**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the quarterly period ended September 30, 2007o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACTFor
                the transition period from _________________ to
                _________________





**Commission
      file number 000-33155**




**COATES
                INTERNATIONAL, LTD.**
              (Exact
                Name of Registrant as Specified in its
                Charter)




**Delaware**
            
            **22-2925432**(State
                or other Jurisdiction of
            
            (I.R.S.
                EmployerIncorporation
                or Organization)
            
            Identification
                No.)




**Highway
      34 & Ridgewood Road, Wall Township, New Jersey 07719**


(Address
      of Principal Executive Office) (Zip Code)





**(732)
      449-7717**


(Registrant's
      telephone number including area code)





Indicate
      by check mark whether the Registrant (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
o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.)




Yes
o No
x




As
        of
        November 12, 2007, 272,924,754 shares of the Registrant’s common stock were
        issued and outstanding.














**COATES
      INTERNATIONAL, LTD.**


**QUARTERLY
      REPORT ON FORM 10-QSB**





**CONTENTS**





**SEPTEMBER
      30, 2007**

















**Page****Financial
                Statements (Unaudited):**Condensed
                Balance Sheet
            3Condensed
                Statements of Operations
            4Condensed
                Statements of Cash Flows
            5Notes
                to the Condensed Financial Statements
            6-12Item
                2.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations
            13-18Item
                3.   Controls and Procedures
            19**PART
                II  -  OTHER INFORMATION**
            20Item
                1. Legal Proceedings
            20Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            21Item
                3. Defaults Upon Senior Securities
            21Item
                4. Submission of Matters to a Vote of Security Holders
            21Item
                5. Other Information
            21Item
                6. Exhibits
            22-22SIGNATURES
            23











2




**Coates
      International, Ltd.**


**Condensed
      Balance Sheet**


**September
      30, 2007**


**(Unaudited)**








**Assets**Current
                AssetsCash
            
            $
            313,251Inventory,
                net of reserve for
                obsolescence of $144,889
            
            
            384,941Other
                assets
            
            
            1,000Total
                Current
                Assets
            
            
            699,192Investment
                in related party
            
            
            -Property,
                plant and equipment, net of accumulated depreciation of
                $795,499
            
            
            1,470,140Deferred
                licensing costs, net of accumulated amortization of $7,876
            
            
            77,787Deferred
                offering costs
            
            
            35,766Security
                deposits
            
            
            197,500**Total
                Assets**
            
            $
            2,480,385**Liabilities
                and Stockholders’ Deficiency**Current
                LiabilitiesAccounts
                payable and accrued
                liabilities
            
            $
            978,885Total
                Current
                Liabilities
            
            
            978,885License
                deposits
            
            
            375,000Finance
                obligation
            
            
            3,876,60710%
                Convertible note, due March 2010
            
            
            20,000Total
                Liabilities
            
            
            5,250,492Commitments
                and Contingencies
            
            
            -Stockholders'
                DeficiencyPreferred
                stock, Series A, $0.001 par value, 14,000,000 authorized, no
                shares
              issued
                or outstanding
            
            
            -Common
              stock, $.0001 par value, 1,000,000,000 shares authorized,
              270,926,174
                shares issued
                and outstanding
            
            
            27,093Additional
              paid-in capital
            
            
            19,297,757Accumulated
              deficit
            
            
            (22,094,957
            )Total
              Stockholders' Deficiency
            
            
            (2,770,107
            )**Total
              Liabilities and Stockholders' Deficiency**
            
            $
            2,480,385








The
      accompanying notes are an integral part of this condensed balance
      sheet.






3


**Coates
      International, Ltd.**


**Condensed
      Statements of Operations**


**(Unaudited)**





Three
                Months Ended
              September
                30,
            
            
            Nine
                Months Ended
              September
                30,2007
            
            
            2006
            
            
            2007
            
            
            2006Revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
                Expenses:Research
                and development costs
            
            
            107,515
            
            
            
            -
            
            
            
            478,674
            
            
            
            -General
                and administrative expenses
            
            
            310,903
            
            
            
            369,205
            
            
            
            1,102,435
            
            
            
            1,129,515Depreciation
                and amortization expense
            
            
            10,275
            
            
            
            16,069
            
            
            
            36,898
            
            
            
            41,564Total
                Operating Expenses
            
            
            428,693
            
            
            
            385,274
            
            
            
            1,618,007
            
            
            
            1,171,079Loss
                From Operations
            
            
            (428,693
            )
            
            
            (385,274
            )
            
            
            (1,618,007
            )
            
            
            (1,171,079
            )Other
                Income (Expense)Interest
                income
            
            
            -
            
            
            
            4,263
            
            
            
            1,600
            
            
            
            30,127Interest
                expense
            
            
            (97,993
            )
            
            
            (97,500
            )
            
            
            (294,993
            )
            
            
            (289,666
            )Total
                Other (Expense)
            
            
            (97,993
            )
            
            
            (93,237
            )
            
            
            (293,393
            )
            
            
            (259,539
            )Loss
                Before Income Taxes
            
            
            (526,686
            )
            
            
            (478,511
            )
            
            
            (1,911,400
            )
            
            
            (1,430,618
            )Income
                Taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                Loss
            
            $
            (526,686
            )
            
            $
            (478,511
            )
            
            $
            (1,911,400
            )
            
            $
            (1,430,618
            )Basic
                and Diluted Net Loss per Share
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            (0.01
            )
            
            $
            (0.01
            )Basic
                and Diluted Weighted Average Number of Shares
            
            
            270,910,465
            
            
            
            266,894,278
            
            
            
            268,625,017
            
            
            
            266,894,278







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








4





**Coates
      International, Ltd.**


**Condensed
      Statements of Cash Flows**


**(Unaudited)**





Nine
                Months Ended
              September
                30,2007
            
            
            2006Net
                Cash Used in Operating Activities
            
            $
            (1,595,110
            )
            
            $
            (1,158,876
            )Cash
                Flows Used in Investing Activities:Acquisition
                of property, plant and equipment
            
            
            (7,784
            )
            
            
            (47,070
            )Deferred
                licensing costs
            
            
            -
            
            
            
            (27,996
            )Net
                Cash Used in Investing Activities
            
            
            (7,784
            )
            
            
            (75,066
            )Cash
                Flows From Financing Activities:Proceeds
                from issuance of common stock
            
            
            1,707,195
            
            
            
            -Proceeds
                from issuance of 10% convertible note
            
            
            120,000
            
            
            
            -Proceeds
                of promissory note from related party
            
            
            100,000
            
            
            
            -Repayment
                of promissory note from related party
            
            
            (100,000
            )
            
            
            -Repayment
                of demand loans due to related parties
            
            
            (92,337
            )
            
            
            (45,300
            )Deferred
                offering costs paid
            
            
            (72,955
            )
            
            
            (90,042
            )Net
                Cash  Provided by (Used in) Financing Activities
            
            
            1,661,903
            
            
            
            (135,342
            )Net
                Increase (Decrease) in Cash
            
            
            59,009
            
            
            
            (1,369,284
            )Cash
                - Beginning of Period
            
            
            254,242
            
            
            
            1,928,123Cash
                - End of Period
            
            $
            313,251
            
            
            $
            558,839Schedule
                of Supplemental Cash Flow Data:Cash
                paid for income taxes
            
