SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-KSB
(Mark One)
[_X_] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended: March 31, 2000
OR
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____ to _____
Commission file number 0-21907
NEWSTATE HOLDINGS, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 84-1182875
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
156 West 56th Street, Suite 2005
New York, New York 10019
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(Address of Principal Executive Offices) (Zip Code)
(212) 245-5801
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
[_X_] Yes [___] No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_X_]
The registrant's revenues as of March 31, 2000 was $_____________.
The aggregate market value of the common stock of the registrant held
by non-affiliates as of June 27, 2000 was approximately $3,684,118 based on
the average bid and asked prices for such common stock as reported on the
Over-The-Counter Bulletin Board. The number of shares of common stock of the
registrant outstanding as of June 27, 2000 was 11,508,684.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [__] No [__]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Transitional Small Business Disclosure Format (check one): Yes [___] No [_X_]
DOCUMENTS INCORPORATED BY REFERENCE
No annual report to security holders, proxy or information statement or
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 is
incorporated herein by reference.
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TABLE OF CONTENTS
Page
PART I -------
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Item 1. Description of Business 4
Item 2. Description of Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 15
Item 6. Management's Discussion and Analysis or Plan of Operation 17
Item 7. Financial Statements 17
Item 8. Change In and Disagreements With Accountants on Accounting
and Financial Disclosure 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 18
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners and Management 21
Item 12. Certain Relationships and Related Transactions 23
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
SIGNATURES
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Statement Regarding Forward-Looking Statements
Statements contained in this document which are not
historical in nature are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "should", or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy.
Such forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from
anticipated results. These risks and uncertainties include, but are not limited
to, regulatory constraints, changes in laws or regulations governing the
Company's products, services and international trade, the ability of the Company
to market successfully its products and services in an increasingly competitive
worldwide market, changes in the Company's operating strategy, failure to
consummate or successfully integrate product developments, the general economy
of the United States and the specific global markets in which the Company
competes, the availability of financing from internal and external sources and
other factors as may be identified from time to time in the Company's filings
with the Securities and Exchange Commission or in the Company's press releases.
No assurance can be given that the future results covered by the forward-looking
statements will be achieved. Other factors could also cause actual results to
vary materially from the future results covered in such forward-looking
statements. The Company assumes no obligation for updating any such
forward-looking statements at any time.
All references in this Form 10-KSB to "the Company," "we," "us," or
"our" are to NewState Holdings, Inc. and its subsidiaries, unless the context
requires otherwise.
PART I
ITEM 1: DESCRIPTION OF BUSINESS
BUSINESS OVERVIEW
NewState Holdings, Inc. is the holding company and parent
corporation for its network of financial services companies in the Republic of
Korea. We were originally incorporated under the name Racom Systems, Inc. in the
State of Delaware on June 3, 1991 and in September 1999 we changed our name to
NewState Holdings, Inc. The Company has principal executive offices in New York,
New York and Seoul, Korea. Our principal business operations are located in
Korea.
Our principal operating subsidiary in Korea, NewState Capital
Co., Ltd. (formerly known as Dongsuh Finance Co., Ltd.) ("NewState Capital"), is
registered with the Korean Financial Supervisory Commission as a "specialty
finance company" under the Credit Specialized Financial Business Act of 1997.
NewState Capital was acquired by our present management in December 1998 and
restructured to specialize in the origination and servicing of residential
mortgage loans to individual borrowers in Korea.
Our current business plan is to expand NewState Capital's
mortgage origination efforts throughout Korea, develop and offer innovative new
mortgage products to Korean middle-income families and individuals, and to
securitize and sell its mortgage loan portfolio as mortgage-backed securities to
public investors in Korea. We seek to become the leading residential mortgage
originator in Korea by providing highly efficient, responsive and sophisticated
loan servicing to Korean homebuyers.
We currently manage and service approximately 74.2 billion
Korean Won (US$70 million) in residential mortgage assets as of March 31, 2000.
We expect our mortgage loan portfolio to expand to be about 200 billion Korean
Won (US$180 million) by the end of our 2000 fiscal year (March 31, 2001). We
anticipate that NewState Capital will build an additional five branch offices
besides the corporate headquarters in Seoul, Korea and the other six branch
offices, and plan to have one regional office in each major metropolitan area
throughout Korea within fiscal year 2000. We expect that the total number of
branch offices in Korea will be 15 and 150 additional full time employees will
be hired in the same time period. This aggressive expansion plan is designed to
enable NewState Capital to build relationships with customers in order to
maximize the rate of market penetration.
ACQUISITION OF NEWSTATE CAPITAL
On July 20, 1999, we acquired 99.6% (4,958,000 shares) of the
issued and outstanding capital stock of NewState Capital, which was formerly a
subsidiary of NewState Capital Corp, a privately-held New York corporation
("NewState NY"), in exchange for issuing 8,000,000 shares of our common stock,
representing approximately 80% of our total issued and outstanding shares of
common stock, to NewState NY. We also assumed a $5,000,000 liability of NewState
NY to a bank which we repaid in full in August 1999. The terms and conditions of
the acquisition are more fully set forth in the Agreement and Plan of
Reorganization, dated as of July 14, 1999 (the "Acquisition Agreement"), by and
among the Company, NewState NY, NewState Capital and a newly formed wholly-owned
subsidiary of the Company, NSK Holdings, Inc. ("NSK"), which is incorporated
herein by reference to our Form 8-K filed with the Commission on July 21, 1999.
As a result of the Acquisition Agreement, (i) NewState Capital
became a 99.6% owned subsidiary of NSK, our wholly-owned subsidiary, and (ii)
NewState NY became the owner of approximately 80% of our common stock.
Immediately following the reverse acquisition, we revised our business plan to
focus on the residential mortgage lending business of NewState Capital.
OUR MORTGAGE BUSINESS
The Korean residential mortgage loan process is divided into
three primary areas:
- mortgage origination - sourcing, verification and
documentation of mortgage loans;
- mortgage funding - underwriting, funding and selling closed
loans to mortgage loan purchasers; and
- servicing - ongoing billing, collection and
foreclosure/collateral management.
