SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549
                             -----------------------
                                   FORM 10-QSB
                                   (Mark One)

          [X]     Quarterly Report pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                For the quarterly period ended September 30, 1999

                                       or

            [ ] Transition Report pursuant to 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.
                    -----------------------------------------
        (Exact name of small business issuer as specified in its charter)

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

16 W. 32nd Street, Suite 801, New York, NY                         10001
--------------------------------------------------------    --------------------
(Address of Principal Executive Offices)

                                 (212) 643-2080
                              --------------------
                         (Registrant's Telephone Number
                              Including Area Code)

                              RACOM SYSTEMS, INC.
                   P.O. Box 3224,Boulder, Colorado 80307-3224
                        Former Fiscal Year - December 31
                        --------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)

         Check whether issuer (1) 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: ___
                 --

         Indicate the number of shares  outstanding of each of the  Registrant's
classes of common stock, as of September 30, 1999:

Class                                   Number of Shares Outstanding
------                                  -------------------------------------

Common Stock, .01 par value             11,416,184


<PAGE>


                                      INDEX

Part I    Financial Information                                            Page
------    ---------------------                                            ----

          Item 1.       Condensed  Balance  Sheets as of September            2
                        30, 1999 and at March 31, 1999

                        Condensed Statements of Operations for the three      3
                        month   periods   ended   September   30,  1999,
                        September  30, 1998,  June 30, 1999 and June 30,
                        1998, and the Six month periods ended  September
                        30, 1999 and September 30, 1998

                        Condensed  Statements  of Cash Flows for the six      4
                        months ended September 30, 1999

                        Notes to Condensed Financial Statements               5

          Item 2.       Management's   Discussion  and  Analysis  of          8
                        Financial Condition and Results of Operations


Part II   Other Information and Signatures                                   15
-------   --------------------------------


Statements  contained  in this  Report  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  regulatory  constraints,  changes  in laws or
regulations  governing  the  Company's  products and  international  trade,  the
ability of the Company to market  successfully  its products in an  increasingly
competitive  worldwide  market,  changes in the  Company's  operating  strategy,
failure to consummate  or  successfully  integrate  products  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.

<PAGE>

<TABLE>
<CAPTION>

                         NEWSTATE HOLDINGS, INC.
                     (FORMERLY RACOM SYSTEMS, INC.)
                       CONSOLIDATED BALANCE SHEET
                               (UNAUDITED)

                                                                                                         March 31,
                                                                                September 30,               1999
                                                                                    1999                (Pro-forma)
                                                                             ---------------------   ---------------------
                                 ASSETS
<S>                                                                               <C>                     <C>
Cash and cash equivalents                                                          $   9,795,960          $  26,118,761
Interest-bearing deposits with banks                                                   3,379,128              6,430,168
Securities available for sale                                                          7,208,974             10,853,802
Securities held to maturity                                                              139,397                 52,284
Loans                                                                                 75,906,125             96,547,097
Premises and equipment                                                                   156,416                      -
Accrued interest receivable                                                            2,044,047              2,422,333
Other assets                                                                           2,268,120              1,763,322
                                                                                   ---------------        -------------
       Total assets                                                                $ 100,898,167          $ 144,187,767
                                                                                   ===============        =============
                  LIABILITIES AND SHAREHOLDERS' EQUITY

Short-term borrowings                                                                 51,489,292             54,441,505
Accrued expenses and other liabilities                                                 1,522,787              1,897,308
Long-term debt                                                                        32,238,846             70,371,873
Accrued employee benefit                                                               1,310,385                561,532
Negative goodwill                                                                     11,518,680             12,775,963
                                                                                   ---------------        --------------
      Total liabilities                                                               98,079,990            140,048,182

Minority interest                                                                         27,014                 34,539

Shareholders' equity:
     Common stock ($.01 par value ; 40,000,000 shares
     authorized; 9,332,482 shares issued and outstanding as of
     March 31, 1999; 11,416,184 shares issued and outstanding)
     as of September 30, 1999)                                                           114,162                 93,325
     Preferred stock (no par value, 10,000,000 shares authorized in
     1999, no shares issued and outstanding)                                                   -
     Additional paid-in capital                                                        4,931,146              3,892,006
Retained earnings                                                                       (427,074)                91,071
Accumulated other comprehensive income                                                  (881,820)                28,645
Foreign currency translation adjustments                                                (945,251)                     -
                                                                                   ---------------        --------------
      Total shareholders' equity                                                       2,791,163              4,105,047
                                                                                   ---------------        --------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $ 100,898,167          $ 144,187,767
                                                                                   ===============        ==============

</TABLE>

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

<PAGE>


<TABLE>
<CAPTION>

                             NEWSTATE HOLDINGS, INC.
                         (FORMERLY RACOM SYSTEMS, INC.)
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

