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, 2000

                                       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)

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

                                 (212) 245-5801
                              --------------------
                         (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 the 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 29, 2000:

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

Common Stock, .01 par value                       11,508,684


<PAGE>

<TABLE>
<CAPTION>

                                      INDEX
<S>               <C>                                                                        <C>
Part I            Financial Information                                                      Page

                    Item 1.         Condensed Balance Sheet as of                               4
                                    September 30, 2000

                                    Condensed Statements of Operations                          5
                                    for the three month periods ended
                                    September 30, 2000 and September 30, 1999,
                                    and the Six month periods ended
                                    September 30, 2000 and September 30, 1999

                                    Condensed Statements of Cash Flows                          6
                                    for the six months ended September 30, 2000
                                    and September 30, 1999

                                    Notes to Condensed Financial Statements                     8

                    Item 2.         Management's Discussion and Analysis of                    11
                                    Financial Condition and Results of Operations

Part II           Other Information and Signatures                                             15

</TABLE>


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>

PART I            Financial Information

Item 1.           Financial Statements

<TABLE>
<CAPTION>

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

                                                                September 30, 2000
ASSETS                                                          ------------------
<S>                                                                 <C>
Cash and cash equivalents                                           $   372,675
Interest-bearing deposits with banks                                 15,809,281
Securities available for sale                                         1,697,817
Securities held to maturity                                              24,261
Loans held for investment                                             5,234,777
Loans held for sale                                                  12,940,755
Subordinated certificates                                             7,643,874
Premises and equipment, net                                             285,220
Building and land                                                     3,222,738
Accrued interest receivable                                           1,325,800
Other assets                                                          6,032,039
                                                                   -------------
       Total assets                                                $ 54,589,237
                                                                   =============
LIABILITIES AND SHAREHOLDERS' EQUITY

Short-term borrowings                                              $ 20,134,529
Accrued expenses and other liabilities                                  895,484
Long-term debt                                                       35,022,277
Severance and retirement benefits                                        91,120
Negative goodwill                                                     9,382,529
                                                                   -------------
      Total liabilities                                              65,525,939

Minority interest                                                       (37,130)
Shareholders' equity:
     Common stock: $.01 par value
                   40,000,000 shares authorized;                      5,682,480
                   11,508,684 shares issued and outstanding
Accumulated deficit                                                 (14,885,001)
Accumulated other comprehensive income                               (1,888,920)
Foreign currency translation adjustments                                191,869
                                                                   -------------
      Total shareholders' equity                                    (10,899,572)
                                                                   -------------
      Total liabilities and shareholders' equity                   $ 54,589,237
                                                                   =============

</TABLE>
                 See accompanying notes to financial statements.

<PAGE>

<TABLE>
<CAPTION>
                             NEWSTATE HOLDINGS, INC.
                         (FORMERLY RACOM SYSTEMS, INC.)
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

                                           Three Months ended                  Six Months ended
                                    September 30,  September 30,        September 30,   September 30,
                                       2000            1999                2000            1999
                                       ----            ----                ----            ----
<S>                                  <C>             <C>                 <C>            <C>
Interest income:
  Loans                              $1,028,342      $3,975,628          $2,329,555     $ 6,703,119
  Deposits with banks                   589,635         510,165             827,597       1,424,269
                                     ----------      ----------          ----------     -----------
      Total interest income           1,617,977       4,485,793           3,157,152       8,127,388
                                     ----------      ----------          ----------     -----------
Interest expense:
  Short-term borrowings                 765,745       1,363,506           1,685,357       2,979,986
  Long-term debt                        807,370       1,427,697           1,125,551       3,422,405
                                     ----------      ----------          ----------     -----------
      Total interest expense          1,573,115       2,791,203           2,810,908       6,402,391
                                     ----------      ----------          ----------     -----------
Net interest income                      44,862       1,694,590             346,244       1,724,997
Reversal of provision for loan
  losses                                529,391         688,795             513,219         685,321
                                     ----------      ----------          ----------     -----------
Net interest income after reversal
 of provision for loan losses           574,253       2,383,385             859,463       2,410,318