We believe that the residential mortgage market in Korea has
experienced a recession in recent years as a result of the government's control
over real estate investment on certain properties. It is our belief, however,
that the Korean residential mortgage market now faces a turning point due an to
extensive government deregulation plan and the enactment of new laws by the
Korean government to encourage the growth of the real estate market. The current
residential mortgage market in Korea can be categorized into two primary
sectors: (i) the publicly funded housing loan sector and (ii) the privately
funded housing loan sector. The National Housing Fund, Korean Housing Bank and
Kookmin Bank are government-controlled financial institutions primarily
responsible for offering public residential mortgage loans to middle or low
income households. Life insurance companies, commercial banks and specialty
finance companies have been responsible for providing private housing loans to
all other qualified individuals.
Mortgage Products
We plan to become the leading mortgage originator and servicer
in the Korean residential mortgage industry. NewState Capital offers first
mortgages to homebuyers and homeowners seeking to refinance. NewState Capital
handles all aspects of loan origination, including quoting rates, collecting and
verifying borrower data, locking the rate, pre-underwriting the loan package,
and arranging for appraisal and settlement services for the borrower. In
addition, NewState Capital can provide complete transaction fulfillment,
including underwriting, funding and packaging loans for sale to the secondary
markets in Korea. Through one of NewState Capital's branch offices or its
website, NewState Capital currently offers a wide array of mortgage loan
products, including 30 and 15-year fixed rate loans, a variety of adjustable
rate mortgages, balloon mortgages and other loan products. NewState Capital
offers assistance to prospective borrowers in making their home buying decisions
in each phase of the loan application process.
Mortgage Origination and Underwriting
NewState Capital originates, underwrites, funds and sells
mortgage loans to homebuyers. Loan applications generally are prepared by
NewState Capital's loan officers located at one of its branch offices.
Verification procedures, include, among other things, obtaining: (i) written
confirmations of the applicant's income and bank deposits, (ii) a formal credit
report on the applicant from an unaffiliated credit reporting agency, (iii) a
preliminary title report, and (iv) a real estate appraisal. Appraisals for
mortgage loans are prepared by third party, unaffiliated appraisers who are
pre-approved based upon their experience, education and reputation.
Completed loan applications are then transmitted to NewState
Capital's underwriting department. NewState Capital's underwriting department
contains experienced staff who verify the completeness and accuracy of
application information, and determine its compliance with its underwriting
criteria and those of applicable government agencies. NewState Capital's
guidelines for underwriting mortgage loans comply with the underwriting criteria
employed by non-bank mortgage lenders in Korea under the supervision of the
Financial Supervisory Commission. NewState Capital's underwriting personnel
function independently of its loan origination personnel and do not report to
any individual directly involved in the loan origination process. NewState
Capital considers the following general underwriting criteria in determining
whether to approve a loan application:
- employment and income;
- credit history;
- property value and characteristics; and
- available assets.
NewState Capital is currently in the process of adopting
United States underwriting and loan servicing standards and is converting its
servicing software to meet these servicing guidelines. In order to meet the
growing demand for residential mortgages in Korea, management is instituting
more responsive customer services and faster and easy-to-use loan processing
systems, including the recent introduction of our online loan application
process through our website.
Mortgage Servicing
NewState Capital devotes significant resources to providing
personalized, timely customer service and support to minimize the potential
uncertainty, anxiety and inconvenience of the loan process. By combining
high-tech communications with highly personalized attention, the Company
believes that NewState Capital provides a level of customer service superior to
that experienced in the traditional loan application and servicing process.
The primary goal of loan portfolio servicing is to collect
loan payments in full from borrowers when due and payable. Any deviation from
this objective is considered a default. NewState Capital's portfolio servicing
team is directly responsible for managing and preventing these deviations or
defaults. In order to maximize servicing efficiency, NewState Capital's
portfolio servicing team operates an advanced computer tracking system named the
Delinquency Information Management System ("DIMS"), which it adopted from the
U.S. version of the DIMS. DIMS provides delinquency reports which itemizes the
amounts and days past due per borrower. DIMS classifies our loan portfolio by
level of creditability, and organizes the information relating to payment
reminders, enforcement letters, and foreclosure documents in an orderly fashion
to maximize collection efforts. DIMS also manages our foreclosure information,
including the procedure schedule, courts dates, decisions and follow-up
schedules.
NewState Capital's portfolio servicing team constantly trains
its staff of highly sophisticated mortgage debt management specialists. During
the mandatory portfolio servicing training program, trainees are required to
attend classes on mortgage operations, servicing procedure, real estate and
mortgage law, housing rental law and other similar courses. Comprehensive
in-the-field training is also offered to strengthen the skills of the servicing
team. NewState Capital's portfolio servicing team is continuously attending
outside lectures and seminars regarding the real estate market and industry in
an effort to keep abreast of current economic and legal issues developing and
affecting the mortgage industry.
Marketing Strategy
We believe that it is critically important for financial
service providers to establish themselves as household names. With this
objective in mind, we continuously strive to promote and support NewState
Capital's corporate image as the mortgage company that reaches out to
individuals and families in Korea by placing the customer's needs first. We
believe that our mortgage products and services will change the way that people
live by improving the quality of their lives. Establishing a reputation for
prompt and responsive service is another integral component of our marketing
strategies. We believe that that the ability to process loan applications
quickly provides a distinct advantage over its competitors.
An extensive media campaign is scheduled for the fiscal year
2000. The primary media through which we will promote NewState Capital's
products and services will be television, radio, newspapers, and billboards.
Advertising will be focused on raising customer awareness and recognition of
NewState Capital's name and mission. The primary goal of the advertising
campaign will be to separate NewState Capital from our competitors. In addition,
we will send out by direct mail to prospective customers such as construction
companies, home buyers, and existing homeowners to promote its products and
services. In addition, our website will also be utilized as marketing tools as
well as channels to reach Internet users. The home page has an on-line loan
application and on-line banking system.
Geographical Distribution of Loans
We currently manage and service approximately 74.2 billion
Korean Won (US$70 million) in residential mortgage assets as of March 31, 2000.
We expect our mortgage loan portfolio to expand to be about 200 billion Korean
Won (US$180 million) by the end of our 2000 fiscal year (March 31, 2001). The
following table sets forth the geographic distribution by province of NewState
Capital's loan originations as of March 31, 2000.
