD COMPENSATION

                  Our  inside   directors   do  not   currently   receive   cash
compensation  from the  Company  for their  service  as  members of the Board of
Directors,  although they are reimbursed for certain expenses in connection with
attendance at Board and Committee  meetings.  Our outside directors receive $500
per month as  compensation  for  service as  members of the Board of  Directors.
There are  currently two outside  members of the Board of  Directors.  We do not
provide   additional   compensation  for  committee   participation  or  special
assignments of the Board of Directors.

                  EMPLOYMENT AGREEMENTS

                  On  January  3,  2000,   NewState   Capital  entered  into  an
employment  agreement  with Kwang Yong Koh, Vice  President and Chief  Operating
Officer of NewState Capital.  This agreement  obligates  NewState Capital to pay
Mr. Ko an annual  salary of 56  million  Korean  Won  (US$50,000),  plus a 0.05%
commission on the total amount of new mortgage originations per year received by
the branch  offices under Mr. Koh's control and  supervision.  This agreement is
terminable at will by NewState Capital.

ITEM 11:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The   following   table  sets  forth   information   regarding
beneficial  ownership of our common stock by all stockholders who own 5% or more
of our common stock. The ownership  reflected in the table is accurate as of the
date of this prospectus.  Beneficial  ownership has been determined for purposes
of  completing  this  table in  accordance  with  Rule  13d-3 of the  Securities
Exchange Act of 1934, as amended.  Under Rule 13d-3 a person is deemed to be the
beneficial  owner of  securities  if the  person has or shares  voting  power or
investment  power in  respect  of such  securities  or has the right to  acquire
beneficial ownership of the securities within 60 days.

NAME                                AMOUNT AND NATURE OF               PERCENT
AND ADDRESS                         BENEFICIAL OWNERSHIP               OF CLASS
-----------                         --------------------               --------

NewState Capital Corp.                      8,000,000                    69.51%
c/o NewState Holdings, Inc.                 Direct (1)
156 W. 56th Street, Suite 2005
New York, NY 10019

Ernest B. Kim                               8,000,000                    69.51%
NewState Holdings, Inc.                     Indirect (2)
156 W. Street, Suite 2005
New York, New York  10019

Misoo Kim                                   8,000,000                    69.51%
c/o NewState Holdings, Inc.                 Indirect (3)
156 W. 56th Street, Suite 2005
New York, New York 10019

The Kim Voting Trust                        8,000,000                    69.51%
c/o NewState Holdings, Inc.                 Indirect (4)
156 W. 56th Street, Suite 2005
New York, New York 10019

----------------------------------

(1) NewState Capital Corp. is a privately-held family corporation. Ernest B. Kim
is the record owner of 20.9% of the outstanding shares of NewState Capital Corp.
Mr. Kim's wife is the record owner of 16.7% of the outstanding shares, and 62.4%
of the  outstanding  shares  are held in a voting  trust for the  benefit of Mr.
Kim's children. Mr. Kim's wife is the trustee of the trust.

(2)  NewState  Capital  Corp.  is the  record  owner  of these  shares  and is a
privately-held  family corporation.  Mr. Kim is the record owner of 20.9% of the
outstanding  shares of NewState Capital Corp. Mr. Kim's wife is the record owner
of 16.7% of the outstanding shares, and 62.4% of the outstanding shares are held
in a voting trust for the benefit of Mr. Kim's  children.  Mr. Kim's wife is the
trustee of the trust.

(3)  NewState  Capital  Corp.  is the  record  owner  of these  shares  and is a
privately-held family corporation.  Mrs. Kim is the record owner of 16.7% of the
outstanding  shares of NewState  Capital Corp.  Mrs. Kim's husband is the record
owner of 20.9% of the outstanding  shares,  and 62.4% of the outstanding  shares
are held in a voting trust for the benefit of Mrs. Kim's  children.  Mrs. Kim is
the trustee of the trust.

(4)  NewState  Capital  Corp.  is the  record  owner  of these  shares  and is a
privately-held  family corporation.  Mr. Kim is the record owner of 20.9% of the
outstanding  shares of NewState Capital Corp. Mr. Kim's wife is the record owner
of 16.7% of the outstanding shares, and 62.4% of the outstanding shares are held
in this voting  trust for the benefit of Mr. Kim's  children.  Mr. Kim's wife is
the trustee of the trust and has the exclusive  power to: (i) vote, or to direct
the voting of, the  securities,  and (ii) dispose,  or to direct the disposition
of, the securities. The voting trust will terminate on July 12, 2009.