            $
            -
            
            
            $
            146,469Cash
                paid for Interest
            
            $
            293,513
            
            
            $
            127,166




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








5







**Coates
      International, Ltd.**


**Notes
      to the Condensed Financial Statements**





**1.
      BASIS OF PRESENTATION**





The
      accompanying unaudited condensed financial statements of Coates International,
      Ltd. (the “Company”) have been prepared in accordance with generally accepted
      accounting principles for interim financial information and with the
      instructions to Item 310 of Regulation S-B. Accordingly, they do not include
      all
      of the information and notes required by generally accepted accounting
      principles for complete financial statements. In the opinion of management,
      all
      adjustments (consisting of normal recurring accruals) considered necessary
      for a
      fair presentation have been included. The results of operations for the three
      and nine month periods ended September 30, 2007 and 2006 are not necessarily
      indicative of the results that may be expected for any other interim period
      or
      for the full year.  The unaudited condensed financial statements
      should be read in conjunction with the financial statements and footnotes
      thereto included in the Company’s annual report on Form 10-KSB/A for the year
      ended December 31, 2006, and its quarterly reports on Form 10-QSB/A for the
      periods ended June 30 and March 31, 2007.





**2.
      ACCOUNTING POLICIES**





**Share
      Based Compensation**





Compensation
      expense relating to share-based payments is recognized as an expense using
      the
      fair-value measurement method. Under the fair value method, the estimated fair
      value of awards to employees is charged to income on a straight-line basis
      over
      the requisite service period, which is the earlier of the employee’s retirement
      eligibility date or the vesting period of the award.





**Licensing
      Costs**





Under
      the
      CSRV Licensing Agreement for the CSRV technology, the Company is responsible
      for
      all costs in connection with applying for, obtaining and maintenance of patents
      to protect the CSRV System intellectual technology. Such costs are expensed
      as
      incurred.





For
      the
      years ended December 31, 2006 and 2005 only, the Company capitalized such
      licensing costs, which are being amortized on a straight-line basis over 20
      years. The effect of capitalizing such costs for the years ended December 31,
      2006 and 2005 was not material. Such amount is reflected in the accompanying
      balance sheet as Deferred Licensing Costs.





**Uncertainty
      in Income Taxes**





Effective
      January 1, 2007, the Company adopted Statement of Financial Accounting Standards
      (“SFAS”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
      Interpretation of SFAS Statement No. 109" ("FIN 48"), which clarifies the
      accounting and disclosure for uncertain tax positions, as defined. Adoption
      of
      FIN 48 did not have a material impact on the financial position or results
      of
      operations of the Company.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reported
      period.  Actual results could differ from those
      estimates.








6


**New
      Pronouncements**





In
      September 2006, the FASB issued SFAS Statement No. 157, “Fair Value
      Measurements,” (“SFAS No. 157”), which defines fair value, establishes a
      framework for measuring fair value and expands disclosures about fair value
      measurements. SFAS No. 157 does not require assets or liabilities to be measured
      at fair value, but is intended to apply to other accounting pronouncements
      that
      require or permit the use of fair value for recognition or disclosure. SFAS
      No.
      157 is effective for fiscal years beginning after November 15, 2007. Management
      is currently evaluating the effect, if any, that SFAS No. 157 may have on the
      Company’s future financial statements.





In
      February 2007, the FASB issued SFAS Statement No. 159, “The Fair Value Option
      for Financial Assets and Liabilities,” (“SFAS No. 159”), which provides entities
      an option to report certain types of assets and liabilities at fair
      value.  The objective of permitting this option is to mitigate the
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. SFAS No. 159 is effective for fiscal years beginning after November
      15, 2007 and permits early adoption provided the reporting entity also elects
      to
      apply the provisions of SFAS No. 157. Management is currently evaluating the
      effect, if any, that SFAS No. 159 may have on the Company’s future financial
      statements.





**3.
      SETTLEMENT AGREEMENT WITH PRIOR ACCOUNTANTS**





In
      February 2007, the Company entered into a settlement agreement with Rosenberg,
      Rich Baker Berman & Company (“RRBB”) which provided for a mutual release of
      any claims by the parties and that the balance of fees due RRBB would be
      converted to an approximately $50,000 principal amount, promissory note. Payment
      of this promissory note was paid in full in April 2007. RRBB served as the
      Company’s Independent Registered Public Accounting Firm for the year ended
      December 31, 2005.





**4.
      COMMON STOCK**





On
      February 26, 2007, the Company’s common stock commenced trading on the Over the
      Counter Bulletin Board market system under the ticker symbol COTE.





The
      Company commenced a private placement offering in December 2006 (the “Offering”)
      of “Units” consisting of (i) one share of the Company’s 6% Series A Convertible
      Preferred Stock (the “Preferred Stock”) and (ii) a Warrant to purchase five
      thousand shares of the Company’s Common Stock at an initial exercise price of
      $1.10 per share (the “Warrants”), and terminated the Offering in March 2007.
      Aggregate net proceeds from this Offering, which amounted to $420,000 is being
      used for working capital purposes. There were no expenses incurred related
      to
      this offering. All of the investors have accepted ten shares of our common
      stock
      in lieu of each share of Preferred Stock purchased through the private offering.
      No shares of Preferred Stock were issued. In June 2007, the Company issued
      in
      the aggregate 420,000 shares of its common stock and 42 Warrants in connection
      with the Units sold. The amount received for the 420,000 shares of common stock
      which was previously reported as subscribed stock, is now reflected in common
      stock and additional paid in capital in the accompanying balance sheet as of
      September 30, 2007.





In
      April
      2007, the Company sold 2,000,000 shares of its common stock to Stephen Evans,
      the son of a director of the Company and received aggregate gross proceeds
      of
      $500,000. In May 2007, the Company sold this shareholder an additional 1,333,333
      shares of its common stock and received aggregate gross proceeds of $750,000.
      These transactions were private sales of unregistered shares of common stock
      pursuant to stock purchase agreements. These shares were subsequently registered
      on Form SB-2 as more fully discussed in Note 6.





In
        July
        and August 2007, the Company sold 58,341 shares of its common stock and received
        net proceeds of approximately $37,000, in connection with an investment
        agreement with Dutchess Private Equities Fund, Ltd. (See Note 6). The amount
        recorded to additional paid in capital was fully offset by deferred offering
        costs.


7





**5.
      ISSUANCE OF 10% CONVERTIBLE NOTES**





In
      March
      2007, the Company issued $100,000 principal amount of 10% Convertible
      Subordinated Notes, due March 2010 (the “Convertible Notes”) to one of its
      outside directors and received cash proceeds of $100,000. In May 2007, $100,000
      principal amount of these notes were converted into 222,222 shares of common
      stock. In April 2007, the Company issued an additional $20,000 principal amount
      of Convertible Notes to another outside director and received cash proceeds
      of
      $20,000. This remaining unconverted principal amount is included in non-current
      liabilities on the accompanying balance sheet. The proceeds from the Convertible
      Notes are being used for working capital purposes. The Convertible Notes are
      convertible at the option of the holder into shares of the Company’s common
      stock at an initial conversion rate that is determined by dividing the principal
      amount of notes being converted by $0.45. As the closing price of the Company’s
      common stock on the date of the transaction was $0.35 per share, there was
      no
      beneficial conversion feature. Interest shall accrue at the rate of 10% per
      annum and shall be payable in cash only at maturity. All interest shall be
      forfeited upon conversion, in which case the holder would be entitled to
      dividends declared, if any, on the Company’s common stock during the time the
      convertible note was outstanding. The Company has reserved 44,445 shares of
      its
      common stock for conversion of the balance of these notes.