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DISTRIBUTION BY PROVINCE OF
NEWSTATE CAPITAL'S LOAN ORIGINATIONS
March 31, 2000
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Region Number of % of Total Principal TPB in US Dollars % of TPB
Assets Assets Balance ("TPB")
in Korean Won
<S> <C> <C> <C> <C> <C>
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Seoul 352 11.26 W14,305,748,186 $12,911,325 19.28
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Pusan 237 7.58 5,420,483,134 4,892,133 7.31
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Taegu 917 29.33 21,547,261,539 19,446,987 29.04
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In-Chon 135 4.32 3,068,049,173 2,768,997 4.13
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Kyung-Gi Do 505 16.15 11,547,209,833 10,421,670 15.56
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Kyungsang Nam Do 339 10.84 6,872,265,001 6,202,405 9.26
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Kyungsang Book Do 155 4.96 2,914,641,323 2,630,543 3.93
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Junla Nam Do 56 1.79 927,483,756 837,079 1.25
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Junla Book Do 69 2.21 1,225,861,873 1,106,374 1.65
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Kang-Won Do 246 7.87 4,469,856,441 4,034,166 6.02
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Choong-Chung Nam Do 104 3.33 1,554,933,963 1,403,370 2.10
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Others 11 0.35 346,673,109 312,882 0.47
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Total : 3,126 100.00 W74,200,467,331 $66,967,931 100.00
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FUNDING OF MORTGAGE LOANS
NewState Capital currently funds most of the mortgage loans it
originates through short-term borrowings under collateralized loan agreements
with several commercial banks, merchant banks, investment trust companies, and
insurance companies, which provide primary credit facilities upon which NewState
Capital relies. These agreements are generally terminable at will by either
party and are refinanced by new borrowings as they become due. These borrowings
are in turn repaid with proceeds received by NewState Capital when such mortgage
loans are sold or repaid by the borrowers. Management believes that NewState
Capital will continue to borrow funds on a short-term basis for operations
through renewals of existing borrowing arrangements.
NewState Capital has relied upon a few significant lenders to
provide the primary credit facilities for its loan originations. Any failure to
renew or obtain adequate funding under the existing financing facilities or
other financing arrangements, or any substantial reduction in the size of or
increase in the cost of such facilities, could have a material adverse effect on
our business, results of operations and financial condition. To the extent
NewState Capital is not successful in maintaining or replacing existing
financing, we may have to curtail our mortgage loan originations, which could
have a material adverse effect on our business, results of operations and
financial condition.
LOAN SECURITIZATION
The primary source of capital in Korea for the residential
mortgage industry has been through private and government loans, corporate bonds
and private placements of equity. Although the Korean residential mortgage
market has grown significantly over the last few years, the development in Korea
of a mortgage-backed securities market in the finance industry has remained
virtually undeveloped. The implementation by the government of a long term
housing finance system such as a mortgage backed securities system that is
generally used in other countries has been well overdue.
In January 1999, in an effort to strengthen the national
housing finance market through a long-term and stable supply of housing funds,
the Korean government passed the Mortgage-Backed Securities Company Act (the
"MBS Act") to establish and operate a mortgage-backed securitization company and
to issue mortgage-backed securities. To that end, in September 1999, the Korean
government established Korean Mortgage Company (the "KoMoCo"), the only
mortgage-backed securitization company to have obtained authorization of
securitization business from the Korean Financial Supervisory Commission
("FSC"), to facilitate the spirit of the MBS Act. The KoMoCo has a paid-in
capital of one hundred point one (100.1) billion Korean Won (US$89,434,889). The
Korean government holds forty-five (45) percent of the interest in the KoMoCo,
making it the controlling shareholder. The remaining interests are held by four
major Korean financial institutions.
The MBS Act's scheme of securitization requires originators of
the mortgage loans to prepare and file registration statements with the FSC and
to follow certain guidelines for the transfer of mortgage loan assets to the
KoMoCo. The KoMoCo, which can be characterized as a permanent special-purpose
vehicle that is organized in such a way that the likelihood of its bankruptcy is
remote, only purchases residential mortgage loans from financial institutions
that seek to raise cash. As a special purpose vehicle, the KoMoCo does not
engage in the origination of mortgage loans, but rather limits its role to
buying only residential mortgage loans. The KoMoCo, and not the selling company,
will then issue mortgage-backed securities to raise cash and those securities
are intended to be payable from collections on the receivables purchased by the
KoMoCo.
The KoMoCo may guarantee the payment of mortgage-backed
securities, including mortgage-backed securities issued by a private
securitization company, within the amount not exceeding twenty times of equity
capital of the securitization company. This mechanism of guaranteeing repayment
of mortgage-backed securities to investors provides a special added assurance to
the investors.
We intend to take full advantage of the MBS Act to dispose of
NewState Capital's portfolio of mortgage loan assets and to maintain better
liquidity in the future. We have structured NewState Capital's operations and
processes specifically for the purpose of efficiently originating, underwriting,
and servicing loans for securitization in order to meet the requirements of
credit rating agencies. NewState Capital generally intends to enter the public
mortgage-backed securitization market on a periodic basis.
On March 21, 2000, NewState Capital issued through a private
special purpose securitization company ("SPC") mortgage-backed securities in the
principal amount of 58.9 billion Won (US$53.6 million) in Korea with Daewoo
Securities Co., Ltd. as the lead manager and Housing and Commercial Bank
(formerly Korea Housing Bank) as the trustee and back-up servicer. NewState
Capital issued four senior tranches of MBS and one subordinated tranche which
was retained by NewState Capital. The mortgage-backed securities have a maturity
of 1-10 years and an interest rate of 10.17 - 12.61 percent. With this issuance
of mortgage-backed securities, NewState Capital became the first issuer of
mortgage-backed securities in Korea. A general summary of the principal terms of
the MBS prospectus and the mechanics of the securitization itself is discussed
below.
COMPETITION
Competition for residential mortgage loan originations is
intense in Korea in this new era of governmental deregulation. We face
significant competition from government funded institutions, established
commercial banks, insurance companies and other private mortgage companies. .
Many of these competitors are substantially larger than us and have more capital
and other resources, as well as a lower cost of funds. However, competition can
take many forms, including convenience in obtaining a loan, customer service,
marketing and distribution channels, terms provided and interest rates charged
to borrowers. The following summarily discusses the major competitors in this
rapidly developing and evolving industry.