                                         Three Months Ended                Three Months Ended               Six Months Ended
                                     -----------------------------------------------------------------------------------------------
                                    September 30,    September 30,     June 30,         June 30,      September 30,  September 30,
                                       1999             1998             1999             1998           1999             1998
                                     --------------------------------------------------------------- -------------------------------
                                                     (Pro-forma)                       (Pro-forma)                    (Pro-forma)
<S>                                  <C>              <C>              <C>              <C>           <C>               <C>
Interest income:
  Loans                              $ 3,975,628      $ 3,330,360      $ 2,727,491      $ 3,770,572   $ 6,703,119       $ 7,100,931
  Deposits with banks                    510,165          217,026          914,104          794,710     1,424,269         1,011,736
                                     -----------      -----------      -----------      -----------   -----------       ------------
      Total interest income            4,485,793        3,547,386        3,641,595        4,565,282     8,127,388         8,112,667
                                     -----------      -----------      -----------      -----------   -----------       ------------
Interest expenses:
  Short-term borrowings                1,363,506        1,746,171        1,616,480        2,063,848     2,979,986         3,810,019
  Long-term debt                       1,427,697        2,326,516        1,994,708        2,222,115     3,422,405         4,548,631
                                     -----------      -----------      -----------      -----------   -----------       ------------
      Total interest expenses          2,791,203        4,072,687        3,611,188        4,285,963     6,402,391         8,358,650
                                     -----------      -----------      -----------      -----------   -----------       ------------
Net interest income (expenses)         1,694,590         (525,301)          30,407          279,319     1,724,997          (245,983)
Reversal of (addition to)
      provision for loan losses          688,795           98,695           (3,474)        (202,220)      685,321          (103,525)
                                     -----------      -----------      -----------      -----------   -----------       ------------
Net interest income (expenses)
      after provision for loan losses  2,383,385         (426,606)          26,933           77,099     2,410,318          (349,508)

Other income and expenses:
  Salaries                              (568,083)        (125,231)        (889,469)         (99,116)   (1,457,552)         (224,347)
  General and administrative          (1,001,773)        (181,287)        (719,003)        (136,388)   (1,720,777)         (317,675)
  Employee benefit                      (684,869)               -         (138,253)               -      (823,122)                -
  Amortization of negative goodwill      690,403                -          683,438                -     1,373,841                 -
  Other income (loss), net               135,119          (15,290)         203,893         (123,909)      339,012          (139,199)
                                     -----------      -----------      -----------      -----------   -----------       ------------
                                      (1,429,203)        (321,808)        (859,394)        (359,413)   (2,288,598)         (681,221)

Income (loss) before
      provision for income taxes         954,182         (748,414)        (832,461)        (282,314)      121,720        (1,030,729)
Provision for income taxes              (116,941)               -          (96,540)               -      (213,481)                -
Minority interest                           (731)               -            8,662                -         7,931                 -
                                     -----------      -----------      -----------      -----------   -----------       ------------
Net income (loss)                        836,510         (748,414)        (920,339)        (282,314)      (83,830)       (1,030,729)
                                     ===========      ===========      ===========      ===========   ===========       ============
Net income (loss)
      per share of common stock           $ 0.07          $ (0.08)         $ (0.10)         $ (0.03)      $ (0.01)          $ (0.11)
                                     ===========      ===========      ===========      ===========   ===========       ============
Average shares outstanding            11,235,505        9,332,482        9,332,482        9,332,482    10,283,994         9,332,482
                                     ===========      ===========      ===========      ===========   ===========       ============

</TABLE>

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



<PAGE>

<TABLE>
<CAPTION>


                         NEWSTATE HOLDINGS, INC.
                     (FORMERLY RACOM SYSTEMS, INC.)
                  CONSOLIDATED STATEMENT OF CASH FLOWS
                               (UNAUDITED)

                                                                                        For the six months ended
                                                                                 September 30,             September 30,
                                                                                     1999                      1998
                                                                                ------------------      --------------------
                                                                                                            (Pro forma)
<S>                                                                                  <C>                       <C>
Cash flows from operating activities:
  Net loss                                                                           $     (83,830)            $  (1,030,729)
  Adjustment to reconcile net loss to net cash
   used in operating activities:
   Minorities interest                                                                      (7,931)                        -
   Provision for loan loss                                                                       -                   103,525
   Depreciation and amortization                                                            71,505                    46,276
   Amortization of negative goodwill                                                    (1,373,841)                        -
   Increase in accrued employee benefit                                                    823,122                         -
   Decrease in accrued expenses and other liabilities                                   (1,002,224)                 (345,635)
   Increase in accrued income and other assets                                          (1,038,457)                 (248,126)
                                                                                ------------------           ---------------
Net cash used in operating activities                                                   (2,611,656)               (1,474,689)
                                                                                ------------------           ---------------
Cash flows from investing activities:
   Decrease in loans, net                                                               23,342,614                16,544,206
   Decrease in interest bearing deposits with banks                                      3,181,701                 9,633,192
   Proceed from available-for-sale securities                                            1,929,862                         -
   Investment in subsidiary                                                             (5,000,000)                        -
   Other                                                                                  (291,219)                        -
                                                                                ------------------           ---------------
Net cash provided by investing activities                                               23,162,958                26,177,398
                                                                                ------------------           ---------------
Cash flows from financing activities:
   Decrease in short-term borrowings, net                                               (3,396,026)              (27,139,250)
   Payments on long-term debt                                                          (39,439,906)                4,692,248
   Proceeds from issuance of common stock                                                5,419,980                         -
                                                                                ------------------          ----------------
Net cash used in financing activities                                                  (37,415,952)              (22,447,002)