**6.
      INVESTMENT AGREEMENT WITH DUTCHESS PRIVATE EQUITIES FUND, LTD. AND REGISTRATION
      OF SECURITIES**





On
      April
      26, 2007, the Company entered into an Investment Agreement with Dutchess Private
      Equities Fund, Ltd. (the “Investor”). Pursuant to this Agreement, the Investor
      shall commit to purchase up to $10,000,000 of our common stock over the course
      of thirty-six (36) months. The amount that the Company shall be entitled to
      request from each purchase (“Puts”) shall be equal to, at the Company’s
      election, either (i) up to $500,000 or (ii) 200% of the average daily volume
      (U.S. market only) of the common stock for the ten (10) trading days prior
      to
      the applicable put notice date, multiplied by the average of the three (3)
      daily
      closing bid prices immediately preceding the put date. The put date shall be
      the
      date that the Investor receives a put notice of a draw down from the Company.
      The purchase price shall be set at ninety-three percent (93%) of the lowest
      closing Best Bid price of the common stock during the pricing period. The
      pricing period shall be the five (5) consecutive trading days immediately after
      the put notice date. There are put restrictions applied on days between the
      put
      date and the closing date with respect to that particular Put. During this
      time,
      the Company shall not be entitled to deliver another put notice. Further, the
      Company shall reserve the right to withdraw that portion of the Put that is
      priced below seventy-five percent (75%) of the lowest closing bid prices for
      the
      10-trading day period immediately preceding each put notice.





In
        October and November 2007, the Company sold 1,998,580 shares of its common
        stock
        and received net proceeds of approximately $1,032,000, in connection with
        this
        investment agreement. The amount recorded to additional paid in capital was
        reduced by deferred offering costs approximating $36,000.
 
 In
        connection with this transaction, the Company filed a registration statement
        on
        Form SB-2 with the Securities and Exchange Commission (“SEC”) covering
        15,000,000 shares of the common stock underlying the Investment Agreement.
        This
        registration statement was declared effective by the SEC on June 22, 2007.
        The
        Company shall have an ongoing obligation to register additional shares of
        our
        common stock as necessary underlying the draw downs. The Company also included
        in this registration statement the registration of approximately 4,230,000
        shares of common stock representing the 266,667 shares reserved for conversion
        of the 10% convertible notes (222,222 of which were converted in May 2007),
        630,000 shares of common stock related to the stock and warrants issued in
        connection with a completed private placement of securities and 3,333,333
        shares
        of common stock sold in April and May 2007.


8


**7.
      LOSS PER SHARE**





Basic
      net
      loss per share is based on the weighted average number of common shares
      outstanding without consideration of potentially dilutive shares of common
      stock. There were no shares of preferred stock outstanding during the period.
      Diluted net loss per share is based on the weighted average number of common
      and
      potentially dilutive common shares outstanding. At September 30, 2007, the
      Company had 814,445 shares of common stock potentially issuable upon assumed
      conversion of (i) $20,000 principal amount of 10% convertible notes, (ii) 42
      outstanding warrants to purchase 210,000 shares of common stock; and, (iii)
      560,000 vested stock options, respectively, that were not included in the
      dilutive calculation because the Company incurred a net loss for the period
      and
      the effect of including them in the calculation would have been anti-dilutive.
      There was no effect on net loss per share as a result of potential
      dilution.





**8.
      STOCK OPTIONS**





In
        2006,
        the Company established the 2006 Stock Option and Incentive Plan (the “Stock
        Option Plan”). In September 2007, shareholder approval of the Stock Option Plan
        was obtained. The Company granted options to purchase 1,775,000 shares of
        common
        stock (1,750,000 shares to officers and directors) on April 18, 2007 at an
        exercise price of $0.44 per share. The options vest equitably over a 3-4
        year
        vesting period. No shares vested during the three months ended September
        30,
        2007. The fair value of shares vested during the nine months ended September
        30,
        2007 was approximately $220,000. No stock options were granted prior
        thereto.
 
 The
        Company also granted 25,000 four-year non-employee stock options to its
        corporate general counsel on April 18, 2007 at an exercise price of $0.44
        per
        share, which will be accounted for in accordance with the guidance in Emerging
        Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That are
        Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
        Goods or Services.” . In accordance therewith, the fair value of each option is
        estimated on the balance sheet date for non-vested options and on the vesting
        date for vested options. Upon issuance, 5,000 stock options vested and the
        remaining 20,000 stock options vest in equal amounts over 4 years. The fair
        value of the portion of these stock options that vested through September
        30,
        2007, was approximately $1,700. At September 30, 2007, the fair value of
        the
        unvested portion of these stock options was approximately
        $5,400.




For
      the
      three and nine month periods ended September 30, 2007, the Company recorded
      non-cash stock based compensation expense amounting to approximately $63,000
      and
      $352,000, respectively, relating to stock option grants. For the
      three months ended September 30, 2007, approximately $41,000 is
      included in research and development expenses and approximately
      $22,000 is included general and administrative expenses in the accompanying
      statement of operations. For the nine months ended September 30, 2007,
      approximately $245,000 of this amount is included in research and development
      expenses and approximately $107,000 of this amount is included in general and
      administrative expenses in the accompanying statements of
      operations.





9


A
      summary
      of the activity in the Company’s Stock Option Plan for employees and directors
      is as follows:





**Exercise
                Price Per Share**
            **Number
                Outstanding**
            **Weighted
                Average Remaining Contractual Life**
            **Number
                Exercisable**
            **Exercise
                Price**
            **Weighted
                Average Fair Value at Date of Grant**Balance,
                1/1/07
            -
            -
            -
            -
            -
            -Granted
            $0.44
            1,625,000
            15
            525,000
            $0.44
            $0.40Granted
            $0.44
            150,000
            15
            30,000
            $0.44
            $0.33Balance,
                9/30/07
            $0.44
            1,775,000
            15
            555,000
            $0.44








The
      weighted average fair value of the Company's stock-based compensation expense
      of
      $0.40 per share was estimated using the Black-Scholes option pricing model
      which
      requires highly subjective assumptions including the expected stock price
      volatility. These assumptions were as follows:







·
            Historical
              stock price volatility
            
            180%·
            Risk-free
                interest rate
            
            4.56%-4.64%·
            Expected
              life (in years)
            
            4·
            Dividend
              yield
            
            0.00







The
      valuation assumptions were determined as follows:




●
              Historical
                  stock price volatility: The Company obtained the volatility factor
                  of
                  other publicly traded engine manufacturers that were also in the
                  research
                  and development stage.●
              Risk-free
                  interest rate: The Company bases the risk-free interest rate on
                  the
                  interest rate payable on U.S. Treasury securities in effect at
                  the time of
                  the grant for a period that is commensurate with the assumed expected
                  option life.●
              Expected
                  life: The expected life of the options represents the period of
                  time
                  options are expected to be outstanding. The Company has no historical
                  data
                  on which to base this estimate. Accordingly, the Company estimated
                  the
                  expected life based on its expectation that the executives will
                  be subject
                  to frequent black out periods during the time that the stock
                  options will be exercisable and based on the Company’s expectation
                  that it will complete its research and development phase and commence
                  its
                  initial production phase. The vesting period of these options was
                  also
                  considered in the determination of the expected life of each stock
                  option
                  grant.●
              No
                expected dividends.




