FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


               [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                         For Quarter Ended June 30, 1998

                                       OR

               [ ]TRANSITION REPORT PURSUANT O SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the Transition Period from _______ to _______

                         Commission file number 33-94884

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

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

          Highway 34 & Ridgewood Road, Wall Township, New Jersey 07719
               (Address of Principal Executive Office) (Zip Code)

                                 (908) 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 _____

The number of shares of Registrant's Preferred Stock Series A,$0.001 par  value,
outstanding  as  of June  30,  1998,  was 6,572,424 shares.

                                        1

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                           COATES INTERNATIONAL, LTD.
                          [A DEVELOPMENT STAGE COMPANY]


                                      INDEX


                                                                       Page
                                                                       Number

PART  1  -  FINANCIAL INFORMATION

Item 1   Financial Statements (unaudited)

             Balance Sheet
             - June 30, 1998                                              3

            Statements of Operations
           - Three and six months ended June 30, 1998 and 1997
              and since inception                                         4

           Statements of Cash Flows
           - Three and six months ended June 30, 1998 and 1997
              and since inception                                         5

          Notes to Consolidated Financial Statements                      6

Item 2  Management's Discussion and Analysis of Financial Condition      7-8
            And Results of Operations

ART II - OTHER INFORMATION                                                9

SIGNATURES                                                               10

FINANCIAL DATA SCHEDULE                                                  11




                                        2

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PART I - Item 1
                           Coates International, Ltd.
                          (A Development Stage Company)
                                  Balance Sheet
                                  June 30, 1998
                                   (Unaudited)



      Assets
Current Assets
   Cash                                                     $        203,555
   Restricted cash                                                   112,000
                                                              --------------

      Total Current Assets                                           315,555
                                                              --------------

Property, Plant and Equipment, - Net of Accumulated
Depreciation of $355,771                                           1,580,448
                                                              --------------

Other Assets
   Technology and Designs, Net of Accumulated
   Amortization of $0                                              4,900,000
   Mortgage Loan Costs, Net of Accumulated Amortization of $0         39,461
   Deposit                                                             2,500
                                                              --------------

      Total Assets                                                 6,837,964
                                                              ==============

      Liabilities and Stockholders' Equity

Current Liabilities
   Mortgage payable                                                 500,000
   Accounts payable and accrued expenses                            886,881
   Accrued interest payable                                         106,559
   Due to stockholder                                                 5,462
                                                             --------------

        Total Current Liabilities                                 1,498,902
                                                             --------------

Stockholders' Equity
   Preferred stock, Series A, $.001 par value, 14,000,000
    shares authorized - voting, non-cumulative convertible,
    6,572,424 shares issued and outstanding                           6,572
   Common stock, $.001 par value, 20,000,000 shares
   authorized - no shares issued                                          -
   Additional paid-in capital                                    25,647,519
   Deficit accumulated during the development stage             (20,315,029)
                                                              --------------

        Total Stockholders' Equity                                 5,339,062
                                                              --------------
                                                            $      6,837,964
        Total Liabilities and Stockholders' Equity            ==============



See notes to the condensed financial statements.

                                        3

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                           Coates International, Ltd.
                          (A Development Stage Company)
                            Statements of Operations


<TABLE>
<CAPTION>

                                                                                                                 Period From
                                                                                                                  August 31,
                                                                                                                1988 (Date of
                                                                                                                  Inception)
                                                                                                                   Through
                                                                                                                   June 30,
                                                                                                                     1998
                                                                                                               ----------------
                                              Three Months Ended                   Six Months Ended
                                                  March 31,                            June 30,
                                       --------------------------------    ---------------------------------   ----------------
                                            1998             1997               1998              1997
                                       ---------------  ---------------    ---------------   ---------------   ----------------
                                         (Unaudited)      (Unaudited)        (Unaudited)       (Unaudited)       (Unaudited)
                                       ---------------  ---------------    ---------------   ---------------   ----------------