         The  following  table  lists,  as of the date  hereof,  the  number and
percentage  of our  outstanding  shares  of  common  stock  beneficially  owned,
directly or indirectly,  by each executive  officer and director,  and by all of
our directors and officers as a group:

                                    NATURE AND AMOUNT OF
BENEFICIAL OWNER                    BENEFICIAL OWNERSHIP        PERCENT OF CLASS
----------------                    --------------------        ----------------

Ernest B. Kim                               8,000,000                 69.51%
Indirect (1)

All executive officers
and directors as a group                    8,000,000                 69.51%
Indirect (1)

-------------------------

(1)  NewState  Capital  Corp.  is the  record  owner  of these  shares  and is a
privately-held  family corporation.  Mr. Kim is the record owner of 20.9% of the
outstanding  shares of NewState Capital Corp. Mr. Kim's wife is the record owner
of 16.7% of the outstanding shares, and 62.4% of the outstanding shares are held
in a voting trust for the benefit of Mr. Kim's  children.  Mr. Kim's wife is the
trustee of the trust.

                  We do not know of any  arrangements,  the  operation  of which
may, at a subsequent date, result in a change of control of the Company.

ITEM 12:          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                  None.

ITEM 13:          EXHIBITS AND REPORTS ON FORM 8-K.

                  EXHIBITS

         2        Agreement and Plan of Merger dated as of July 20, 1999 between
                  Racom Systems,  Inc., NewState Capital Corp., NewState Capital
                  Co., Ltd., and NSK Holdings, Inc. (1)

         3.1(a)   Third Amended and Restated  Certificate  of  Incorporation  of
                  NewState Holdings, Inc. (filed herewith)

         3.2      Fourth Amended and Restated By-Laws (filed herewith)

         10.1     Agreement and Plan of Merger dated as of July 20, 1999 between
                  Racom Systems,  Inc., NewState Capital Corp., NewState Capital
                  Co., Ltd., and NSK Holdings, Inc. (1)

         10.2     Employment  Agreement,  dated  January 3, 2000,  between Kwang
                  Yong Koh and NewState Capital Co., Ltd. (English version filed
                  herewith)

         10.3     Lease  Agreement,  dated May 21, 1998, by and between  Dongsuh
                  Securities  Co. and Dongsuh  Finance Co.,  Ltd.  (now known as
                  NewState Capital Co., Ltd.) (English version filed herewith)

         10.4     Mortgage-Backed Securities Agreement, dated December 17, 1999,
                  by and between Daewoo Securities Co. and NewState Capital Co.,
                  Ltd. (English version filed herewith)

         10.5     Stock  Purchase  Agreement,  dated  December  28,  1998 by and
                  between  NewState  Capital Co.,  Ltd.  and  Youngnam  Merchant
                  Banking Co., Ltd. (English version filed herewith)

         10.6     Credit  Transaction  Agreement,  dated  January 7, 2000 by and
                  between NewState Capital Co., Ltd. and Hyundai Marine and Fire
                  Insurance Co., Ltd. (English version filed herewith)

         10.7     Credit  Transaction  Agreement,  dated January 8, 2000, by and
                  between  NewState  Capital  Co.,  Ltd.  and Korea  First  Bank
                  (English version filed herewith)

         10.8     Agreement to Amend Repayment Terms,  dated October 7, 1999, by
                  and between  NewState  Capital Co., Ltd. and Korea  Investment
                  Trust Co., Ltd. (English version filed herewith)

         10.9     Funding  Agreement,  dated  January 14,  1999,  by and between
                  NewState  Capital Co., Ltd. and CHE-IL Merchant  Banking Corp.
                  (English version filed herewith)

         10.10    Credit Transaction  Agreement,  dated January 18, 2000, by and
                  between  NewState  Capital Co.,  Ltd.  and  Youngnam  Merchant
                  Banking Corp. (English translated version filed herewith)

         10.11    Credit  Transaction  Agreement,  dated July 12,  1999,  by and
                  between  NewState  Capital  Co.,  Ltd.  and  Central  Merchant
                  Banking Corp. (English version filed herewith)

         10.12    Credit Transaction  Agreement,  dated November 24, 1999 by and
                  between  NewState  Capital Co.,  Ltd. and Kookmin  Bank,  Ltd.
                  (English version filed herewith)

         10.13    Underwriting  Agreement,  dated  February  26,  1997,  by  and
                  between  NewState  Capital  Co.,  Ltd. and  Yeoungnam  Housing
                  Finance Co., Ltd.  (Corporate Bond Series #6) (English version
                  filed herewith)

         10.14    Underwriting  Agreement,  dated May 9,  1997,  by and  between
                  NewState Capital Co., Ltd. and Yeoungnam  Housing Finance Co.,
                  Ltd.   (Corporate  Bond  Series  #8)  (English  version  filed
                  herewith)