The
        same
        methodology and assumptions were utilized in estimating the fair value of
        non-employee stock options granted to the Company’s general corporate counsel,
        as discussed above.


**9.
      INCOME TAXES**





Deferred
      income taxes are determined using the liability method for
      the temporary differences between the financial reporting basis and income
      tax
      basis of the Company’s assets and liabilities. Deferred income taxes are
      measured based on the tax rates expected to be in effect when the temporary
      differences are included in the Company’s tax return. Deferred tax assets and
      liabilities are recognized based on anticipated future tax consequences
      attributable to differences between financial statement carrying amounts of
      assets and liabilities and their respective tax bases.





Deferred
      taxes increased by approximately $183,000 and $572,000 for the three and nine
      months ended September 30, 2007, respectively. This amount is fully offset
      by a
      tax valuation allowance.





10


**10.
      RELATED PARTY TRANSACTIONS**





The
      Company owns approximately 30% of the outstanding shares of common stock of
      Coates Motorcycle Company, Ltd. (“Coates Motorcycle”), a company that researches
      and is developing a heavy cruiser motorcycle equipped with the Coates SRV
      engine.





The
      Company’s investment in Coates Motorcycle is being accounted for under the
      equity method of accounting for investments. As such, the investment is being
      carried at cost, adjusted for the Company’s proportionate share of the
      undistributed earnings and losses of Coates Motorcycle. The Company stopped
      recording its proportionate share of additional losses of Coates Motorcycle
      at
      the point at which its investment equaled $-0- from the recording of such prior
      proportionate losses. Had the Company continued to record its proportionate
      share of undistributed earning and losses after its investment was written
      down
      to $ -0- in 2005, it would have recorded an additional share of undistributed
      losses aggregating approximately $468,000 through September 30,
      2007.





Summarized
      unaudited information for Coates Motorcycle is as follows:







For
                the Three Months Ended September 30:
            
            
            For
                the Nine Months Ended September 30:2007
            
            
            2006
            
            
            2007
            
            
            2006Revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
                expenses
            
            
            120,265
            
            
            
            183,707
            
            
            
            410,677
            
            
            
            675,005Net
                loss
            
            
            (142,647
            )
            
            
            (207,068
            )
            
            
            (474,056
            )
            
            
            (731,432
            )








As
                of September 30, 2007Current
                assets
            
            $
            41,321Total
                assets
            
            
            75,429Current
                liabilities
            
            
            (568,743
            )Total
                liabilities
            
            
            (1,464,970
            )Stockholders’
                deficiency
            
            
            1,389,542




The
      Coates Trust has made loans to the Company at various times to provide working
      capital. George J. Coates, Bernadette Coates, wife of George J. Coates and
      Gregory Coates are beneficiaries of the Coates Trust. In April 2007, the Coates
      Trust advanced an additional $100,000 in the form of a 6% promissory note.
      At
      the same time, the outstanding balance of the prior loans of $92,337 was
      converted to and included in this promissory note. No interest was imputed
      on
      these loans for the period prior to the time they were converted to the 6%
      promissory note. In May 2007, the entire $192,337 principal amount of the 6%
      promissory note was repaid, along with accrued interest of approximately
      $1,500.





The
      approximate amount of compensation and benefits paid to George J. Coates,
      Gregory Coates and Bernadette Coates, exclusive of non-cash stock based
      compensation for employee stock options granted to George J. Coates and Gregory
      Coates, for both the three and nine month periods ended September 30, 2007,
      is
      summarized as follows:





For
                the Three Months EndedSeptember
                30:
            
            
            For
                the Nine MonthsEnded
                September 30:2007
            
            
            2006
            
            
            2007
            
            
            2006George
                J. Coates (a)
            
            $
            54,000
            
            
            $
            47,000
            
            
            $
            173,000
            
            
            $
            142,000Gregory
                Coates
            
            
            24,000
            
            
            
            23,000
            
            
            
            77,000
            
            
            
            69,000Bernadette
                Coates
            
            
            10,000
            
            
            
            10,000
            
            
            
            31,000
            
            
            
            31,000





(a)
      Includes compensation paid in 2007 for 2006 vacation earned but not
      taken.





11


Mark
        Goldsmith, former Chief Executive Officer and President also previously served
        as the Chief Executive Officer, President and Interim Chief Financial Officer
        of
        Coates Motorcycle pursuant to an employment agreement. During the three month
        periods ended September 30, 2007 and 2006, Mr. Goldsmith received salary
        payments of $-0- and $25,000, respectively, from Coates Motorcycle. During
        the
        nine month periods ended September 30, 2007 and 2006, Mr. Goldsmith received
        salary payments of $25,000 and $148,000, respectively, from Coates Motorcycle.
        The amount paid in 2006 included accrued, but unpaid compensation from 2005.
        He
        was provided with a leased automobile and medical and dental benefits during
        2007 and 2006 until the date of his termination in April
        2007.




Barry
      C.
      Kaye, Treasurer and Chief Financial Officer was paid consulting fees
      of  approximately $20,000 and $3,000 during the three months ended
      September 30, 2007 and 2006, respectively, and approximately $64,000 and $9,000
      during the nine months ended September 30, 2007 and 2006,
      respectively.





The
      Company paid approximately $-0- and $10,000 during the three months ended
      September 30, 2007 and 2006, respectively, and approximately $-0- and $32,000
      during the nine months ended September 30, 2007 and 2006, respectively, to
      Coates Precision Engineering, Ltd., a Company owned solely by George J. Coates,
      for services in connection with engineering certain materials for use in
      production.





**11.
      LITIGATION AND CONTINGENCIES**





The
      Company, certain of its officers and directors and other related and unrelated
      parties were named as defendants in a lawsuit brought in the Superior Court
      of
      New Jersey captioned H. Alton Neff v. George Coates, Coates International,
      Ltd.
      et al. Plaintiff contends that he is the assignee of 1107 North West Central
      Avenue Inc. ("1107"). Preliminary agreements and an amendment thereto relating
      to purchase of a certain license by 1107 from the Company provided, inter alia,
      that a $500,000 deposit made by 1107 to the Company would convert to stock
      of
      the Company if certain conditions were not met by 1107. The Company maintains
      that 1107 did not fulfill such conditions, and failed to make a certain payment,
      and therefore, the deposit converted into shares of the Company's restricted
      Common Stock. On February 13, 2007, the Superior Court of New Jersey dismissed
      the complaint “with prejudice.” The plaintiff and a third party defendant have
      since filed motions for reconsideration which were denied on March 30, 2007.
      It
      is anticipated that the plaintiffs and the third party defendant will appeal.
      The Company has dismissed, without prejudice, its counterclaim and third party
      complaint in order to avoid the costs associated with a proof hearing. The
      plaintiffs and the third party defendant filed notices of appeal on June 12,
      2007 and June 13, 2007.  The Company intends to vigorously contest
      those appeals.