National Housing Fund and Housing & Commercial Bank (formerly
Korea Housing Bank). Both of these financial institutions are controlled by the
Korean government and were the first entrants into the residential mortgage
market in Korea. They also hold the most significant share of the residential
mortgage market in Korea. Both institutions primarily provide financial
assistance to middle or lower income households. Consequently, the mortgage
loans are typically small and are to individual borrowers in lower income
brackets. Management believes that their market share is decreasing because of
the introduction of private company funding to the market and expect their share
to decline even further if the mortgage market is continually deregulated by the
Korean government.
Commercial Banks. Management believes that increased
participation by the commercial banks in the housing loan business is expected
in the future as a result of the government's deregulation initiatives.
Commercial banks currently enjoy the competitive advantage of having secure and
established customer bases. Because of their strong name recognition in the
business, commercial banks can enter new markets simply by targeting their own
customer bases. In addition, commercial banks typically have a broad network of
branch offices that are easily located near a prospective borrowers home.
Citibank, one of the fastest growing foreign commercial banks
in Korea, has one of the most systematic mortgage operations in Korea.
Citibank's key advantage is name recognition and brand awareness. As a result of
its large capital and customer base, we believe that loan applicants view
Citibank as one of the safest financials institutions in Korea. We believe,
however, that Citibank's marketing efforts have primarily targeted middle to
high income borrowers which significantly limits the full potential reach of its
mortgage loan portfolio. In addition, we believe that the application process is
too difficult for many individual borrowers to complete.
Insurance Companies. Insurance companies have a broad network
system and direct sales force in Korea. These key factors give customers easy
and convenient access to their mortgage lending services. The Company believes,
however, that due to the insurance-related image of insurance companies in
Korea, borrowers have generally preferred other financial institutions for their
mortgage banking needs.
Mortgage Companies. Residential mortgage companies (including
NewState Capital) have been in operation in Korea since 1997. As a result of
their recent entrance into this developing new private lending market, no single
mortgage company has successfully penetrated the mortgage market. However, we
expect the number of private mortgage companies in the market to grow rapidly
over the next few years. Mortgage companies are characterized as having
convenient loan processing systems and are focused on providing high quality
customer service at every level. We believe that their principal weaknesses are
relatively low capital bases and liquidity problems. Because of these
weaknesses, mortgage companies must charge higher interest rates to their
borrowers, which gives them a significant disadvantage compared to other
competitors in the mortgage industry.
RECENT DEVELOPMENTS
NewState Holdings, Inc. (formerly Racom Systems, Inc.)
On October 18, 1999, we adopted a fiscal year consistent with
the fiscal year of NewState Capital, our recently acquired Korean subsidiary. As
a result of this change, our fiscal year now ends on March 31 of each year. This
is different from the fiscal year reflected in our prior filings with the
Securities and Exchange Commission.
On March 23, 2000, we approved: (i) the dismissal of Arthur
Andersen LLP as the independent accountants for the Company, and (ii) the
engagement of Young Wha Corporation, the Ernst & Young International member firm
in Korea, as the independent accountants that will audit our consolidated
financial statements for the fiscal year ended March 31, 2000.
NewState Capital Co., Ltd. (Korea)
On December 20, 1999, Youngnam Finance Co., Ltd., a Korean
specialty-finance company, merged into NewState Capital under the laws of the
Republic of Korea.
On March 21, 2000, NewState Capital issued mortgage-backed
securities ("MBS") in the principal amount of 58.9 billion Won (US$53.6 million)
in Korea with Daewoo Securities Co., Ltd. as the lead manager and Housing and
Commercial Bank as the trustee and back-up servicer. NewState Capital issued
four tranches of senior MBS and one tranche of subordinated MBS which was
retained by NewState Capital. The MBS have a maturity of 1-10 years and an
interest rate of 10.17 - 12.61 percent. With this issuance of MBS, NewState
Capital took the honor of becoming the first issuer of MBS in Korea.
REGULATION OF THE MORTGAGE INDUSTRY
Our business operations in Korea are subject to the rules and
restrictions imposed by Korea's legal and economic system as well as general
economic and political conditions in Korea. In the past, Korea has had an
unstable economy with rigid economic controls imposed by the Korean government
on the mortgage loan industry. More recently, however, Korea has begun to pursue
economic reform and development policies which have improved business conditions
in Korea for credit-specialized finance businesses including companies engaged
in the business of credit card financing, facilities leasing, installment
financing and venture capital. Korean law categorizes our residential mortgage
lending business as a form of installment financing business and, therefore,
subjects our operations to the laws and regulations affecting credit-specialized
finance businesses. There can be no assurance that the Korean government will
continue to pursue such policies, or that such policies will be successful.
As a result, our operations in Korea may be adversely affected
by one or more of the following:
- new laws or regulations, or different interpretation of
existing laws and regulations;
- our ability to timely obtain the necessary administrative or
regulatory approvals;
- our ability to comply with applicable administrative
requirements; and
- currency devaluations.
NewState Capital has registered with the Korean Financial
Supervisory Commission ("FSC") as a "specialty finance company" under the Credit
Specialized Financial Business Act of 1997 (the "Act"). NewState Capital is
therefore subject to the supervision of the FSC and certain regulations under
the Act, including the following:
- it must maintain a minimum paid-capital and equity
capital in the amount of twenty (20) billion Korean
Won (US$17.9 million) (NewState Capital currently
maintains twenty four (24) billion Korean Won
(US$21.4 million) of paid-in capital);
- in making mortgage loans, it must follow specified
procedures designed to inform and protect borrowers;
and
- it can only acquire real estate according to the
specific provisions set forth under the Act.
These regulations may limit our ability to respond to certain
development opportunities in Korea. In addition, changes in existing regulations
or policies or adoption of new regulations or policies could have an adverse
effect on our operations in Korea. We believe that NewState Capital is in
substantial compliance in all material respects with the Act and is in
possession of all necessary licenses to do business in Korea, except where the
licenses are not material to the our business and operations as a whole.
In addition, governmental agencies in Korea may:
- require NewState Capital to obtain additional
licenses in order to continue business;
- revoke the acceptance of our registration as
provided under the Act;
- regulate the interest rates that we will be
permitted to charge for mortgage loans;
- impose or change the tariffs or fees on our
operations;
- subject us to regulation not specifically related
to the residential mortgage industry; or
- adopt laws or regulations relating to the internet
and online commerce.
Any of these actions could have an adverse effect on our
operations in Korea.