Effect of exchange rate changes on cash and cash equivalents                               541,849                   (85,907)
                                                                                ------------------          ----------------
Net (decrease) increase in cash and cash equivalents                                   (16,322,801)                2,169,800
Cash and cash equivalents at beginning of period                                        26,118,761                 4,440,734
                                                                                ------------------          ----------------
Cash and cash equivalents at end of period                                           $   9,795,960             $   6,610,534
                                                                                ==================          ================

</TABLE>

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

<PAGE>


                             NEWSTATE HOLDINGS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                 September 1999

NOTE 1:       BASIS OF  PRESENTATION

              The  accompanying  financial  statements  report the  consolidated
accounts  of NewState  Holding,  Inc.  (formerly  Racom  Systems,  Inc.) and its
wholly-owned  subsidiaries,  NSK Holdings, Inc. (a Delaware corporation),  Racom
Systems,  Inc. (a Colorado  corporation)  and its 99.6% owned and newly acquired
subsidiary,  NewState Capital Co., Ltd. (a Korean corporation).  Pursuant to the
acquisition  described in Note 4 below,  the Company has treated the transaction
as a reverse acquisition and, accordingly,  has reported the pro forma effect in
the  1998  financial  statements  in  order  to  achieve  comparability  in  its
operations and cash flows. The Company was incorporated on June 3, 1991 pursuant
to the laws of the State of Delaware and presently  has its principal  executive
offices in Seoul, Korea and New York, New York.

NOTE 2:       UNAUDITED FINANCIAL STATEMENTS

              The  consolidated  financial  statements as of September 30, 1999,
and for the  periods  ended June 30,  1999 and 1998 and  September  30, 1999 and
1998,  included herein are unaudited;  however,  such  information  reflects all
adjustments  consisting  of normal  recurring  adjustments,  which  are,  in the
opinion of management,  necessary for a fair presentation of the information for
such  periods.  The 1998 pro forma  presentation  gives  effect  to the  reverse
acquisition in July 1999, in order to provide  comparability in the presentation
of operations  and cash flows.  In addition,  the results of operations  for the
interim  periods are not  necessarily  indicative  of the results for the entire
fiscal year.  The  accompanying  financial  statements are in condensed form and
should be read in  conjunction  with the  Company's  annual report filed on Form
10-KSB.

NOTE 3:       PROVISION FOR LOAN LOSSES

         Since the  acquisition of NewState  Capital by the Company in which all
loans were marked to market,  the  Company has  established  no  provisions  for
losses.  Loans receivable that management has the intent and ability to hold for
the  foreseeable  future or until  maturity  are  reported at their  outstanding
principal balance,  net of allowance for loan losses, and since the acquisitions
of NewState  Capital,  net of discounts  associated  with the adjusting loans to
estimated market values.

         Any collection  from prior written off loans are recorded in the income
statements   under  the  reversal  of  provision  for  loan  losses.   Based  on
management's experience with new mortgage loans originated, the Company does not
believe  that it is  necessary  to include a  provision  for loan losses at this
time.  However,  this policy may change as management  reviews  future loan loss
experience.

NOTE 4:       STOCK SPLITS

              On March 1, 1999,  the Company  effected a reverse  stock split of
the Company's  common stock on the basis of one share for each four and one-half
(4 1/2) shares. The authorized number of shares was not split.

              On July 12, 1999,  the Company  effected a reverse  stock split of
the  Company's  common  stock on the basis of one share  for each  fifteen  (15)
shares. The authorized number of shares was not split.

              The  outstanding  and weighted  average number of shares of common
stock and per share data in these  financial  statements  have been  adjusted to
reflect the impact of the stock splits for all period presented.