In
      April
      2007, the Company received a demand letter from a law firm requesting payment
      of
      approximately $77,000 in connection with a promissory note issued to the law
      firm as security for the payment of future services to the Company. The Company
      has notified the holder of this note that it does not intend to honor the
      promissory note because the law firm did not provide the services contemplated
      to be performed as consideration for the promissory note. No further action
      to
      pursue collection of this promissory note has been taken to date by the holder.
      At this time, it is not possible to reasonably estimate the outcome of this
      matter, and, accordingly, no amount has been accrued.





In
      late
      March 2007, at the request of the Company, Mark D. Goldsmith stepped down from
      his positions as Chief Executive Officer and President. Despite his resignation,
      Mr. Goldsmith contended that he was entitled to certain rights under an
      employment agreement with the company. Therefore, on April 17, 2007, the Company
      notified Mr. Goldsmith in writing that he was being terminated as a director,
      officer and employee with “Cause”, as defined in his employment agreement. On
      May 11, through an attorney, Mr. Goldsmith notified the Company that he disputed
      the Company’s position that his termination was with Cause and asserted the
      position that he resigned for “Good Reason”, as defined in his employment
      agreement. On July 10, through an attorney, Mr. Goldsmith notified the Company
      that he is claiming that the Company breached his employment agreement and
      is
      seeking recovery of damages resulting therefrom, consisting of compensation,
      benefits and stock options. In the opinion of management, his claims are
      completely without merit. The Company also intends to assert counterclaims
      should Mr. Goldsmith decide to undertake any legal action. At this time, it
      is
      too early to estimate the likely outcome of this matter. If the Company’s
      position is upheld, then Mr. Goldsmith would not be entitled to any
      compensation, benefits or stock options under his employment
      agreement.




Although
      the Company disputes and intends to vigorously defend against any potential
      claims that might be asserted by Mr. Goldsmith, it has without prejudice to
      its
      position, accrued for accounting purposes only, approximately $96,000 through
      April 13, 2007, the date the Company believes that Mr. Goldsmith was terminated
      with Cause. This amount has been included in accounts payable and accrued
      liabilities in the accompanying balance sheet.





**12.
      SUBSEQUENT EVENTS**





In
        October and November 2007, the Company sold 1,998,580 shares of its common
        stock
        and received net proceeds of approximately $1,032,000, in connection with
        an
        investment agreement with Dutchess Private Equities Fund, Ltd.  (See
        Note 6.) The amount recorded to additional paid in capital was reduced by
        deferred offering costs approximating $36,000.


In
      October 2007, the Company amended its articles of incorporation resulting in
      the
      cancellation of all 14 million authorized, but unissued shares of its Series
      A
      Convertible Preferred Stock, par value $0.001 per share and the authorization
      of
      100 million new shares of Preferred Stock, par value $0.001 per share, which
      upon approval of the Board of Directors, may be issued in one or more series
      and
      the relative terms, rights, preferences and limitations may be fixed. At this
      time, the Company does not have any plans for the issuance of the new shares
      of
      Preferred Stock.




12





**Item
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF**




**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Forward
      Looking Statements**




This
      quarterly report on Form 10-QSB contains forward-looking statements within
      the
      meaning of the Private Securities Litigation Reform Act of 1995 and Federal
      securities laws, and is subject to the safe-harbor created by such Act and
      laws.
      Forward-looking statements may include our statements regarding our goals,
      beliefs, strategies, objectives, plans, including product and service
      developments, current dependence on our contract with Well to Wire Energy,
      Inc.,
      future financial conditions, results or projections or current expectations.
      In
      some cases, you can identify forward-looking statements by terminology such
      as
      "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
      "predict," "potential" or "continue," the negative of such terms, or other
      comparable terminology. These statements are subject to known and unknown risks,
      uncertainties, assumptions and other factors that may cause actual results
      to be
      materially different from those contemplated by the forward-looking statements.
      The business and operations of Coates International Ltd. are subject to
      substantial risks, which increase the uncertainty inherent in the
      forward-looking statements contained in this report. Except as required by
      law,
      we undertake no obligation to release publicly the result of any revision to
      these forward-looking statements that may be made to reflect events or
      circumstances after the date hereof or to reflect the occurrence of
      unanticipated events. Further information on potential factors that could affect
      our business is described in our various periodic reports filed with the SEC.
      Readers are also urged to carefully review and consider the various disclosures
      we have made in this and such previously filed reports.




**Background**




We
      have
      completed the development of the Coates Spherical Rotary Valve (“CSRV”) engine.
      We anticipate that our first commercial application will be the production
      of
      industrial CSRV engines powered by natural gas for use in conjunction with
      electric power generators. We have recently fulfilled our obligation to develop
      a third CSRV engine pursuant to a research and development agreement and a
      licensing agreement with Well to Wire Energy, Inc. (“WWE”), a Canadian
      company.  Under these agreements, WWE is provided a testing period of
      up to ninety days to accept the engine under these agreements. Upon such
      acceptance:





·
            We
                intend to commence production of the CSRV engines in order to fulfill
                anticipated firm orders from WWE,


·
            WWE
                will be obligated to make an immediate payment under the research
                and
                development agreement of
                $3,800,000,


·
            WWE
                will become unconditionally obligated to pay us $4,700,000 in sixteen
                equal quarterly installments commencing 180 days after acceptance;
                and,


·
            WWE
                shall be subject to an annual purchase quota of a minimum of 120
                CSRV
                engines per year in order to retain exclusivity within the territory
                of
                the country of Canada.





We
      have
      also integrated our CSRV technology into various types of internal combustion
      engines for a number of other applications and uses.





**Significant
      Estimates**





The
      Company utilizes significant estimates in the preparation of its financial
      statements. These significant estimates include assigning useful lives to our
      property, plant and equipment, determining an appropriate amount to reserve
      for
      obsolete and slow moving inventory, assigning expected lives to our stock
      options granted and selecting a volatility factor for our stock options in
      order
      to estimate the fair value of our stock options on the date of
      grant.





13


**Agreements
      with Well to Wire Energy, Inc.**





On
      September 29, 1999, the Company signed a Licensing Agreement with Well to Wire
      Energy, Inc. ("WWE"), an oil and gas company in Canada, relating to the
      distribution in Canada of 6-cylinder engines modified with the Coates Rotary
      Valve System to be fueled by natural gas to generate electrical power in
      consideration for future payments. A separate Research and Development Agreement
      between the Company and WWE provides for development and delivery of certain
      prototype engines.  The Company received initial deposits on these
      agreements a number of years ago, aggregating $1,500,000.





On
      July
      7, 2006, we signed a confirmation letter agreement with WWE that provides as
      follows:





·
            The
                Company is to ship to WWE the third power unit of the Company’s CSRV Power
                Generator with output depending on the fuel used (the 855 cubic inch,
                6
                cylinder industrial electric power generator, incorporating the CSRV
                engine, the “Generator”).  Upon receipt of the CSRV Power
                Generator, and pending test results meeting WWE’s expectations, the
                balance of US $3,800,000 on account of the Research and Development
                Agreement and the $4,700,000 balance under the Licensing Agreement
                mentioned above will become due to the Company by WWE.  Payment
                of the $4,700,000 balance of the Licensing Agreement in 16 equal
                quarterly
                installments shall commence 180 days
                later.




·
            WWE
                will have the exclusive right to use, lease, and sell the generators
                that
                are based on the CSRV System technology within
                Canada.