EMPLOYEES
At March 31, 2000, we employed a total of 34 full time
employees and 50 commission-based sales managers. Of these full-time employees,
32 are based in Korea and 2 are based in the United States. We also trained
approximately 100 sales agents who are paid on a commission basis. We presently
plan to expand our personnel base in such areas as management, marketing,
underwriting, servicing and origination. We do not foresee any serious
difficulties in hiring these additional employees. None of our employees are
covered by a collective bargaining agreement, and we believe our employee
relations are good.
ITEM 2: DESCRIPTION OF PROPERTY
We currently lease our principal executive offices located in
Seoul, Korea and New York City. NewState Capital has entered into lease
arrangements with Dongsuh Securities Co. for the Seoul office and we have
entered into lease arrangements with Ombu Securities Corporation for the New
York office. The lease with Dongsuh Securities Co. is for approximately 1,368
square meters of commercial space located at 826-24, Yoksam-Dong, Kangnam-Gu,
Seoul, Korea.
Our lease with Ombu Securities Corporation in New York City is
on a month-to-month basis and is for approximately 600 square feet of commercial
space located at 156 West 56th Street, Suite 2005, New York, New York 10019.
NewState Capital has also entered into additional lease arrangements for its
branch offices in Taegu, Taeguseo, Changwon, Jinju, Pusan and Kwangju. We
believe that our existing facilities are sufficient for our current needs, but
additional commercial space will be required as it continues to open more branch
offices throughout Korea.
NewState Capital has recently entered into an agreement with
Sanyong Insurance Co. for the purchase of an office building located in Seoul,
Korea for 3.4 billion Korean Won (US$3 million). NewState Capital will maintain
its principal executive offices in 3,204 square meters of commercial space at
this new location. NewState Capital has agreed to assume a mortgage in the
amount of 2.4 billion Korean Won (US$2.14 million) for purposes of this
acquisition. The closing date was May 31, 2000 and we plan to move into the new
office space on July 7, 2000.
ITEM 3: LEGAL PROCEEDINGS
We are not, nor are any of our subsidiaries, subject to any
material legal proceedings. The Company or its subsidiaries may from time to
time become a party to various legal proceedings arising in the ordinary course
of their business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of matters to a vote of security
holders in the fourth quarter of our 1999 fiscal year ending on March 31, 2000.
Previous submissions to a vote of security holders in the last three fiscal
quarters of our 1999 fiscal year have already been reported in our quarterly
filings.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock was included for quotation on the OTC
Bulletin Board under the symbol "RCOM" on April 15, 1999. Prior to April 15,
1999 and during fiscal 1998, there was essentially no trading in the common
stock. On September 15, 1999, we changed our ticker symbol to refer to our new
name, NewState Holdings, Inc. Our common stock now trades on the OTC Bulletin
Board under the symbol "NSTH."
MARKET PRICE
The following table sets forth the high and low closing bid
prices for common stock transactions on the OTC Bulletin Board for the periods
indicated. The quotations shown reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions.
QUARTER CALENDAR HIGH BID PRICE LOW BID PRICE
1998 1Q (1/1 - 3/31) $149.7656 $84.375
2Q (4/1 - 6/30) $118.125 $78.0469
3Q (7/1 - 9/30) $84.375 $35.8594
4Q (10/1 - 12/31) $59.0625 $12.6562
1999 1Q (1/1 - 3/31) $37.9687 $15
2Q (4/1 - 6/30) $11.25 $1.875
3Q (7/1 - 9/30) $5.1562 $2.50
4Q (10/1 - 12/31) $4 $2
2000 1Q (1/1 - 3/31) $2.50 $2
HOLDERS
As of March 31, 2000, there were 48 holders of record of our
common stock and 11,508,684 shares of common stock issued and outstanding.
DIVIDENDS
We did not declare any cash dividends on our common stock
during the most recent two fiscal years. It is our present policy not to pay
cash dividends on our common stock. We expect to retain earnings, if any, to
fund our growth and expansion. Any payment of cash dividends on our common stock
in the future will be dependent upon our financial condition, results of
operations, current and anticipated cash requirements and plans for expansion,
as well as other factors that we deem relevant, including adherence to Korean
company law.
NewState Capital's ability to dividend and remit funds to us
is subject to government regulation in Korea and board approval. Korean law
imposes certain restrictions upon dividends paid by corporations to their
shareholders. According to Korean law, dividends can be paid to owners of common
stock only if shareholder equity exceeds paid-in capital. NewState Capital could
not pay any dividends for the fiscal years ending March 31, 2000, 1999 and 1998
as a result of its shareholder equity being less than paid-in capital in each of
those three fiscal years.
In the event that NewState Capital's shareholder equity
exceeds its paid-in capital, NewState Capital's by-laws provide that it may
declare dividends on its common stock, either on an interim or annual basis. The
by-laws provide that shareholders of record on September 30 of each fiscal year
are eligible for an interim dividend. In order for shareholders of NewState
Capital to receive an interim dividend, the NewState Capital board must adopt a
resolution within forty-five (45) days of September 30. Shareholders of record
at fiscal year end on March 31 of each year are also eligible for an annual
dividend which is approved at the annual meeting of shareholders. The annual
dividend, if any, is generally paid within one (1) month thereafter. In the
event that NewState Capital is permitted by Korean law to pay dividends and all
required corporate approvals are obtained, then dividends would be paid to us in
Korean Won after payment by NewState Capital of certain of its corporate
expenses and then converted by us into U.S. Dollars. It is the Company's present
policy, however, to not pay cash dividends on its common stock.
The ability of NewState Capital to declare and pay dividends
to its shareholders is further restricted by the Foreign Exchange Transaction
Laws. Under the Foreign Exchange Transaction Laws, if the Korean government
believes that certain emergency circumstances exist or are likely to occur,
including, but not limited to, (i) sudden fluctuations in interest rates or
exchange rates, (ii) extreme difficulty in stabilizing the balance of payments
or (iii) a substantial disturbance in the Korean financial and capital markets,
it may impose any necessary and appropriate restrictions such as requiring
NewState Capital to obtain prior approval from the Minister of Finance and
Economy for repatriation of dividends in Korea to the United States.
