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