<S>                                  <C>               <C>                <C>               <C>              <C>               
Revenue                              $               - $              -   $              -  $              - $          687,375

                                       ---------------  ---------------    ---------------   ---------------   ----------------

Operating Expenses:
   Research and development costs               91,808           64,744            184,548           136,191         18,303,131
   General and administrative
      expenses                                 123,415          347,151            212,808           572,911          7,156,878
   Depreciation expense                              -            6,419              1,606            19,950            321,276
                                       ---------------  ---------------    ---------------   ---------------   ----------------

      Total Operating Expenses                 215,223          418,314            398,962           729,052         25,781,285
                                       ---------------  ---------------    ---------------   ---------------   ----------------

   Loss From Operations                      (215,223)        (418,314)          (398,962)         (729,052)       (25,093,910)
                                       ---------------  ---------------    ---------------   ---------------   ----------------
Other Income (Expense):
   Interest income                                 298                7                392                13            125,258
   Interest expense                            (3,781)          (3,600)            (7,381)           (7,200)          (246,377)
                                       ---------------  ---------------    ---------------   ---------------   ----------------

      Total Other Income (Expense)             (3,483)          (3,593)            (6,989)           (7,187)          (121,119)
                                       ---------------  ---------------    ---------------   ---------------   ----------------

(Loss) From Operations Before
   Cumulative Effect of Change in
   Accounting Principle                      (218,706)        (421,907)          (405,951)         (736,239)       (25,215,029)
Cumulative Effect of Change in
   Accounting Principle (Net of Tax
   Effect of $0)                             4,900,000                -          4,900,000                 -          4,900,000
                                       ---------------  ---------------    ---------------   ---------------   ----------------
Net Income (Loss)                    $       4,681,294 $      (421,907)   $      4,494,049  $      (736,239) $     (20,315,029)
                                       ===============  ===============    ===============   ===============   ================

Income (Loss) Per Share
   (Loss) From Operations            $          (0.03) $         (0.07)   $         (0.06)  $         (0.12)
   Cumulative Effect of Change in
      Accounting Principle                        0.74                -               0.74                 -
                                       ---------------  ---------------    ---------------   ---------------
   Net Income (Loss) Per Share       $            0.71 $         (0.07)   $           0.68  $         (0.12)
                                       ===============  ===============    ===============   ===============
                                             6,572,424        5,963,600          6,571,757         5,963,600
   Weighted Average Number of
     Shares Outstanding
                                       ===============  ===============    ===============   ===============
</TABLE>


See notes to the condensed financial statements.

                                        4

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                           Coates International, Ltd.
                          (A Development Stage Company)
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                     Period From
                                                                                                     August 31,
                                                                                                    1988 (Date of
                                                                                                     Inception)
                                                                                                       Through
                                                                                                       June 30,
                                                                                                         1998
                                                                                                  -----------------
                                                                       Six Months Ended
                                                                            June 30,
                                                               ---------------------------------  -----------------
                                                                    1998              1997
                                                               ---------------   ---------------  -----------------
                                                                 (Unaudited)       (Unaudited)       (Unaudited)
                                                               ---------------   ---------------  -----------------

<S>                                                           <C>              <C>               <C>               
Cash Flows From Operating Activities                          $      (422,170) $       (561,363) $      (8,413,344)
                                                               ---------------   ---------------  -----------------

Cash Flows From Investing Activities                                         -                 -        (1,621,710)
                                                               ---------------   ---------------  -----------------

Cash Flows From Financing Activities
    Proceeds from mortgage payable                                     460,539                 -            460,539
    Repayment of mortgage payable                                    (160,000)                 -          (160,000)
    Proceeds of additional paid-in capital                             168,037           550,347          2,475,475
    Proceeds from issuance of stock                                    129,000                 -          7,467,148
    Payment for treasury stock                                               -                 -           (30,000)
    Proceeds from (repayment of) stockholder loans                     (7,100)            13,638             25,447
                                                               ---------------   ---------------  -----------------
    Net Cash Provided by Financing Activities                          590,476           563,985         10,238,609
                                                               ---------------   ---------------  -----------------