         10.15    Underwriting  Agreement,  dated May 9,  1997,  by and  between
                  NewState Capital Co., Ltd. and Yeoungnam  Housing Finance Co.,
                  Ltd.  (Private  Placement  Series #22) (English  version filed
                  herewith)

         10.16    Credit  Transaction  Agreement,  dated  May 27,  1998,  by and
                  between  NewState  Capital  Co.,  Ltd.  and Teagu  Bank,  Ltd.
                  (English version filed herewith)

         10.17    Request for  Extension  of Credit  Transaction,  dated May 27,
                  1999,  by and between  NewState  Capital  Co.,  Ltd. and Taegu
                  Bank, Ltd. (English version filed herewith)

         10.18    Amendment  Agreement,  dated  January 22, 2000, by and between
                  NewState  Capital  Co.,  Ltd.  and Taegu Bank,  Ltd.  (English
                  version filed herewith)

         16       Letter,  dated March 28, 2000 from Arthur  Andersen  LLP,  our
                  former principal  accountants,  to the Securities and Exchange
                  Commission pursuant to Item 304(a)(3) of Regulation S-B (2)

         21       List of Subsidiaries (filed herewith)

         23.1     Consent of Young Wha Corporation (filed herewith)

         23.2     Consent of Samil Accounting Corporation (filed herewith)

         27       Financial Data Schedule (filed herewith)

---------------------------

(1)    Incorporated  by reference to the  Company's  Form 8-K of Racom  Systems,
       Inc.  (Commission  File No.  000-21907),  filed with the  Securities  and
       Exchange Commission on July 21, 1999.

(2)    Incorporated by reference to the Company's Form 8-K of NewState Holdings,
       Inc. (Commission File No. 000-21907),  filed with the Commission on March
       28, 2000.


                  REPORTS ON FORM 8-K

                  * Form 8-K Filed July 21,  1999 - - We  announced  that we had
                  acquired  approximately  99.6% of the issued  and  outstanding
                  capital  stock  of  NewState   Capital  Co.,  Ltd.,  a  Korean
                  corporation,  in exchange for issuing  8,000,000 shares of our
                  common  stock,  representing  approximately  80% of our  total
                  issued and  outstanding  shares of common  stock,  to NewState
                  Capital Corp, a New York corporation.

                  * Form  8-K/A  filed on  October  1, 1999 - - We  amended  our
                  Report on Form 8-K filed on July 21, 1999 by providing certain
                  financial  statements and pro forma  financial  information of
                  NewState  Capital  Co.,  Ltd.,  our recently  acquired  Korean
                  subsidiary in a reverse  acquisition.  We also  announced that
                  effective  September  15, 1999 we changed our name to NewState
                  Holdings,  Inc.  and  that  at  the  opening  of  business  on
                  September  17,  1999 our new OTC  Bulletin  Board  symbol  was
                  "NSTH".

                  * Form 8-K filed on October 20, 1999 - - We announced  that we
                  had adopted a fiscal year  consistent  with the fiscal year of
                  NewState  Capital  Co.,  Ltd.,  our recently  acquired  Korean
                  subsidiary  in a  reverse  acquisition.  As a  result  of this
                  change, our fiscal year will end on March 31 of each year.

                  * Form 8-K filed on March 28,  2000 - - We  announced  that we
                  had dismissed our independent  auditors,  Arthur Andersen LLP,
                  effective  March 23, 2000, and on that date we appointed Young
                  Wha Corporation ("Young Wha"), the Ernst & Young International
                  member firm in Korea, as our independent auditors.




<PAGE>


                                   SIGNATURES

                  In  accordance  with Section 13 or 15(d) of the Exchange  Act,
the Company  caused  this report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                          NEWSTATE HOLDINGS, INC.

                                                   ERNEST B. KIM
                                          By: ________________________________
                                                   Ernest B. Kim
                                                   Chairman of the Board

Dated: June 29, 2000

                  In  accordance  with the  Exchange  Act,  this report has been
signed below by the  following  persons on behalf of the  registrant  and in the
capacities and on the dates indicated.

Signature                           Title                     Date

ERNEST B. KIM
________________________________    Chairman of the Board,    June 29, 2000
Ernest B. Kim                       President and CEO

ALEXANDER T. SHANG
________________________________    Treasurer and Chief       June 29, 2000
Alexander T. Shang                  Financial Officer

JIN K. KIM
________________________________    Vice President, Secretary June 29, 2000
Jin K. Kim                          and Director

SUN W. YOUNG
________________________________    Director                  June 29, 2000
Sun W. Young

A. SUNGIL NOH
________________________________    Director                  June 29, 2000
A. Sungil Noh


<PAGE>


              [March 31, 2000 Consolidated Statements To be Added]