·****
            WWE
                will have a right of first refusal to market the CSRV Power Generators,
                incorporating the CSRV System technology,
                worldwide.




·
            The
                Company and WWE have agreed that the minimum annual number of CSRV
                Power
                Generators to be purchased by WWE in order to maintain exclusivity
                is
                120.  Until otherwise agreed between the parties, the price per
                Generator shall be US $150,000.  The minimum purchase
                requirement shall become effective upon delivery and acceptance of
                the
                third production engine generator.




·
            WWE
                shall not be required to pay any royalties to us as part of these
                agreements.




·****
            Patent
                Rights.  All patent and other intellectual property rights
                related to the engine have been retained by the
                Company.




In
        October 2007, WWE was advised that we completed two CSRV Power Generators,
        including the third production engine required under the Licensing and Research
        and Development Agreements.  Arrangements are currently being made for
        delivery for installation on gas wells located in a Canadian oil field. At
        the
        same time, WWE also verbally reconfirmed its intentions to purchase 11,000
        CSRV
        Power Generators. If WWE were to proceed with its intentions to purchase
        all
        11,000 generators, it would equate to approximately $1.65 billion of revenues
        for the Company from sales of CSRV generators over an estimated period of
        five
        years.  WWE would not be under any obligation to purchase this
        quantity of generators, however, WWE is required to purchase at least 120
        engine
        generators per year under the Licensing Agreement in order to retain the
        exclusive rights to distribute the engine generators in Canada.


We
      do not
      currently have the production capacity to fulfill orders for 11,000 engine
      generators over the next five years.  Management believes that it
      could be successful in entering into a procurement contract with one or more
      major engine suppliers in the United States to deliver engine blocks
      incorporating our proprietary pistons and heads.  Under this approach,
      we would complete the production of the engines by incorporating the Coates
      Spherical Rotary Valve system into these engine blocks.




14


There
      are
      a number of inherent risks associated with achieving this level of revenues
      over
      the next five years, including:




·
            Although
                we intend to pursue numerous other opportunities to generate revenues
                from
                production of internal combustion engines incorporating the CSRV
                technology and/or licensing of this technology to original equipment
                manufacturers, until we are able to enter into definitive agreements
                with
                new customers, our revenues will be concentrated with a single customer,
                WWE.  WWE’s ability to purchase this volume of orders is highly
                dependent on its ability to access cash and capital resources to
                make
                timely payments for deposits and upon delivery of the engine
                generators.




·
            There
                can be no assurances that we will have adequate capital resources
                to
                procure a sufficient number of engine blocks, inventory and parts
                on a
                timely basis, as well as cover the payroll costs for an increased
                labor
                force and overhead that would be required in order to fulfill orders
                for
                this volume of engine generators over the next five years. In the
                event
                that we are unable to fulfill this volume of orders, our revenues
                and
                profitability would be negatively impacted to the extent of any such
                shortfall.




**Results
      of Operations – Three Months Ended September 30, 2007 Compared to Three Months
      Ended September 30, 2006**




No
      revenues were generated for the three month periods ended September 30, 2007
      and
      2006.




Research
      and development expenses were approximately $108,000 and $ -0- for the three
      month periods ended September 30, 2007 and 2006, respectively. This increase
      in
      research and development costs was attributable to the Company's resumption
      of
      its efforts towards making the final refinements to our prototype CSRV engine
      generator. Included in the amount for the three months ended September 30,
      2007,
      is approximately $41,000 of stock based compensation expense.




General
      and administrative expenses decreased to approximately $311,000 for the three
      months ended September 30, 2007 from approximately $369,000 in the corresponding
      period in 2006. This net decrease of $58,000 primarily resulted from a reduction
      in legal fees of approximately ($118,000), an increase in labor costs allocated
      to research and development costs of approximately ($56,000) and an overall
      decrease in labor costs of approximately ($16,000) offset by an increase in
      professional fees of approximately $31,000, an increase in show expenses of
      approximately $26,000, an increase in stock based compensation expense of
      approximately $22,000, an increase in testing expenses of approximately $10,000,
      an increase in employee benefits costs of approximately $10,000 and an increase
      in other general and administrative costs for office expense, utilities, other
      taxes and miscellaneous expenses of $24,000.




Depreciation
      and amortization expense decreased to approximately $10,000 in the three months
      ended September 30, 2007 from approximately $16,000 in the comparable period
      in
      2006.  This decrease was primarily due to discontinuance of
      depreciation of assets which became fully depreciated.




Interest
      expense remained constant at approximately $98,000 for the three month periods
      ended September 30, 2007 and 2006, respectively.




The
      change in deferred taxes for the three months ended September 30, 2007 and
      2006
      was fully offset by a valuation allowance, resulting in a $-0- net income tax
      provision. The Company experienced a net loss for the three month periods ended
      September 30, 2007 and 2006, of approximately $527,000 and $479,000,
      respectively.




15


**Results
      of Operations – Nine Months Ended September 30, 2007 Compared to Nine Months
      Ended September 30, 2006**




No
      revenues were generated for the nine month periods ended September 30, 2007
      and
      2006.




Research
      and development expenses were approximately $478,000 and $ -0- for the nine
      month periods ended September 30, 2007 and 2006, respectively. This increase
      in
      research and development costs was attributable to the Company's resumption
      of
      its efforts towards making the final refinements to our prototype CSRV engine
      generator. Included in the amount for the nine months ended September 30, 2007,
      is approximately $245,000 of stock based compensation expense.




General
      and administrative expenses decreased to approximately $1,102,000 for the nine
      months ended September 30, 2007 from approximately $1,130,000 in the
      corresponding period in 2006. This $28,000, decrease primarily resulted from
      a
      reduction in legal fees of approximately ($259,000), an increase in labor costs
      allocated to research and development expenses in the 2007 period of
      approximately ($141,000), a reduction in scrapped inventory of approximately
      ($19,000) and a decrease in miscellaneous taxes of approximately ($13,000),
      offset by an increase in professional fees of approximately $121,000, an
      increase in stock based compensation expense of approximately $107,000, an
      increase in testing expenses of approximately $61,000, an increase in patent
      maintenance costs of approximately $35,000,  an increase in show
      expenses of approximately $23,000, an increase in office expenses of
      approximately $17,000, an increase in offering costs of approximately $15,000,
      an increase in employee benefit costs of approximately $13,000, an increase
      in
      marketing expenses of approximately $8,000 and an overall increase in labor
      costs of approximately $4,000.




Depreciation
      and amortization expense decreased to approximately $37,000 in the nine months
      ended September 30, 2007 from approximately $42,000 in the comparable period
      in
      2006.  This decrease was primarily due to the discontinuance of
      depreciation of assets which became fully depreciated.




Interest
      expense increased to approximately $295,000 for the nine months ended September
      30, 2007 from approximately $290,000 in the corresponding 2006 period primarily
      due to interest on the promissory note from the Coates Trust and interest
      accrued on the 10% convertible notes.




The
      change in deferred taxes for the nine months ended September 30, 2007 and 2006
      was fully offset by a valuation allowance, resulting in a $-0- net income tax
      provision. The Company experienced a net loss for the nine month periods ended
      September 30, 2007 and 2006, of approximately $1,911,000 and $1,431,000,
      respectively.