Other income and expense:
  Salaries                             (468,253)       (568,083)           (985,189)     (1,457,552)
  General and administrative           (998,902)     (1,001,773)         (1,436,523)     (1,720,777)
  Employee benefits                    (140,230)       (684,869)           (140,280)       (823,122)
  Amortization of negative goodwill     666,953         690,403           1,334,433       1,373,841
  Other income (expense), net           222,332         135,119             222,250        339,012
                                     ----------      ----------          ----------     -----------
                                       (718,100)     (1,429,203)         (1,005,309)     (2,288,598)
Income (loss) before
      provision for income taxes       (143,847)        954,182            (145,846)        121,720
Provision for income taxes                    0        (116,941)                  0        (213,481)
Minority interest                         5,147            (731)              7,752           7,931
                                     ----------      ----------          ----------     -----------
Net income (loss)                      (138,700)        836,510            (138,094)        (83,830)
                                     ==========      ==========           =========     ===========
Net income (loss)
      per share of common stock      $    (0.01)          $0.07           $   (0.01)      $   (0.01)
                                     ==========      ==========          ==========     ===========
Average shares outstanding           11,508,642      11,235,505          11,508,642      10,283,994
                                     ==========      ==========          ==========     ===========
</TABLE>

                 See accompanying notes to financial statements.
<PAGE>


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

<TABLE>
<CAPTION>

                                                                                        For the six months ended
                                                                                September 30,              September 30,
                                                                                     2000                      1999
                                                                             ---------------------      ---------------------
<S>                                                                                <C>                            <C>
Cash flows from operating activities:
    Net Loss                                                                       $     (138,094)                $   (83,830)
    Adjustment to reconcile net loss to net cash
        used in operating activities:
        Minorities interest                                                                (7,753)                     (7,931)
        Reversal of provision for loan loss                                              (357,471)                          -
        Depreciation and amortization                                                      91,942                      71,505
        Amortization of negative goodwill                                              (1,334,433)                 (1,373,841)
        Loss on disposal of available-for-sale securities                                 134,723                           -
        Increase in accrued employee benefits                                              70,803                     823,132
        Gain on valuation of subordinated certificates                                   (520,642)                          -
        Increase in accrued expenses and other liabilities                             (1,895,649)                 (1,002,224)
        Increase in accrued interest receivable and other assets                         (317,189)                 (1,038,427)
                                                                                   -----------------          ----------------
    Net cash used in operating activities                                              (4,273,763)                 (2,611,656)
                                                                                   -----------------          ----------------
    Cash flows from investing activities:
        Decrease in loans, net                                                          8,391,538                  23,342,614
        Decrease in interest bearing deposits with banks                              (11,625,761)                  3,181,701
        Proceeds from available for-sale securities                                       587,947                   1,929,862
        Investment in subsidiary                                                                -                  (5,000,000)
        Purchase of available-for-sale securities                                      (1,649,718)                          -
        Acquisition of premises and equipment                                          (3,548,155)                          -
        Other                                                                              25,786                    (291,219)
                                                                                   -----------------          ----------------
    Net cash provided by (used in) investing activities                                (7,818,363)                 23,163,958
                                                                                   -----------------          ----------------
    Cash flows from financing activities:
        Decrease in short-term borrowings, net                                         (9,728,024)                 (3,396,026)
        Proceeds from long-term debt                                                   28,606,336                           -
        Payments on long-term debt                                                     (6,944,691)                (39,439,906)
        Proceeds from issuance of common stock                                            170,000                   5,419,980
                                                                                   ----------------           ----------------
    Net cash provided by (used in) financing activities                                12,103,621                 (37,415,952)
    Effect of exchange rate changes on cash and cash equivalents                              634                     541,849
                                                                                   ----------------           ----------------
    Net increase (decrease) in cash and cash equivalents                                   12,129                 (16,322,801)
    Cash and cash equivalents at beginning of period                                      360,546                  26,118,761
                                                                                   ----------------           ----------------
    Cash and cash equivalents at end of period                                        $   372,675               $   9,795,960
                                                                                   ==============             ===============

</TABLE>

                 See accompanying notes to financial statements.
<PAGE>




                             NEWSTATE HOLDINGS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                 September 2000

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 subsidiary,  NewState
Capital Co., Ltd. (a Korean corporation).  Pursuant to the acquisition described
in  Note  3  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, 2000,
and for the  periods  ended June 30,  2000 and 1999 and  September  30, 2000 and
2000,  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 1999 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:  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.

<PAGE>

NOTE 4:  LOANS

          Loans held for  investment  at  September  30, 2000 are as follows (in
thousands of Won):

<TABLE>
<CAPTION>

                                               Allowance for        Net Book
                             Principal          loan losses           Value     U.S. Dollars(a)
                            -------------     --------------      ------------ ----------------
<S>                          <C>                <C>                <C>            <C>
Loans held for investment    W14,341,216        W8,504,440         W5,836,776     $5,234,777

</TABLE>

     Loans  held  for   investment   consist  of   residential   mortgage  loans
(approximately  80%) and commercial and consumer  loans  (approximately  20%) at
September 30, 2000.