NOTE 5:       ACQUISITION

              On  July  20,  1999,  the  Company  acquired  approximately  99.6%
(4,958,000  shares) of the  issued and  outstanding  capital  stock of  NewState
Capital Co., Ltd., a Korean corporation  ("NewState Capital") which was formerly
a subsidiary of NewState Capital Corp., a New York corporation  ("NewState NY"),
in  exchange  for  issuing  8,000,000  shares  of the  Company's  common  stock,
representing  approximately  80% of the Company's  total issued and  outstanding
shares of common  stock,  to  NewState.  The Company  also  assumed a $5,000,000
liability of NewState NY to a bank. 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.,  a  Delaware  corporation  ("NSK"),   which  is
incorporated  herein by  reference  to the  Company's  Form 8-K  filed  with the
Securities and Exchange Commission  ("Commission") on July 21, 1999. As a result
of the Acquisition  Agreement,  (i) NewState  Capital has become a subsidiary of
NSK,  (ii)  several new  investors  acquired  667,000  shares of the Company for
$1,000,000  ($1.50 per share) pursuant to the terms and conditions of the Common
Stock  Purchase  Agreement  dated July 14, 1999 by and among the Company,  Ocean
Strategic  Holdings  Limited  and  Zebra  Strategic  Holdings  Limited  which is
incorporated  herein by  reference  to the  Company's  Form 8-K  filed  with the
Commission on July 21, 1999,  and (iii) NewState NY owns 80% of the common stock
in the Company.  Accordingly,  following the  consummation  of the  Acquisition,
NewState NY controls the Company.

              The Company  accounted for the  acquisition  as a purchase under a
reverse acquisition procedure whereby NewState Capital's operations and retained
earnings are reported as continuous.

              NewState Capital is a finance company incorporated on February 18,
1994 under the laws of the Republic of Korea to engage in  factoring  commercial
notes  and  accounts  receivables,  and  to  provide  short-term  and  long-term
financing,  including  home mortgage  loans,  to  customers.  On March 12, 1999,
NewState Capital acquired all the outstanding  stock of Youngnam Housing Finance
Co.,  Ltd., a Korean company  providing  financings for the purchase of homes to
middle-income  individuals.  The  acquisition  was  recorded  under the purchase
method of accounting.

NOTE 6:       CERTAIN TRANSACTIONS

              In  July  and  August,  1999,  the  Company  completed  a  private
placement  for the  sales of  1,416,660  shares  of the its  common  stock  with
aggregated proceeds amounting to $4,249,980. The Company utilized these funds to
retire a  portion  of  $5,000,000  liability  assumed  with the  acquisition  of
NewState Capital. The entire $5,000,000 liability was repaid on August 19, 1999.

NOTE 7:       SHORT TERM BORROWINGS

              Short-term   borrowings   at  September   30,  1999  comprise  the
following:

                               Annual Interest       Thousands
                                  Rate (%)              of Won  U.S. Dollars(a)
                             --------------------------------- ----------------
General term borrowings              12.95        W  6,500,000    $   5,793,898
Notes with short-term                10.66          56,250,000       50,139,499
    finance companies
                                             -----------------  ---------------
                                                  W 62,750,000     $ 55,933,397
                                                    ==========        =========

              (a) translated at the rate of W1,128.7:  $1.00, the prevailing Won
to U.S. Dollar exchange rate on September 30, 1999

NOTE 8:       LONG -TERM DEBT

              Long-term debt at September 30, 1999 comprises the following:

                                                     Thousands
                                    Reference           of Won  U.S. Dollars(a)
                                  ----------------------------------------------
Debentures                             (A)        W 33,289,482     $ 29,673,208
Won currency loans                     (B)           6,000,000        5,348,213
                                             ----------------- ----------------
                                                  W 39,289,482     $ 35,021,421
                                                    ==========       ==========

(A) Debentures outstanding at September 30, 1999 comprise the following:

                                     Annual          Thousands
                                    Rates (%)           of Won  U.S. Dollars(a)
                                  ----------------------------------------------
Debentures collateralized
  by bank letter of credit            11.0        W 24,000,000     $ 21,392,853
Non-collateralized debentures       15.5-17.0        9,250,000        8,245,162
                                             ----------------- ----------------
                                                  W 33,250,000     $ 29,673,208
Profit: premium                                         39,482           35,193
                                             -----------------  ---------------
                                                  W 33,289,482     $ 29,673,208
                                                    ==========       ==========

<PAGE>

(B) Won currency loans outstanding at September 30, 1999 comprise the following:

                                     Annual          Thousands
                                    Rates (%)           of Won  U.S. Dollars(a)
                                  ----------------------------------------------
Kukmin Bank                           10.5        W  6,000,000    $   5,348,213
                                             -----------------  ---------------
                                                   W 6,000,000    $   5,348,213
                                                    ==========       ==========

              (a) translated at the rate of W1,128.7:  $1.00, the prevailing Won
to U.S. Dollar exchange rate on September 30, 1999

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS

THE FOLLOWING ANALYSIS OF THE OPERATIONS AND FINANCIAL  CONDITION OF THE COMPANY
SHOULD  BE  READ  IN  CONJUNCTION  WITH  THE  CONDENSED  CONSOLIDATED  FINANCIAL
STATEMENTS,  INCLUDING NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN THIS
FORM 10-QSB.

Overview

The Company was winding down its  operations  during the second half of 1998 and
until July 1999, when it acquired 99.6% of the capital stock of NewState Capital
Co., Ltd., a Korean corporation ("NewState Capital") from NewState Capital Corp.
(NewState NY), a New York corporation.