**Liquidity
      and Capital Resources**




The
      Company’s cash position at September 30, 2007 was approximately $313,000, an
      increase of approximately $59,000 from the cash position of approximately
      $254,000 at December 31, 2006. We had negative working capital of approximately
      ($280,000) at September 30, 2007 which represents an approximately $239,000
      improvement from the approximately ($519,000) working capital deficiency at
      December 31, 2006. CIL’s current liabilities of approximately $979,000 at
      September 30, 2007 decreased by approximately $146,000 from approximately
      $1,125,000 at December 31, 2006.





Operating
      activities utilized cash of approximately ($1,595,000) in the nine months ended
      September 30, 2007. Cash utilized by operating activities in the nine months
      ended September 30, 2007 results primarily from a net loss of approximately
      ($1,911,000), an increase in inventory of approximately ($34,000), a decrease
      in
      accounts payable and accrued liabilities of approximately ($53,000), offset
      by
      non-cash expenses for stock based compensation expense of $352,000, depreciation
      and amortization of approximately $37,000 and offering costs of approximately
      $15,000.





16


Investing
      activities utilized cash of approximately ($8,000) for the acquisition of
      property, plant and equipment during the nine months ended September 30,
      2007.





Financing
      activities generated cash of approximately $1,662,000 for the nine months ended
      September 30, 2007 and utilized cash of approximately ($135,000) for the nine
      months ended September 30, 2006. Cash generated from financing activities for
      the nine months ended September 30, 2007 consisted of cash proceeds of
      approximately $1,707,000 from the sale of common stock, cash proceeds of
      $120,000 from the issuance of 10% convertible notes and cash proceeds of
      approximately $100,000 from the issuance of a promissory note to the Coates
      Trust, offset by repayment of a note payable to the Coates Trust of
      approximately $192,000 and payments for deferred offering costs of approximately
      $73,000 in connection with the Dutchess equity line of credit. Cash utilized
      for
      financing activities in the 2006 corresponding period consisted of deferred
      offering costs of approximately ($90,000) and repayment of a related party
      loan
      of approximately ($45,000).





In
      the
      opinion of management, we will be required to continue to raise additional
      working capital to fully achieve our objectives as we are now entering the
      production phase of our operations. The source of such additional working
      capital is anticipated to come from the cash flows under the agreements with
      WWE
      and the $10 million equity line established with Dutchess Private Equities
      Fund,
      Ltd. (“Dutchess”). We are actively pursuing additional working capital from both
      of these sources. The Company is carefully managing the pace at which it draws
      working capital from the equity line with Dutchess. There can be no assurance
      that we will be able to obtain the necessary working capital for our production
      phase on a time frame that will enable us to optimize our production
      capacity.  We continue to actively seek out additional sources of new
      working capital.





**Contractual
      Obligations and Commitments**





The
      following table summarizes our contractual obligations and commitments at
      September 30, 2007:





Amount
                Due WithinTotal
            
            2007
            
            2008
            
            2009
            
            2010
            
            2011Contractual
                ObligationsSale/Leaseback
                Arrangement(1)
            
            $
            1,625,000
            
            
            $
            97,500
            
            
            $
            390,000
            
            
            $
            390,000
            
            
            $
            390,000
            
            
            
            $
            357,500Employment
                Agreements(2)
            
            
            1,068,750
            
            
            
            65,750
            
            
            
            263,000
            
            
            
            263,000
            
            
            
            263,000
            
            
            
            
            214,000Total
            
            $
            2,693,750
            
            
            $
            163,250
            
            
            $
            653,000
            
            
            $
            653,000
            
            
            $
            653,000
            
            
            
            $
            571,500





(1)
            Although
                the total finance obligation reflected in the Company’s balance sheet at
                September 30, 2007 amounts to approximately $3,877,000, only the
                amounts
                reflected in the above table constitute a contractual commitment.
                This is
                a result of the required finance method of accounting treatment for
                the
                underlying sale/leaseback transaction. This accounting treatment
                is being
                applied because the Company’s option to repurchase this property through
                November 2008, represents a continuing interest in the property.
                Under
                this method, the property and the finance obligation continue to
                be
                reported on the Company’s balance sheet until the exercise or expiration
                of the repurchase option. The above payments, which will be charged
                to
                interest expense under this finance method of accounting equate to
                an
                annual interest rate of 10.06%.




(2)
            Our
                obligation under employment agreements would increase to $675,000
                per year
                through October 17, 2009 and to $550,000 per year from October 18,
                2009
                through October 23, 2011, upon the Company achieving an adequate
                level of
                working capital, as defined.





**Plan
      of Operation**





We
      are
      focusing on entering the production phase of our operations in order to fulfill
      orders for our CSRV Power Generators for WWE. Initially, our revenues, profits
      and operating cash flows will be dependent on a single customer, WWE. The
      Company intends to take advantage of the fact that essentially all the
      components of the CSRV generator engine may be readily sourced and acquired
      from
      subcontractors, and, accordingly, intends to manufacture the generator engine
      in
      the two following ways:





·
            Assembly
                - to develop assembly lines within the Company’s premises. The Company is
                evaluating various opportunities to expand or acquire additional
                manufacturing capacity. We are also evaluating the desirability of
                outsourcing various aspects of the engine manufacturing to major
                engine
                suppliers in the U.S. As demand for our products justifies it, the
                Company
                will endeavor to increase its work force, accordingly. It is our
                intention
                to increase our production capacity in an orderly manner to ensure
                that
                proper training is conducted and effective operating procedures are
                implemented. We expect to add a significant number of new employees
                to our
                work force within the next 12 to 24 months as we commence
                production.




·
            Licensing
                the technology to Original Equipment Manufacturers (“OEM”) to take
                advantage of third party manufacturers’ production capacity and
                know-how.




We
      intend
      to increase our expenditures for marketing and branding activities over the
      next
      year in order to increase market awareness and acceptance of the CSRV
      technology.  We believe that we can be successful in our efforts to
      attract new customers and parties interested in licensing our
      technology.





The
      extent to which we can carry out this plan of operations will be highly
      dependent on our success in raising new sources of capital and generating cash
      flows from operations in the production phase.





17


**Going
      Concern**





As
      shown
      in the accompanying financial statements, the Company has incurred recurring
      losses from operations, and as of September 30, 2007, had a Stockholders’
Deficiency of approximately $2,770,000. These factors raise substantial doubt
      about the Company’s ability to continue as a going concern. Our independent
      registered public accounting firm has stated in their Auditor’s Report as of
      December 31, 2006 and for the year then ended that this raises substantial
      doubt
      about our ability to continue as a going concern.





We
      have
      been successful in raising approximately $2,859,000 from new sources of working
      capital during 2007.  In addition, we expect to receive the $3.8
      million balance from our Research and Development Agreement with WWE within
      the
      next 90 days.  Furthermore, we anticipate that as we move further
      along in our production phase that additional working capital will be generated
      from profitable sales of our CSRV Power Generators.  We also continue
      to seek out additional new sources of working capital. In the opinion of
      management, all of these factors serve to substantially mitigate the risk that
      we would not be able to continue as a going concern.