     (a) translated at the rate of W1,115.0 : $1.00,  the prevailing Won to U.S.
Dollar exchange rate on September 30, 2000

NOTE 5:  SHORT TERM BORROWINGS

          Short-term borrowings at September 30, 2000 comprise the following:

                    Annual Interest        Thousands
                       Rate (%)              of Won          U.S. Dollars (a)
                   -------------------  ----------------    ------------------
Finance companies   9.29 ~ 12.7           W22,450,000          $20,134,529

     (a) translated at the rate of W1,115.0:  $1.00,  the prevailing Won to U.S.
Dollar exchange rate on September 30, 2000


NOTE 6:           LONG-TERM DEBT

          Long-term debt at September 30, 2000 comprise the following:


                                 Thousands
Reference                          of Won          U.S. Dollars
------------                ------------------   --------------------
Debentures             (A)      W32,649,839          $29,282,367
Won currency loans     (B)       W6,400,000           $5,739,910
                            ------------------   --------------------
                                W39,049,839          $35,022,277
                            ==================   ====================

           (A)  Debentures  outstanding  at  September  30,  2000  comprise  the
following:

<TABLE>
<CAPTION>

                                                  Annual         Thousands
                                                  Rates(%)         of Won        U.S. Dollars(a)
                                               -------------    --------------- -----------------
      <S>                                       <C>               <C>               <C>
         Debentures collateralized
         by bank letter of credit                   9.7              W495,013          $443,958
      Non-collateralized debentures             10.5/11.035       W32,154,826       $28,838,409
                                                -----------        ----------       -----------
                                                                  W32,649,839       $29,282,367

</TABLE>

     (a) translated at the rate of W1,115.0 : $1.00,  the prevailing Won to U.S.
Dollar exchange rate on September 30, 2000

<PAGE>

     (B) Won  currency  loans  outstanding  at September  30, 2000  comprise the
following:

<TABLE>
<CAPTION>

                                                  Annual          Thousands
                                                  Rates(%)          of Won         U.S. Dollars(a)
                                              --------------     --------------    -----------------
            <S>                                <C>                <C>                <C>
            Won currency loans                 10.25 ~ 14.5       W6,400,000         $5,739,910
                                              --------------     --------------    -----------------
                                                                  W6,400,000         $5,739,910
                                                                 ==============    =================

</TABLE>

     (a) translated at the rate of W1,115.0:  $1.00,  the prevailing Won to U.S.
Dollar exchange rate on September 30, 2000

<PAGE>

Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS

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

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

On July 31, 2000, NewState Capital Co., Ltd. ("NewState Capital"), the Company's
Korean  operating  subsidiary,   successfully  issued  corporate  bonds  in  the
principal  amount of 30 billion Won (US$27  million).  The bonds  issued had two
different  maturities,  1.5 years and 2 years,  in the amount of 15 billion  Won
(approximately   US$14  million)  each  and  have  been  incorporated  into  the
underlying   assets  backing  a  1.5  trillion  Won  (US$1.4   billion)   pooled
collateralized  bond  obligation  ("CBO") issue  underwritten by LG Investment &
Securities Co., Ltd.

On September 28, 2000,  NewState  Holdings,  Inc, entered into an agreement with
Korea First Bank in which NewState Capital will originate mortgages on behalf of
the bank. Korea First Bank is one of the leading  commercial banks in Korea with
292 branches  and 42  sub-branches  and has total assets of $22.8  billion as of
year end 1999.

NewState Capital  restructured its origination  activities on August 10, 2000 to
focus  on the  issuance  of  Mortgage  Backed  Securities  ("MBS")  which is the
Company's  primary financing  strategy.  NewState Capital has increased its loan
origination  capability with the opening of three additional  branches in Seoul.
The Company's top three sales  performers  were appointed as branch managers for
the new branches.  This is just one of Company's  implementations  to expand its
mortgage  origination  efforts throughout Korea and develop and offer innovative
new mortgage products.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED  SEPTEMBER 30, 2000 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1999

INTEREST INCOME

Interest  income on loans  decreased  74.1% to $1.0 million for the three months
ended September 30, 2000 ("Second Quarter 2000") from $4.0 million for the three
months  ended  September  30, 1999  ("Second  Quarter  1999").  The  decrease in
interest  income  was  due  to a  decrease  in  outstanding  mortgage  loans  by
approximately $57.7 million, compared to the outstanding balance as of September
30, 1999.  The reason for the decrease in mortgage loans was the issuance of MBS
and loan repayments.  Interest income on bank deposits  increased to $589,635 in
the Second  Quarter  2000 from  $510,165  in the Second  Quarter  1999 due to an
increase  in cash and  bank  deposits  to  $16.2  million  from  $13.1  million,
respectively.