NewState Capital was formed in February 1994 under the name Dongsuh Finance Co.,
Ltd. The name of the Company was changed to NewState Capital on December 9, 1998
when Dongsuh Horizon Securities Co., Ltd. ("Dongsuh  Securities") sold 3,980,000
shares (99.5%) of the outstanding  common stock of NewState  Capital to NewState
NY.  In   connection   with  the   acquisition,   Dongsuh   Securities   forgave
W13,076,230,000  of short term loan  receivable due from NewState  Capital.  The
negative  goodwill  resulting from the purchase,  and the resulting push down of
NewState NY's basis,  amounted to W8,675,257,000 which is being amortized over 5
years using straight-line method.

On December 9, 1998,  NewState  Capital issued 978,000 shares of common stock to
NewState NY, bringing  NewState NY's ownership of NewState  Capital to 99.6%. On
March 12,  1999,  NewState NY  acquired  all the  outstanding  stock of Youngnam
Housing  Finance  Co.,  Ltd.  ("Youngnam")  for  W19,000,000,000  in  cash.  The
acquisition resulted in negative goodwill of approximately  W7,707,661,000 which
is being amortized over 5 years using straight-line method.

From the period  December 1997 to April 1999,  as a result of the  International
Monetary  Fund  debt  crisis  in Korea  ("IMF  Crisis"),  NewState  Capital  and
Youngnam,  after  its  acquisition  by  NewState  Capital,  suspended  new  loan
originations.  With the  change in  management  in 1999,  NewState  Capital  has
revamped its loan origination  procedures,  increased staffing and enhanced loan
origination and servicing  software.  Consequently,  the accompanying  financial
statements do not reflect the Company's  normal business  activities in a stable
economic environment.

The  Company's  current  business  plan is to expand  its  mortgage  origination
efforts  throughout  Korea,  develop  innovative new mortgage products to Korean
middle-income families and individuals,  and to securitize and sell its mortgage
loan portfolio as mortgage-backed securities. The Company has opened four branch
offices in 1999, which are located in the cities of Taegu, Changwon,  Jinju, and
Pusan, and will continue to expand its presence in other major Korean cities.

Home mortgage loans in Korea,  including those  originated by NewState  Capital,
typically have variable  interest rates and are for terms of 15 years.  There is
no  standard  lending  rate by which  mortgage  interest  rates are  determined;
however,  mortgage lenders,  including NewState Capital,  typically adjust their
interest  rates on a monthly  basis to reflect  the  lender's  on-going  cost of
funding.


COMPARISON OF THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 TO THE THREE MONTH
PERIOD ENDED SEPTEMBER 30, 1998 AND THE THREE MONTHS ENDED JUNE 30, 1999

Interest Income

Interest  income  increased to $4.5 million for the three months ended September
30, 1999 ("Second  Quarter 1999"),  from $3.6 million for the three months ended
June 30, 1999  ("First  Quarter  1999"),  and $3.5  million for the three months
ended  September  30, 1998  ("Second  Quarter  1998").  The increase in interest
income in the Second  Quarter 1999 as compared to the First Quarter 1999 was due
to  increased  loan  originations,  offset by lower  interest  income  from bank
deposits. The increase in interest income in the Second Quarter 1999 as compared
to Second  Quarter  1998 was due to the  acquisition  of Youngnam in April 1999,
offset by a reduction of average mortgage loan rate due to the  stabilization of
the Korean financial  markets after the IMF Crisis.  Excluding the effect of the
Youngnam   acquisition,   the  Company's   total  loan   outstanding   decreased
approximately  $8.6  million in the Second  Quarter  1999 as  compared to Second
Quarter 1998.  This is due to prepayment of mortgage  loans during the first six
months  of 1999  when the  Company  suspended  loan  originations  while the new
management  reviewed and revamped the existing loan underwriting,  servicing and
foreclosure procedures.

Interest income on bank deposits decreased to $0.5 million in the Second Quarter
1999 from $0.9  million in the First  Quarter  1999 due to a decline in cash and
bank  deposits to $13.1  million  from $26.9  million.  This is due to increased
originations  in the Second  Quarter 1999 as compared to the First Quarter 1999.
Total mortgage originations increased to $7.2 million in the Second Quarter 1999
as compared to $0.7  million in the First  Quarter of 1999.  Interest  income on
bank deposits  increased by $0.3 million in the Second  Quarter 1999 from Second
Quarter 1998 due to the acquisition of Youngnam.

Interest Expenses

Total interest expense decreased to $2.7 million in the Second Quarter 1999 from
$3.5 million in the First Quarter 1999 due to lower outstanding borrowings.  The
Company  utilized funds from early loan repayments to reduce total borrowings to
$83.7 million at the end of Second  Quarter 1999 from $111.8  million at the end
of the First Quarter 1999. Total interest  expense  decreased by $1.3 million in
the Second  Quarter 1999 as compared to Second Quarter 1998 due to a lowering of
the average cost of borrowings from 16.3% to 10.8% annual interest rate,  offset
by borrowings assumed with the acquisition of Youngnam.