    Net Increase in Cash                                               168,306             2,622            203,555
    Cash - Beginning of Periods                                         35,249            13,641                  -
                                                               ---------------   ---------------  -----------------
    Cash - End of Periods                                     $        203,555 $          16,263 $          203,555
                                                               ===============   ===============  =================
</TABLE>















See notes to the condensed financial statements.

                                        5

<PAGE>




                           Coates International, Ltd.
                          (A Development Stage Company)
                   Notes to the Condensed Financial Statements

BASIS OF PRESENTATION

    The accompanying unaudited condensed financial statements 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 footnotes
    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.  Operating  results for the three months and six months ended
    June 30, 1998 and 1997 are not  necessarily  indicative  of the results that
    may  be  expected   for  the  years  ended   December  31,  1998  and  1997,
    respectively. The unaudited condensed financial statements should be read in
    conjunction with the consolidated financial statements and footnotes thereto
    included  in the  Company's  annual  report on Form 10-K for the year  ended
    December 31, 1997.

RELATED PARTY TRANSACTION

    Subcontract  Labor - The Company  subcontracts its project expense (payroll,
    insurance and supplies) from an entity in which George J. Coates is the sole
    stockholder. During the six months ended June 30, 1998 and 1997, $48,885 and
    $107,000, respectively, were paid for these services.

COMMITMENTS AND CONTINGENCIES

    The  Company is a defendant  in various  lawsuits  incident to the  ordinary
    course of business which are not possible to determine the probable  outcome
    or the amount of liability,  if any, under these lawsuits.  However,  in the
    opinion of  management,  the  disposition  of these lawsuits will not have a
    material  adverse  effect on the Company's  financial  position,  results of
    operations, or cash flows.

CUMMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

    In accordance with paragraph #29 of Accounting  Principles Board Opinion No.
    20 ("APB 20")  "Accounting  Changes",  the Company has elected to change its
    method  of  accounting  for  research  and  development  (R  & D)  costs  in
    connection  with  the  completion  of  its  prototype  testing  phase  and a
    forthcoming  public offering of shares of its common stock.  The cummulative
    effect of the change in accounting  principle  ("the  change"),  pursuant to
    Financial  Accounting  Standards  Board No. 2 ("FASB No. 2") "Accounting for
    Research and Development Costs",  consists of the adoption of the "Selective
    Capitalization"  criteria from the previous  practice of expensing all R & D
    costs.  No effects from the change are  applicable to the periods ended June
    30,  1998 and  March 31,  1998.  The  following  are the new  results  after
    applying the effect of the change on a prior period:

                                                           Year Ended
                                                    December 31, 1997
                                                    ------------------------

(Loss) From Operations                           $               (10,792,513)
                                                    ========================
Net (Loss)                                       $               (10,796,901)
                                                    ========================
Net (Loss) Per Share                             $                    (1.79)
                                                    ========================

    The change  resulted in the recording of an asset  "Technology  and Designs"
    amounting to  $4,900,000  which will be amortized on a  straight-line  basis
    over a 15 year period beginning July 1, 1998.

    MORTGAGE PAYABLE
    The Company  acquired a new mortgage  during June 1998.  The old mortgage of
    $160,000 was settled from the proceeds of the new mortgage. Terms of the new
    mortgage are such that the principal amount will be due in one year, monthly
    interest  payments  only will be made at 18% per annum,  and the mortgage is
    secured by a first  mortgage on the land and buildings of the Company with a
    net book  value at June 30,  1998 of  $1,552,875.  The  Company's  principal
    stockholder and Chief Executive  Officer has also personally  guaranteed the
    mortgage.