INTEREST EXPENSE

Total  interest  expenses  decreased to $1.6 million in the Second  Quarter 2000
from  $2.8  million  in  the  Second  Quarter  1999  due  to  lower  outstanding
borrowings.  The outstanding  borrowings  reduced to $55.2 million at the end of
the Second  Quarter  2000,  compared  to $83.7  million at the end of the Second
Quarter 1999.  This  reduction in interest  expense was  partially  offset by an
increase in borrowing costs.

NET INTEREST INCOME

Net interest  income  decreased to $44,862 for the Second Quarter 2000 from $1.7
million for the Second  Quarter  1999.  The  decrease  was due to a  substantial
reduction in mortgage loan outstanding balances and increase in borrowing costs.

REVERSAL OF PROVISION FOR LOAN LOSSES

Reversal of  provision  for loan losses in the Second  Quarter 2000 and 1999 was
due to  collections  of accrued  interest and mortgage  loan  principal on loans
previously written off.

SALARIES

Salaries  decreased to $468,253 in the Second  Quarter 2000 compared to $568,083
in the  Second  Quarter  1999  due to a  decrease  in  employees  from 66 to 43,
respectively.

GENERAL AND ADMINISTRATIVE ("G&A")

G&A was virtually  unchanged at $998,902 during the Second Quarter 2000 compared
to $1,001,773 during the Second Quarter 1999. There were one-time consulting and
professional  service fees incurred with respect to the  acquisition of NewState
Capital in the Second  Quarter  1999.  The  Company  had  increased  advertising
expenses in the Second Quarter 2000.

EMPLOYEE BENEFITS

Employee benefits decreased to $140,230 in the Second Quarter 2000 from $684,869
in the Second Quarter 1999 due to a decrease in number of employees,  especially
qualified employees as described below.

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.

AMORTIZATION OF NEGATIVE GOODWILL

Negative goodwill, which represents the excess of fair value over purchase price
of net assets  acquired,  is being amortized on the  straight-line  basis over 5
years. The net amount of negative  goodwill  amortization for the Second Quarter
2000 was $666,953.

OTHER INCOME (EXPENSE), NET

Other income  increased  $222,332 in the Second  Quarter 2000 from the income of
$135,119 in the Second Quarter 1999.  For the Second Quarter 2000,  other income
included an unrealized gain on valuation of subordinated  certificates  retained
by the Company after the issuance of MBS.

NET INCOME (LOSS)

The  Company  recorded a net loss of  $138,700 or $0.01 per share for the Second
Quarter  2000  compared  to a net income of  $836,510 or $0.07 per share for the
Second Quarter 1999. The decrease in net income was principally  attributable to
a decrease in net interest  income  resulting  from lower mortgage loan balances
outstanding and higher borrowing costs.

RESULTS OF  OPERATIONS  FOR THE SIX MONTHS ENDED  SEPTEMBER 30, 2000 COMPARED TO
THE SIX MONTHS ENDED SEPTEMBER 30, 1999

INTEREST INCOME

Interest income decreased to $2.3 million for the six months ended September 30,
2000 ("Interim  2000") from $6.7 million for the six months ended September 1999
("Interim 1999").  The decrease in interest income in Interim 2000 was primarily
due to a reduction in  outstanding  mortgage  loans to $18.2  million from $75.9
million in Interim  1999.  The  decrease in loans was a result of an issuance of
MBS and maturing  outstanding  mortgage loans.  Interest income on bank deposits
decreased to $827,597 in Interim 2000 from $1.4 million in Interim 1999 due to a
reduced  outstanding  average  balance of  interest-bearing  deposits with banks
during Interim 2000.

INTEREST EXPENSE

Total  interest  expense  decreased  to $2.8  million in Interim  2000 from $6.4
million  in  Interim  1999  due to the  Company's  reduction  in  borrowings  as
described above.

NET INTEREST INCOME

Net interest income decreased to $346,244 for Interim 2000 from $1.7 million for
Interim 1999 due to decreased  mortgage  loans, a decrease in the Company's debt
and increased borrowing costs.