Net Interest Income

Net interest  income  increased  to $1.7  million in the Second  Quarter 1999 as
compared to $30,407 in the First  Quarter 1999 and an expense of $525,301 in the
Second  Quarter  1998.  The increase in net  interest  income was due to (i) the
Youngnam  acquisition which provided  additional  interest income and (ii) lower
interest  expenses  resulting  from lower  borrowings and borrowing  costs,  and
offset by (i) lower  interest  rate on  outstanding  loans and (ii) lower  loans
outstanding resulting from prepayments.

Reversal of Provision For Loan Losses

Reversal of  provision  for loan losses  increased to $0.7 million in the Second
Quarter 1999 from a negative  $3,474 in First Quarter 1999 and $98,695 in Second
Quarter 1998 due to  collection of accrued  interest and  principal  receivables
previously written off.

Total Operating Expenses

Total  operating  expenses were $2.3 million in the Second Quarter 1999 compared
to $1.7 million in the First Quarter 1999 and $0.3 million in the Second Quarter
1998. The increase  during Second Quarter 1999 as compared to First Quarter 1999
was primarily  attributed to an increase in employee benefits,  from $138,253 to
$684,869,  due to  accrued  service  and  commission  payments  for the  private
placement of common  stock of the Company in July and August 1999.  The increase
during  Second  Quarter 1999 as compared to Second  Quarter  1998 was  primarily
attributed  to an  increase  in  salaries,  employee  benefits,  and general and
administrative   expense  due  to  increased   staffing  and  office  expansions
associated  with the resumption of normal  operations  during the Second Quarter
1999.

Salaries and Employee Benefits

Salaries  decreased to $568,083 in the Second  Quarter 1999 compared to $889,469
in the First  Quarter  1999 due to a reduction  in base salary for  salespersons
after the initial training period of approximately three months. The Company has
increased  staffing  during  the  First  Quarter  1999 in  connection  with  the
resumption of normal  operations.  Salaries increased 460% in the Second Quarter
1999 from $125,231 in the Second Quarter 1998 due to the acquisition of Youngnam
and an increase of personnel to 66 from 22.

Employee  benefits are accrued for employees  and  directors  with more than one
year of service and are based on their annual compensation and years of service.
There were no employee  benefits  accrued  during the Second Quarter 1998 due to
the  termination  of most employees  during 1998,  resulting in no employee with
more than one-year of service during Second Quarter 1998.

Amortization of Negative Goodwill

Negative  goodwill  totaling  approximately  $11.5  million  resulting  from the
acquisition  of NewState  Capital in December 1998 and Youngnam in March 1999 is
being amortized at rate of approximately  $690,000, at the current Won:US Dollar
exchange rate,  each quarter over a 5 year period.  There was no amortization of
negative goodwill in the Second Quarter 1998.

Other Income

Other income  increased to $131,119 in the Second  Quarter 1999 from $203,893 in
the First Quarter 1999 and a loss of $15,290 in the Second  Quarter 1998.  Other
income  consists  primarily of fees from collection of loan losses and financial
service commissions.

<PAGE>

Write-down of Accrued Liabilities

In connection with the Company's  acquisition of NewState  Capital in July 1999,
the  majority  of the  Company's  creditors  agreed to  forgive a portion of the
accounts  payable  owed to each  creditor.  Approximately  $226,000  in accounts
payable were forgiven in Second Quarter 1999.

Net Income

The Company  recorded a net income of $836,510 or $0.07 per share for the Second
Quarter 1999 compared to a net loss of $920,339 or $0.10 per share for the First
Quarter  1999.  The  increase  in net income was  primarily  attributable  to an
increase in net interest income and reversal of provision for loan losses in the
Second Quarter 1999. This was offset by higher employee benefits expense.

Similarly,  compared to a net loss of $748,414 in the Second  Quarter 1998,  the
increase in net income was primarily attributable to an increase in net interest
income,  reversal of provision  for loan losses,  and  amortization  of negative
goodwill.  This was  offset by higher  operating  expenses  associated  with the
resumption of normal business operations.



<PAGE>


COMPARISON  OF THE SIX MONTH  PERIOD ENDED  SEPTEMBER  30, 1999 TO THE SIX MONTH
PERIOD ENDED SEPTEMBER 30, 1998

Interest Income

Interest income increased to $8.1 million for the six months ended September 30,
1999 ("Interim 1999"), approximately the same for six months ended September 30,
1998("Interim  1998").  The  acquisition  of Youngnam added  approximately  $3.2
million  in  interest  income  to  Interim  1999.  Excluding  the  effect of the
acquisition,  interest income declined by  approximately  47% to $4.3 million in
Interim 1999 as compared to Interim  1998.  The  decrease in interest  income in
Interim  1999 is  primarily  due to a  reduction  in  average  interest  rate on
outstanding mortgage loans and bank deposits resulting from the stabilization of
the Korean financial  markets in 1999 following the IMF Crisis.  Interest income
on bank deposits  increased to $1.4 million in Interim 1999 from $1.0 million in
Interim  1998  as a  result  of the  Youngnam  acquisition.  Excluding  Youngnam
acquisition,  interest income on bank deposits  decreased by approximately  $0.3
million in Interim  1999 as compared  to Interim  1998 due to a decrease in bank
deposits and bank deposit rate.