                                        6

<PAGE>



            ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Coates  International  Ltd.  ("CIL" or the "Company") is a Delaware  corporation
organized in October 1991 by George J. Coates, as the successor in interest to a
Delaware  corporation  of  the  same  name  incorporated  in  August  1988  (the
"Predecessor   Entity").   As  a  result  of  a  dispute  with  certain   former
employee-directors  who claimed top own approximately  nine % of the Predecessor
Entity's  outstanding  capital stock, the Predecessor  Entity was reorganized in
November 1991. Pursuant to the reorganization,  all of the Predecessor  Entity's
assets  subject to  liabilities  were  distributed  to CIL, the non-  litigating
stockholders of the Predecessor  Entity became the  stockholders of CIL, and the
Predecessor Entity was dissolved.

CIL has completed the basic  development of a spherical rotary valve system (the
"Coates System"), the development of which was initiated by its founder,  George
J. Coates, for use in internal  combustion engines of all types. With respect to
the Coates System, seven applicable Unites States patents (the "Coates Patents")
have been issued to George J.  Coates.  CIL holds a  non-exclusive  license from
George J.  Coates and his son Gregory  Coates,  to  manufacture,  sell and grant
sub-licenses with respect to products based on the Coates Patents, within all of
the countries,  their  territories and  possessions,  comprising  North America,
South America and Central  America (the "License  Areas").  George J. Coates and
Gregory Coates have also agreed, as long as CIL remains  independent and viable,
not to compete with CIL in the  manufacture,  assembly,  use or sale of internal
combustion  engines  utilizing the  technology  falling  within the scope of the
Coates  Patents  in the  Licensed  Areas,  or to grant  any other  exclusive  or
non-exclusive  license in the Licensed  Areas  except  through CIL. In addition,
George J. Coates and Gregory Coates have executed an agreement  granting CIL the
right to retain any moneys including  royalties  received from Nicholson McLaren
or from Noble Motor Sport  (manufacturer of Ascari racing cars) for manufacture,
sale, use or assembly of internal combustion engines anywhere in the world using
the technology falling within the scope of the Coates Patents.

CIL has a short  operating  history,  during which it has primarily  devoted its
attention to developing the technology associated with the Coates System. During
such time CIL has also  arranged  for  certain  tests in order to  evaluate  the
effectiveness  of the  technology.  CIL has also devoted much time attempting to
interest  various  persons and  entities in  acquiring  sub-licenses  to use the
technology.

CIL is  currently  manufacturing  components  for  high  performance  automotive
engines modified with the Coates System on a limited basis at its Wall Township,
New Jersey,  manufacturing  facility. CIL has received numerous oral and written
inquiries  from  potential  customers,  expressing an interest in acquiring high
performance  automotive  racing  engines  modified  with the Coates  System.  No
assurances  can be given  that these  inquiries  will  result in  binding  sales
orders.  CIL  intends  to  aggressively  pursue all  inquiries  with the goal of
obtaining firm orders. CIL's ability to generate revenues and achieve profitable
operations is principally dependent upon the execution of sub-license agreements
with engine  manufacturers  and retrofitters  and upon the Company's  successful
marketing and sales of high performance automotive, motorcycle and marine racing
engines.


                                        7

<PAGE>



Results of Operations for the Quarters Ended June 30, 1998 and 1997

No revenues were recognized  during the quarters ended March 31, 1998, and 1997.
The cash  shortage  during the last  quarter  severely  hampered  the  Company's
efforts to complete testing and trial of certain engine  configurations which is
considered  crucial in furthering  the prospects for  successful  negotiation of
potential  sub-license  agreements with engine  manufacturers and refitters.  To
overcome this constraint,  management  during the last quarter had to spend much
time and effort in seeking to improve liquidity with the result that towards the
end of the quarter,  additional  funding was secured (see "Liquidity and Capital
Resources").  The relatively  improved financial  situation makes it possible to
continue  research and development work during the upcoming  quarters.  However,
management  at this time  cannot  with any  degree  of  certainty  predict  when
meaningful revenues might be achieved.