Management
      is continuing to carefully monitor its costs and is restricting variable costs
      to only those expenses that are necessary to carry out business plans. The
      Company continues to actively seek out new sources of working capital; however,
      there can be no assurance that it will be successful in these efforts. In
      October and November 2007, the Company received net proceeds of approximately
      $1,032,000 in connection with the sale of 1,998,580 shares of our common stock
      to Dutchess pursuant to this Investment Agreement.  We may utilize
      this equity line with Dutchess from time to time to further supplement our
      working capital.  However, it is our intention to minimize the impact
      of such transactions on the trading price of our common stock.





The
      accompanying financial statements do not include any adjustments that might
      be
      necessary if the Company is unable to continue as a going concern.




18


**Item
      3. CONTROLS AND PROCEDURES**




**Evaluation
      of Disclosure Controls and Procedures**





We
      maintain a system of disclosure controls and procedures that are designed for
      the purposes of ensuring that information required to be disclosed in our
      Securities and Exchange Commission (“SEC”) reports is recorded, processed,
      summarized and reported within the time periods specified in the SEC's rules
      and
      forms, and that such information is accumulated and communicated to our
      management, including our Principal Executive Officer and Principal Financial
      Officer, as appropriate to allow timely decisions regarding required
      disclosures.




As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of our Principal Executive Officer
      and Principal Financial Officer, of the effectiveness of our disclosure controls
      and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act
      of
      1934, as amended. Based on that evaluation, our Principal Executive Officer
      and
      Principal Financial Officer concluded that our disclosure controls and
      procedures are effective.




**Changes
      in Internal Control Over Financial Reporting**





There
      has
      been no change in our internal control over financial reporting during the
      quarter ended on September 30, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting. On October 25, 2006, we established an Audit Committee. The Audit
      Committee’s responsibilities include assessing the independence of our
      independent registered public accounting firm; overseeing the work of our
      independent registered public accounting firm, including the receipt and
      thorough consideration of reports from the independent registered public
      accounting firm; reviewing and discussing with management and our
      independent registered public accounting firm our annual and quarterly financial
      statements and related disclosures; monitoring our internal control over
      financial reporting, disclosure controls and procedures and additional
      responsibilities as set forth in the charter of our Audit Committee. The
      financial reports included in this Form 10-QSB were reviewed by our Audit
      Committee.





19




**PART
      II - OTHER INFORMATION**




**Item
      1. LEGAL PROCEEDINGS**




The
      Company, certain of its officers and directors and other related and unrelated
      parties were named as defendants in a lawsuit brought in the Superior Court
      of
      New Jersey captioned H. Alton Neff v. George Coates, Coates International,
      Ltd.
      et al. Plaintiff contends that he is the assignee of 1107 North West Central
      Avenue Inc. ("1107"). Preliminary agreements and an amendment thereto relating
      to purchase of a certain license by 1107 from the Company provided, inter alia,
      that a $500,000 deposit made by 1107 to the Company would convert to stock
      of
      the Company if certain conditions were not met by 1107. The Company maintains
      that 1107 did not fulfill such conditions, and failed to make a certain payment,
      and therefore, the deposit converted into shares of the Company's restricted
      Common Stock. On February 13, 2007, the Superior Court of New Jersey dismissed
      the complaint “with prejudice.” The plaintiff and a third party defendant have
      since filed motions for reconsideration which were denied on March 30, 2007.
      It
      is anticipated that the plaintiffs and the third party defendant will appeal.
      The Company has dismissed, without prejudice, its counterclaim and third party
      complaint in order to avoid the costs associated with a proof hearing. The
      plaintiffs and the third party defendant filed notices of appeal on June 12,
      2007 and June 13, 2007.  The Company intends to vigorously contest
      those appeals.





In
      April
      2007, the Company received a demand letter from a law firm requesting payment
      of
      approximately $77,000 in connection with a promissory note issued to the law
      firm as security for the payment of future services to the Company. The Company
      has notified the holder of this note that it does not intend to honor the
      promissory note because the law firm did not provide the services contemplated
      to be performed as consideration for the promissory note. No further action
      to
      pursue collection of this promissory note has been taken to date by the holder.
      At this time, it is not possible to reasonably estimate the outcome of this
      matter, and, accordingly, no amount has been accrued.





In
      late
      March 2007, at the request of the Company, Mark D. Goldsmith stepped down from
      his positions as Chief Executive Officer and President. Despite his resignation,
      Mr. Goldsmith contended that he was entitled to certain rights under an
      employment agreement with the company. Therefore, on April 17, 2007, the Company
      notified Mr. Goldsmith in writing that he was being terminated as a director,
      officer and employee with “Cause”, as defined in his employment agreement. On
      May 11, through an attorney, Mr. Goldsmith notified the Company that he disputed
      the Company’s position that his termination was with Cause and asserted the
      position that he resigned for “Good Reason”, as defined in his employment
      agreement. On July 10, through an attorney, Mr. Goldsmith notified the Company
      that he is claiming that the Company breached his employment agreement and
      is
      seeking recovery of damages resulting therefrom, consisting of compensation,
      benefits and stock options. In the opinion of management, his claims are
      completely without merit. The Company also intends to assert counterclaims
      should Mr. Goldsmith decide to undertake any legal action. At this time, it
      is
      too early to estimate the likely outcome of this matter. If the Company’s
      position is upheld, then Mr. Goldsmith would not be entitled to any
      compensation, benefits or stock options under his employment
      agreement.




Although
      the Company disputes and intends to vigorously defend against any potential
      claims that might be asserted by Mr. Goldsmith, it has without prejudice to
      its
      position, accrued for accounting purposes only, approximately $96,000 through
      April 13, 2007, the date the Company believes that Mr. Goldsmith was terminated
      with Cause. This amount has been included in accounts payable and accrued
      liabilities in the accompanying balance sheet.




20


**Item
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**




None




**Item
      3. DEFAULTS UPON SENIOR SECURITIES**





None





**Item
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





No
      matter
      was submitted during the quarter ending September 30, 2007, covered by this
      report to a vote of the Company’s shareholders, through the solicitation of
      proxies or otherwise.





**Item
      5. OTHER INFORMATION**




None





**Item
      6. EXHIBITS AND REPORTS ON FORM 8-K.**





(a) Reports
      on Form 8-K and Form 8K-A





On
      October 18, 2007, the Company filed Form 8-K with the SEC based upon the
      issuance of a press release announcing completion of development of the natural
      gas powered Coates Spherical Rotary Valve engine for incorporation in electric
      power generators.  This press release also announced that Well to Wire
      Energy, Inc. (“WWE”) was notified that to collect the third engine was ready for
      inspection and approval as provided for in both the Licensing and Research
&
Development agreements with WWE.





21





(b)
      Exhibits




**Exhibit**
              **Number**
            **Description**31.1
                *
            Section
                  302 Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
                  adopted
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
                *
            Section
                  302 Certification of Principal Financial Officer pursuant to Rule
                  13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
                  adopted
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.32.1
                *
            Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
                *
            Certification
                  of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.





*
      Filed
      herewith.





22





**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, thereunto
      duly authorized.






**COATES
                INTERNATIONAL, LTD.**Date:
                November 13, 2007
            By:
            /s/
                George J. CoatesGeorge
                J. CoatesPresident,
                Chief Executive Officer
              and
                Principal Executive Officer




Date:
                November 13, 2007
            By:
            /s/
                Barry C. KayeBarry
                C. KayeTreasurer,
                Chief Financial Officer
              and
                Principal Financial Officer






23