RECENT SALES OF UNREGISTERED SECURITIES
There were no sales of unregistered shares in the fourth
quarter of our 1999 fiscal year ending on March 31, 2000. Sales of unregistered
shares in the last three fiscal quarters of our 1999 fiscal year have already
been reported in our quarterly filings.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Management Discussion and Analysis of Financial Condition
and Results of Operation includes forward-looking statements which involve risks
and uncertainties. Actual events may differ materially from those discussed in
the forward-looking statements as a result of certain factors, including, but
not limited to, changes in interest rates, economic conditions, loan growth,
loan loss provisions, customer retention, failure to realize expected cost
savings or revenue enhancements from acquisitions. The Company assumes no
obligation for updating any such forward-looking statements at any time.
[To be Added]
ITEM 7: FINANCIAL STATEMENTS
The financial statements required pursuant to this Item 7 are
included in this Form 10-KSB as a separate section commencing on page F-1 and
are hereby incorporated by reference into this Item 7. [To be added]
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We dismissed our independent auditors, Arthur Andersen LLP,
effective March 23, 2000. On that date we appointed Young Wha Corporation
("Young Wha"), the Ernst & Young International member firm in Korea, as our
independent auditors. These actions were approved by our Board of Directors on
March 23, 2000. The dismissal resulted from a mutual agreement between Arthur
Andersen LLP and the Company.
We selected and approved Young Wha after an extensive
evaluation process initiated by our Board of Directors. We had not sought the
advice of Young Wha on specific audit or accounting issues relating to our
financial statements prior to engagement of that firm.
The report of Arthur Andersen LLP on our financial statements
for the years ended December 31, 1998 and 1997 were modified due to substantial
doubt about our ability to continue as a going concern.
In connection with the audits of our financial statements for
the two most recent fiscal years and through March 28, 2000, there had been no
disagreements with Arthur Andersen LLP on any matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of Arthur Andersen LLP, would have
caused them to make reference thereto in their report on the Company's financial
statements for such years.
Arthur Andersen LLP has stated in its letter addressed to the
SEC its concurrence with the foregoing statements in this paragraph.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth, as of March 31, 2000, the
names, ages and positions of our executive officers and directors. Their
respective backgrounds are described below.
NAME AGE CAPACITIES
---- --- ----------
Ernest B. Kim 46 Chairman, President and Chief
Executive Officer of NewState
Holdings, Inc. and NewState Capital
Co., Ltd.
Jin Ki Kim 43 Vice President, Secretary and
Director of NewState Holdings, Inc.
and Director of NewState Capital Co.,
Ltd.
Alexander T. Shang 42 Treasurer and Chief Financial
Officer of NewState Holdings, Inc.
Sun W. Young 51 Independent Director of NewState
Holdings, Inc.
A. Sungil Noh 40 Independent Director of NewState
Holdings, Inc.
--------------------
NAME OF
OFFICER/DIRECTOR EMPLOYMENT HISTORY
---------------- ------------------
Ernest B. Kim Mr. Kim is the founder of NewState Capital
Co., Ltd. He is the primary decision maker for the
new management. From December 1998 to the present,
Mr. Kim has been the chairman of the board and the
chief executive officer of NewState Capital, and from
July 1999 to the present the chairman of the board
and chief executive officer of NewState Holdings,
Inc. From 1982 to 1990, Mr. Kim was the branch
manager for Mony Financial Services, a personal
financial consulting and planning firm, and, from
1991 to 1998, Mr. Kim was the district manager for
Massachusetts Mutual Financial Services, a financial
consulting and planning firm. In 1977, Mr. Kim
graduated from Young Nam University in TaeGu City,
Korea and studied marketing at New York University in
1982.
Jin Ki Kim From July 1999 until present, Mr. Kim has been
a Vice President and Director of NewState Holdings,
Inc. Mr. Kim was also elected Secretary of NewState
Holdings, Inc. on May 1, 2000. From 1996 to 1999, Mr.
Kim was manager of mortgage originations at NewLife
Financial Co., a licensed mortgage broker. From 1994
to 1996, Mr. Kim was a manager of export/import at
Grace International, Inc., a general merchandise
trading company. From 1990 to 1994, Mr. Kim was a
life insurance agent with Mutual Life of New York
Insurance Co. Mr. Kim received a B.A. in Graphics
Design in 1983 from Myung-Ji University, Seoul,
Korea.
Alexander T. Shang From July 1999 until present, Mr. Shang has
been the Treasurer and Chief Financial Officer of
NewState Holdings, Inc. From July 1997 to present, he
was Vice President of GEM Advisors, Inc., an
investment firm and a member of the National
Association of Securities Dealers. From 1994 to 1996,
he was Vice President in the Fixed Income Department
and the Capital Market Group-Emerging Markets at
Furman Selz, Inc. From 1993 to 1996, Mr. Shang was a
Vice President at Financial Security Assurance, a
triple-A mono-line insurance company specializing in
providing credit enhancement in asset-backed and
municipal bond transactions. Mr. Shang graduated from
Columbia University with a B.A. in Economics in 1979
and a B.S. in Computer Science in 1981. Mr. Shang
also received a M.S. in Management in 1984 from the
Sloan School of Management at the Massachusetts
Institute of Technology.
Sun W. Young Mr. Young has been a Director of NewState
since July 1999. He also served as Secretary of
NewState from July 1999 until January 2000. Mr. Young
received his law degree from Hofstra University
School of Law in 1989 and has been an attorney at law
licensed in the States of New York and New Jersey
since that time. He also received a Bachelor of Law
Degree from Seoul National University in Seoul, Korea
in 1971 and worked for several corporations,
including Korean Airlines.
A. Sungil Noh Mr. Noh has been a Director of NewState
since June 9, 2000. Mr. Noh is the principal of the
accounting firm, A. Sungil Noh, CPA, and practices in
the States of New York, New Jersey and Massachusetts.
Prior to establishing his firm in August 1997, he
worked with two of the world's largest accounting and
consulting firms, Ernest & Young L.L.P. and
PricewaterhouseCoopers L.L.P., for twelve(12) years
as Practice Leader of Korean Business Group and
Senior Manager. His responsibilities included
providing tax and consulting services to U.S.,
Korean, Japanese, and European companies in a variety
of industries, including investment banking and
broker dealers. His business and community services
include; financial and tax advisor to the Korean
Chamber of Commerce and Industry of U.S.A., Inc.,
internal auditor of the Palisades Park Chamber of
Commerce, internal accountant of Presbyterian Church
of Palisades, and President of the Binghamton
University Korean Alumni Association. His
professional affiliations comprise memberships in the
American Institute of Certified Public Accountants
and the New York State Society of Certified Public
Accountants and a register CPA of the States of New
York, New Jersey and Commonwealth of Massachusetts.