As a result of strict cost  control  measures  and  curtailment  of  activities,
operating  expenses  incurred  during the last  quarter  decreased  to  $215,223
compared  to  $418,314  for the same  period in 1997.  The  largest  single cost
element was research &  development  expense which  totaled  $91,808  during the
second quarter in 1998. General and administrative expenses totaled $123,415 for
the quarter, down from $347,151 in the same quarter in 1997.

After recognizing $3,483 net interest expense,  the Company's  operations show a
net loss from  operations  of $218,706 or $0.03 per share for the quarter  ended
June 30, 1998, compared to a net loss of 421,907 or $0.07 per share for the same
quarter in the preceding year. A change in the accounting  treatment of Research
and  Development  expenditures  (see Notes to Financial  Statements)  created an
extraordinary  one-time  profit of $4,900,000  which was  recognized  during the
quarter,  and resulted in an overall net profit of $4,494,049 or $0.68 per share
for the period.

Total  losses  since  inception  in August 1988  through June 30, 1998 amount to
$20,315,029 .


Liquidity and Capital Resources

  During the quarter, the Company's balance sheet was significantly  impacted by
two  occurrences - the completion of a mortgage  refinancing  transaction  which
improved short term liquidity,  and a change in accounting principle which added
$4,900,000  to assets and equity.  During  June 1998 the Company  acquired a new
mortgage in the amount of $500,000  and paid off the old mortgage of which had a
balance of $160,000.  The new mortgage will be due in one year and is secured by
a first lien on the land and buildings of the Company.  Also, in accordance with
paragraph  #29  of  Accounting   Principles   Board  Opinion  No.20  ("APB  20")
"Accounting Changes", the Company has elected to change its method of accounting
for research and  development  (R&D) costs in connection  with the completion of
its prototype  testing phase. The cumulative  effect of the change in accounting
principle  consists of the adoption of the "Selective  Capitalization"  criteria
from the  previous  practice  of  expensing  all R&D costs and  resulted  in the
recording of an asset  "Technology  and Designs"  amounting to $4,900,000  which
will be amortized on a straight-line  basis over a 15 year period beginning July
1, 1998.

At June 30, 1998,  CIL had a net worth of $5,339,062.  Working  capital showed a
deficit of  $(1,183,347),  compared to a negative  $(1,036,578)  at December 31,
1997. This deficit will continue to affect the Company's  operations even though
the mortgage financing  transaction described above provided operating funds. In
order to further improve the Company's  financial situation and provide funds to
meet  maturing  obligations  and  finance  the  ongoing  efforts  to market  the
Company's  products,  management  plans to raise  additional  capital  through a
combination of private placements and debt issues.



                                        8

<PAGE>




PART  II  -  OTHER INFORMATION


Item 1        LEGAL PROCEEDINGS

The response to this item can be found in the  Company's  annual  report on Form
10-KSB,  Item  3,  for  the  year  ended  December  31,  1997,  which  is  being
incorporated herein by reference to such report.


Item 2        CHANGES IN SECURITIES   -  None


Item 3        DEFAULTS ON SENIOR SECURITIES    -  None
              -----------------------------


Item 4        SUBMISSION OF MATTERS TO A VOTE OF
              SECURITIES' HOLDERS      -  None


Item 5        OTHER INFORMATION     -  None


Item 6        EXHIBITS AND REPORTS ON FORM 8-K   - None
              --------------------------------





                                        9

<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, thereunto duly authorized.



                                        COATES INTERNATIONAL, LTD.




Date:  August 13, 1998                  By: s/ George J. Coates
                                             -------------------
                                              George J. Coates
                                              Chief Executive and
                                              Chief Financial Officer


coat10q.698







                                       10

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