Interest Expenses

Total  interest  expenses  decreased  to $6.4 million for Interim 1999 from $8.4
million in Interim  1998.  Excluding the effect of Youngnam  acquisition,  total
interest  expenses  in  Interim  1999 was $4.0  million,  a decline  of 52% from
Interim 1998. The decrease in interest  expenses was primarily  attributable  to
lower borrowing costs following the IMF Crisis and lower outstanding  borrowings
resulting from the applying loan prepayments to long-term debt retirement.

Net Interest Income

Net interest income increased to $1.7 million in Interim 1999 from an expense of
$246,000 in Interim 1998. The increase in net interest income was due to (i) the
Youngnam  acquisition which provided  additional  interest income and (ii) lower
interest  expenses  resulting  from lower  borrowings and borrowing  costs,  and
offset by (i) lower  interest  rate on  outstanding  loans and (ii) lower  loans
outstanding resulting from prepayments.

Reversal of Provision For Loan Losses

Reversal of provision for loan losses  increased to $0.7 million in Interim 1999
from a  negative  $0.1  million  in Interim  1999 due to  collection  of accrued
interest and principal receivables previously written off.

Total Operating Expenses

Total operating  expenses were $4.0 million in Interim 1999 compared to $542,022
in Interim 1998. The increase in operating expenses was primarily  attributed to
an  increase  in  salaries,  general and  administrative  expense  and  employee
benefits,  and commission  payments for the private placement of common stock of
the Company in July and August  1999.  The  increase in salaries and general and
administrative  expenses  are due to increased  staffing  and office  expansions
associated with the resumption of normal operations during Interim 1999.

Salaries and Employee Benefits

Salaries  increased  to $1.5  million in Interim  1999  compared  to $224,347 in
Interim 1998 due to the  acquisition of Youngnam and an increase of personnel to
66 from 22.

Employee  benefits  increased  to  $823,122 in Interim  1999  compared to nil in
Interim 1998.  Employee  benefits are accrued for  employees and directors  with
more than one year of service  and are based on their  annual  compensation  and
years of service.  There were no employee  benefits  accrued during Interim 1998
due to the termination of most employees during 1998, resulting no employee with
more than one-year service during Interim 1998.

Amortization of Negative Goodwill

Negative  goodwill  totaling  approximately  $11.5  million  resulting  from the
acquisition  of NewState  Capital in December 1998 and Youngnam in March 1999 is
being amortized at rate of approximately  $690,000, at the current Won:US Dollar
exchange rate,  each quarter over a 5 year period.  There was no amortization of
negative goodwill in Interim 1998.

Other Income

Other  income  increased to $339,0121 in Interim 1999 from a loss of $139,199 in
Interim 1998.  Other income consists  primarily of collection of loan losses and
financial service commissions.

Write-down of Accrued Liabilities

In connection with the Company's  acquisition of NewState  Capital in July 1999,
the  majority  of the  Company's  creditors  agreed to  forgive a portion of the
accounts  payable  owed to each  creditor.  Approximately  $226,000  in accounts
payable were forgiven in Interim 1999.

Net Income

The Company  recorded a net loss of $83,830 or $0.01 per share for Interim  1999
compared to a net loss of $1,030,729  or $0.11 per share for Interim  1998.  The
decrease  in net loss  was  primarily  attributable  to (i) an  increase  in net
interest  income,   (ii)  reversal  of  provision  for  loan  losses  and  (iii)
amortization of negative goodwill.  This was offset by higher operating expenses
associated with the resumption of normal operations in Interim 1999.

LIQUIDITY AND CAPITAL RESOURCES

At  September  30,  1999,  the  Company  had  cash  and  cash   equivalents  and
interesting-bearing deposits totaling $13.2 million compared to $32.5 million at
March 31,  1999.  For the six months  ended  September  30,  1999,  cash used in
operating  activities  of $2.6  million  was due to (i) the net loss of $83,830,
(ii)  amortization  of negative  goodwill  of $1.4  million,  (iii)  decrease in
accrued  expenses of $1.0 million,  and (iv) increase in accrued  income of $1.0
million.

Cash provided by investing activities was $23.2 million was primarily due to (i)
repayment of loans outstanding of $23.3 million,  (ii) decrease in bank deposits
of $3.2 million and (iii) sales of  securities  of $1.9  million,  offset by the
repayment  of $5 million  liability  assumed  with the  reverse  acquisition  of
NewState Capital.