Mr. Noh graduated from Binghamton University with a
B.S. in Accounting in 1985..
ITEM 10: EXECUTIVE COMPENSATION.
No compensation in excess of $100,000 was awarded to, earned
by, or paid to any executive officer of the Company during the fiscal years 1999
and 1998. The following table and the accompanying notes provide summary
information for each of the last two fiscal years concerning cash and non-cash
compensation paid or accrued by Ernest B. Kim, the Company's chief executive
officer and president for the past two years.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------------------- ------------------------------------------------
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER
PRINCIPLE COMPENSATION STOCK AWARD(S) UNDERLYING PAYOUTS COMPENSATION
POSITION OPTIONS/SARs
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ernest B. Kim, 1999 $532,881 0 0 0 0 0 0
CEO and
President
1998 $42,000 0 0 0 0 0 0
---------------- -------- ---------- --------- ----------------- ---------------- --------------- ----------- ------------------
</TABLE>
BOARD COMPENSATION
Our inside directors do not currently receive cash
compensation from the Company for their service as members of the Board of
Directors, although they are reimbursed for certain expenses in connection with
attendance at Board and Committee meetings. Our outside directors receive $500
per month as compensation for service as members of the Board of Directors.
There are currently two outside members of the Board of Directors. We do not
provide additional compensation for committee participation or special
assignments of the Board of Directors.
EMPLOYMENT AGREEMENTS
On January 3, 2000, NewState Capital entered into an
employment agreement with Kwang Yong Koh, Vice President and Chief Operating
Officer of NewState Capital. This agreement obligates NewState Capital to pay
Mr. Ko an annual salary of 56 million Korean Won (US$50,000), plus a 0.05%
commission on the total amount of new mortgage originations per year received by
the branch offices under Mr. Koh's control and supervision. This agreement is
terminable at will by NewState Capital.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding
beneficial ownership of our common stock by all stockholders who own 5% or more
of our common stock. The ownership reflected in the table is accurate as of the
date of this prospectus. Beneficial ownership has been determined for purposes
of completing this table in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended. Under Rule 13d-3 a person is deemed to be the
beneficial owner of securities if the person has or shares voting power or
investment power in respect of such securities or has the right to acquire
beneficial ownership of the securities within 60 days.
NAME AMOUNT AND NATURE OF PERCENT
AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS
----------- -------------------- --------
NewState Capital Corp. 8,000,000 69.51%
c/o NewState Holdings, Inc. Direct (1)
156 W. 56th Street, Suite 2005
New York, NY 10019
Ernest B. Kim 8,000,000 69.51%
NewState Holdings, Inc. Indirect (2)
156 W. Street, Suite 2005
New York, New York 10019
Misoo Kim 8,000,000 69.51%
c/o NewState Holdings, Inc. Indirect (3)
156 W. 56th Street, Suite 2005
New York, New York 10019
The Kim Voting Trust 8,000,000 69.51%
c/o NewState Holdings, Inc. Indirect (4)
156 W. 56th Street, Suite 2005
New York, New York 10019
----------------------------------
(1) NewState Capital Corp. is a privately-held family corporation. Ernest B. Kim
is the record owner of 20.9% of the outstanding shares of NewState Capital Corp.
Mr. Kim's wife is the record owner of 16.7% of the outstanding shares, and 62.4%
of the outstanding shares are held in a voting trust for the benefit of Mr.
Kim's children. Mr. Kim's wife is the trustee of the trust.
(2) NewState Capital Corp. is the record owner of these shares and is a
privately-held family corporation. Mr. Kim is the record owner of 20.9% of the
outstanding shares of NewState Capital Corp. Mr. Kim's wife is the record owner
of 16.7% of the outstanding shares, and 62.4% of the outstanding shares are held
in a voting trust for the benefit of Mr. Kim's children. Mr. Kim's wife is the
trustee of the trust.
(3) NewState Capital Corp. is the record owner of these shares and is a
privately-held family corporation. Mrs. Kim is the record owner of 16.7% of the
outstanding shares of NewState Capital Corp. Mrs. Kim's husband is the record
owner of 20.9% of the outstanding shares, and 62.4% of the outstanding shares
are held in a voting trust for the benefit of Mrs. Kim's children. Mrs. Kim is
the trustee of the trust.
(4) NewState Capital Corp. is the record owner of these shares and is a
privately-held family corporation. Mr. Kim is the record owner of 20.9% of the
outstanding shares of NewState Capital Corp. Mr. Kim's wife is the record owner
of 16.7% of the outstanding shares, and 62.4% of the outstanding shares are held
in this voting trust for the benefit of Mr. Kim's children. Mr. Kim's wife is
the trustee of the trust and has the exclusive power to: (i) vote, or to direct
the voting of, the securities, and (ii) dispose, or to direct the disposition
of, the securities. The voting trust will terminate on July 12, 2009.
The following table lists, as of the date hereof, the number and
percentage of our outstanding shares of common stock beneficially owned,
directly or indirectly, by each executive officer and director, and by all of
our directors and officers as a group:
NATURE AND AMOUNT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- -------------------- ----------------
Ernest B. Kim 8,000,000 69.51%
Indirect (1)
All executive officers
and directors as a group 8,000,000 69.51%
Indirect (1)
-------------------------
(1) NewState Capital Corp. is the record owner of these shares and is a
privately-held family corporation. Mr. Kim is the record owner of 20.9% of the
outstanding shares of NewState Capital Corp. Mr. Kim's wife is the record owner
of 16.7% of the outstanding shares, and 62.4% of the outstanding shares are held
in a voting trust for the benefit of Mr. Kim's children. Mr. Kim's wife is the
trustee of the trust.