REVERSAL OF (ADDITION TO) PROVISION FOR LOAN LOSSES

Based on management's analysis of the adequacy of the allowance for loan losses,
provisions  for loan losses of $513,219 and $685,321 in Interim 2000 and Interim
1999, respectively,  were reversed. The reversals were primarily attributable to
recoveries which increased the allowance to levels higher than required based on
the Company's loan portfolio at those dates.

SALARIES

Salaries  decreased to $1.0 million in Interim 2000 from $1.5 million in Interim
1999 due to a decrease in employees.

GENERAL AND ADMINISTRATIVE ("G&A")

The amount of G&A decreased to $1.4 million in Interim 2000 from $1.7 million in
Interim 1999 due primarily to one-time consulting and professional  service fees
incurred with respect to the acquisition of NewState Capital in Interim 1999.

EMPLOYEE BENEFITS

Employee benefits decreased to $140,280 in Interim 2000 from $823,122 in Interim
1999.  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.  The  decrease in employee  benefits was due to a decrease in number of
employees, especially those employees who were qualified employees.

AMORTIZATION OF NEGATIVE GOODWILL

Negative goodwill, which represents the excess of fair value over purchase price
of net assets  acquired,  is being amortized on the  straight-line  basis over 5
years.  The net amount of negative  goodwill  amortization  for Interim 2000 was
$1.3 million.

OTHER INCOME (EXPENSE), NET

Other  income  increased  to $222,250 in Interim  2000 from  $339,012 in Interim
1999.

NET INCOME (LOSS)

The Company  recorded a net loss of $138,094 or $0.01 per share for Interim 2000
as compared to a net loss of $83,830 or $0.01 per share for  Interim  1999.  The
increase  in net loss  was  primarily attributable to decreased mortgage  loans,
decreased debt and increased borrowing costs.


LIQUIDITY AND CAPITAL RESOURCES

At  September  30,  2000,  the  Company  had  cash  and  cash   equivalents  and
interest-bearing  deposits  totaling  $16.2 million  compared to $4.6 million at
March 31,  2000.  For the six months  ended  September  30,  2000,  cash used in
operating  activities  of $4.3 million was  primarily due to (i) the net loss of
$138,094,  (ii)  increase  in  accrued  expenses  of  $1.9  million,  and  (iii)
amortization of negative goodwill of $1.3 million.

For the six months ended September 30, 2000,  cash used in investing  activities
was $7.8 million and was  primarily  due to (i) an increase in  interest-bearing
deposits with banks of $11.6 million, (ii) acquisition of premises and equipment
of $3.5 million, and (iii) a decrease in loans of $8.4 million.

For the six  months  ended  September  30,  2000,  cash  provided  by  financing
activities  of $12.1  million was  primarily  attributable  to the proceeds from
long-term debt of $28.6 million, offset by net payments on short-term borrowings
and   long-term   debt  in  the  amounts  of  $9.7  million  and  $6.9  million,
respectively.  The Company will require capital to continue its operations.  The
Company  intends  to secure  additional  capital  by  issuing  corporate  bonds,
pledging assets for bank borrowings, and issuing mortgage-backed 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.

<PAGE>

PART II.      Other Information

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

Item 2.       Changes in Securities and Use of Proceeds
              ----------------------------------------------------
              None.

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

Item 4.       Submission of Matters to a Vote of Security Holders
              ---------------------------------------------------------------
              None.

Item 5.       Other Information
              ----------------------

         On July 31, 2000,  NewState  Capital Co.,  Ltd.,  the Company's  Korean
operating  subsidiary,  successfully  issued  corporate  bonds in the  principal
amount of 30 billion Won (US$27  million).  The bonds  issued had two  different
maturities,  1.5  years and 2 years,  in the  amount of 15  billion  Won  (US$14
million) each and have been  incorporated  into the underlying  assets backing a
1.5 trillion Won (US$1.4 billion) pooled  collateralized bond obligation ("CBO")
issue underwritten by LG Investment & Securities Co., Ltd.

     LG Investment & Securities  Co., Ltd., the lead manager in issuing the CBO,
is one of the largest  securities  firms in Korea with over 7.3  trillion Won in
total  assets and over 2,500  employees  in 99 domestic  branches and 5 branches
overseas.

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

(a)      Exhibits:

                           27       Financial Data Schedule

(b)      Reports on Form 8-K

                           None.



<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.

                                          ERNEST B. KIM
                                      By: __________________________________
                                          Ernest B. Kim, Chairman, President
                                          and Chief Executive Officer