For  Interim  1999,  cash used in  financing  activities  of $37.4.  million was
primarily  due to (i) decrease in short-term  borrowings  of $3.4 million,  (ii)
repayment of long-term  debt of $39.4  million and (iii)  private  placements of
shares of common stock in the  aggregated  amount of $5.4  million.  The Company
will require additional capital to continue its operations.  The Company intends
to secure  additional  capital by issuing  corporate bonds,  pledging assets for
bank  borrowings,  and issuing  mortgage-back  securities.  The Company may also
issue additional equity or convertible debt securities,  if required,  which may
result in  additional  dilution to the holders of the  Company's  common  stock.
There can be no assurance that  additional  financing will be available on terms
and conditions acceptable to the Company, if available at all.

YEAR 2000 DISCLOSURE

The Year 2000 issue  exists  because  many  computer  systems  and  applications
currently use  two-digit  fields to designate a year. As the century date change
occurs,  date-sensitive  systems will recognize the year 2000 as 1900, or not at
all.  This  inability  to  recognize  or properly  treat the Year 2000 may cause
systems to process critical financial and operational  information  incorrectly.
The Company has  completed  an internal  study to  determine  the full scope and
related costs to insure that the Company's systems continue to meet its internal
needs and those of its  customers.  The results of the internal  study  indicate
that its products are not affected by the Year 2000 issue.  As of September  30,
1999,  the major  systems  utilized by the Company is its personal  computer and
mini-computer  systems.  The Company  does not believe  that the Year 2000 issue
will have a material effect on these two systems.

The Company  believes  that there is greater risk that its vendors and customers
will be  affected by the Year 2000 issue.  The  Company is  currently  unable to
assess,  and may be unable to  accurately  determine,  the magnitude of any Year
2000  problems  that may reside in the computer and  information  systems of its
vendors and  customers,  or the impact that any such problems  could have on the
products and services provided by the Company to such customers.

The Company  believes,  based upon the progress to date,  that its suppliers and
customers  are either Year 2000  compliant,  or are  themselves in an assessment
phase.  However,  there  can be no  assurance  that  all such  problems  will be
resolved.  The  occurrence  of Year 2000  related  failures in the  computer and
information  systems of any of the  Company's  significant  customers or vendors
could have a material adverse effect on the business,  results of operations and
financial position of the Company.


<PAGE>


PART II.      Other Information

Item 1.       Legal Proceedings
              ----------------------
              None

Item 2.       Changes in Securities and Use of Proceeds
              ----------------------------------------------------

              On July 26, 1999,  the Company issued 874,750 shares of its common
stock,  $0.01 par value per share,  at a price of $3.00 per  share,  to four (4)
Korean  individuals  and one  (1)  Korean  corporate  investor,  pursuant  to an
exemption  from  registration  under the Securities Act provided by Section 4(2)
thereunder and Regulation S. Proceeds of the offering,  aggregating  $2,624,250,
were used for the payment of outstanding  liabilities  and for general  overhead
expenses.

              On August 20,  1999,  the  Company  issued  541,910  shares of its
common stock, $0.01 par value per share, at a price of $3.00 per share, to eight
(8) Korean  individuals,  pursuant to an exemption from  registration  under the
Securities Act provided by Section 4(2) thereunder and Regulation S. Proceeds of
the offering,  aggregating $1,625,730,  were used for the payment of outstanding
liabilities and for general overhead expenses.

Item 3.       Defaults Upon Senior Securities
              --------------------------------------
              None

Item 4.       Submission of Matters to a Vote of Security Holders
              ---------------------------------------------------------------
              A Special Meeting of  Stockholders  was held on July 12, 1999. The
following proposal was approved by the stockholders.

              Proposal #1 - To amend the Company's  Certificate of Incorporation
to reverse split the  Company's  common stock on the basis of one share for each
fifteen shares outstanding.

      FOR                                AGAINST                   ABSTAIN
      -----                              ------------              -------------
      17,084,741                         95,643                     2,347

Item 5.       Other Information
              ----------------------
              None

Item 6.       Exhibits and Reports on Form 8-K
              -----------------------------------------

(a)      Exhibits:

                           27       Financial Data Schedule

(b)      Reports on Form 8-K

                           * Form  8-K  Filed  July  21,  1999  - - The  Company
announced that it 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 its common stock, representing approximately 80%
of its 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 - - The Company
amended  its  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., a recently acquired Korean subsidiary in a reverse  acquisition.  The
Company also announced that effective September 15, 1999 the Company changed its
name to NewState Holdings, Inc. and that at the opening of business on September
17, 1999 the Company's new OTC Bulletin Board symbol was "NSTH".

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

<PAGE>

                                   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 hereunto duly authorized.

                                    NEWSTATE HOLDINGS, INC.

                                        ALEXANDER T. SHANG
                                    By: _________________________________
                                        Alexander T. Shang, Treasurer and
                                            Chief Financial Officer