We do not know of any arrangements, the operation of which
may, at a subsequent date, result in a change of control of the Company.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
2 Agreement and Plan of Merger dated as of July 20, 1999 between
Racom Systems, Inc., NewState Capital Corp., NewState Capital
Co., Ltd., and NSK Holdings, Inc. (1)
3.1(a) Third Amended and Restated Certificate of Incorporation of
NewState Holdings, Inc. (filed herewith)
3.2 Fourth Amended and Restated By-Laws (filed herewith)
10.1 Agreement and Plan of Merger dated as of July 20, 1999 between
Racom Systems, Inc., NewState Capital Corp., NewState Capital
Co., Ltd., and NSK Holdings, Inc. (1)
10.2 Employment Agreement, dated January 3, 2000, between Kwang
Yong Koh and NewState Capital Co., Ltd. (English version filed
herewith)
10.3 Lease Agreement, dated May 21, 1998, by and between Dongsuh
Securities Co. and Dongsuh Finance Co., Ltd. (now known as
NewState Capital Co., Ltd.) (English version filed herewith)
10.4 Mortgage-Backed Securities Agreement, dated December 17, 1999,
by and between Daewoo Securities Co. and NewState Capital Co.,
Ltd. (English version filed herewith)
10.5 Stock Purchase Agreement, dated December 28, 1998 by and
between NewState Capital Co., Ltd. and Youngnam Merchant
Banking Co., Ltd. (English version filed herewith)
10.6 Credit Transaction Agreement, dated January 7, 2000 by and
between NewState Capital Co., Ltd. and Hyundai Marine and Fire
Insurance Co., Ltd. (English version filed herewith)
10.7 Credit Transaction Agreement, dated January 8, 2000, by and
between NewState Capital Co., Ltd. and Korea First Bank
(English version filed herewith)
10.8 Agreement to Amend Repayment Terms, dated October 7, 1999, by
and between NewState Capital Co., Ltd. and Korea Investment
Trust Co., Ltd. (English version filed herewith)
10.9 Funding Agreement, dated January 14, 1999, by and between
NewState Capital Co., Ltd. and CHE-IL Merchant Banking Corp.
(English version filed herewith)
10.10 Credit Transaction Agreement, dated January 18, 2000, by and
between NewState Capital Co., Ltd. and Youngnam Merchant
Banking Corp. (English translated version filed herewith)
10.11 Credit Transaction Agreement, dated July 12, 1999, by and
between NewState Capital Co., Ltd. and Central Merchant
Banking Corp. (English version filed herewith)
10.12 Credit Transaction Agreement, dated November 24, 1999 by and
between NewState Capital Co., Ltd. and Kookmin Bank, Ltd.
(English version filed herewith)
10.13 Underwriting Agreement, dated February 26, 1997, by and
between NewState Capital Co., Ltd. and Yeoungnam Housing
Finance Co., Ltd. (Corporate Bond Series #6) (English version
filed herewith)
10.14 Underwriting Agreement, dated May 9, 1997, by and between
NewState Capital Co., Ltd. and Yeoungnam Housing Finance Co.,
Ltd. (Corporate Bond Series #8) (English version filed
herewith)
10.15 Underwriting Agreement, dated May 9, 1997, by and between
NewState Capital Co., Ltd. and Yeoungnam Housing Finance Co.,
Ltd. (Private Placement Series #22) (English version filed
herewith)
10.16 Credit Transaction Agreement, dated May 27, 1998, by and
between NewState Capital Co., Ltd. and Teagu Bank, Ltd.
(English version filed herewith)
10.17 Request for Extension of Credit Transaction, dated May 27,
1999, by and between NewState Capital Co., Ltd. and Taegu
Bank, Ltd. (English version filed herewith)
10.18 Amendment Agreement, dated January 22, 2000, by and between
NewState Capital Co., Ltd. and Taegu Bank, Ltd. (English
version filed herewith)
16 Letter, dated March 28, 2000 from Arthur Andersen LLP, our
former principal accountants, to the Securities and Exchange
Commission pursuant to Item 304(a)(3) of Regulation S-B (2)
21 List of Subsidiaries (filed herewith)
23.1 Consent of Young Wha Corporation (filed herewith)
23.2 Consent of Samil Accounting Corporation (filed herewith)
27 Financial Data Schedule (filed herewith)
---------------------------
(1) Incorporated by reference to the Company's Form 8-K of Racom Systems,
Inc. (Commission File No. 000-21907), filed with the Securities and
Exchange Commission on July 21, 1999.
(2) Incorporated by reference to the Company's Form 8-K of NewState Holdings,
Inc. (Commission File No. 000-21907), filed with the Commission on March
28, 2000.
REPORTS ON FORM 8-K
* Form 8-K Filed July 21, 1999 - - We announced that we had
acquired approximately 99.6% of the issued and outstanding
capital stock of NewState Capital Co., Ltd., a Korean
corporation, in exchange for issuing 8,000,000 shares of our
common stock, representing approximately 80% of our total
issued and outstanding shares of common stock, to NewState
Capital Corp, a New York corporation.
* Form 8-K/A filed on October 1, 1999 - - We amended our
Report on Form 8-K filed on July 21, 1999 by providing certain
financial statements and pro forma financial information of
NewState Capital Co., Ltd., our recently acquired Korean
subsidiary in a reverse acquisition. We also announced that
effective September 15, 1999 we changed our name to NewState
Holdings, Inc. and that at the opening of business on
September 17, 1999 our new OTC Bulletin Board symbol was
"NSTH".
* Form 8-K filed on October 20, 1999 - - We announced that we
had adopted a fiscal year consistent with the fiscal year of
NewState Capital Co., Ltd., our recently acquired Korean
subsidiary in a reverse acquisition. As a result of this
change, our fiscal year will end on March 31 of each year.
* Form 8-K filed on March 28, 2000 - - We announced that we
had dismissed our independent auditors, Arthur Andersen LLP,
effective March 23, 2000, and on that date we appointed Young
Wha Corporation ("Young Wha"), the Ernst & Young International
member firm in Korea, as our independent auditors.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Company caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NEWSTATE HOLDINGS, INC.
ERNEST B. KIM
By: ________________________________
Ernest B. Kim
Chairman of the Board
Dated: June 29, 2000
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
ERNEST B. KIM
________________________________ Chairman of the Board, June 29, 2000
Ernest B. Kim President and CEO
ALEXANDER T. SHANG
________________________________ Treasurer and Chief June 29, 2000
Alexander T. Shang Financial Officer
JIN K. KIM
________________________________ Vice President, Secretary June 29, 2000
Jin K. Kim and Director
SUN W. YOUNG
________________________________ Director June 29, 2000
Sun W. Young
A. SUNGIL NOH
________________________________ Director June 29, 2000
A. Sungil Noh
<PAGE>
[March 31, 2000 Consolidated Statements To be Added]
