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 1934

                  For the quarterly period ended June 30, 2006

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

      For the transition period from _________________ to _________________

                        Commission file number 33-948884

                           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)

                                 (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 |_|

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

                                 Yes |_| No |X|

As of June 30, 2006, there were 266,894,278 shares of the Registrant's common
stock were issued and outstanding.

<PAGE>
                           Coates International, Ltd.
                        Index to the Financial Statements
                                  June 30, 2006

                                                                            Page
                                                                            ----

Financial Statements (Unaudited)

     Condensed Balance Sheet................................................   2

     Condensed Statements of Operations.....................................   3

     Condensed Statements of Cash Flows.....................................   4

     Notes to the Condensed Financial Statements............................   5

Item 2   Management's Discussion and Analysis of Financial Condition
             and Results of Operations......................................   7

Item 3   Controls and Procedures............................................  12

PART II  -  OTHER INFORMATION...............................................  13

Item 1.     LEGAL PROCEEDINGS...............................................  13

Item 6.     EXHIBITS........................................................  13

SIGNATURES..................................................................  14

<PAGE>
{B0544406; 1}
{B0544701; 1}
                                                      Coates International, Ltd.
                                                       Condensed Balance Sheet
                                                            June 30, 2006
                                                             (Unaudited)

<TABLE>
<CAPTION>
<S>                                                                          <C>
Assets

Current Assets
   Cash                                                                      $  1,012,693
   Inventory                                                                      530,356
   Prepaid expenses                                                                37,363
                                                                             ------------
      Total Current Assets                                                      1,580,412
Deferred offering costs                                                            97,685
Investment - related party                                                             --
Property, plant and equipment, net of accumulated depreciation of $732,716      1,505,060
Patents, net of accumulated amortization of $2,167                                 68,219
Security deposits                                                                 197,500
                                                                             ------------

      Total Assets                                                           $  3,448,876
                                                                             ============

Liabilities and Stockholders' Impairment

Current Liabilities
   Accounts payable                                                          $     24,814
   Accrued expenses                                                               767,621
   Accrued interest payable                                                        17,618
   Due to related parties                                                          92,337
                                                                             ------------
      Total Current Liabilities                                                   902,390

   License deposits                                                               940,000
   Finance Obligation                                                           3,876,607
                                                                             ------------

      Total Liabilities                                                         5,718,997
                                                                             ------------

Stockholders' Impairment
    Common stock, $.00001 par value, 1,000,000,000 shares authorized,
       266,894,278 shares issued and outstanding                                   26,689
    Additional paid-in capital                                                 17,176,155
    Accumulated deficit                                                       (19,472,965)
                                                                             ------------
      Total Stockholders' Impairment                                           (2,270,121)
                                                                             ------------

      Total Liabilities and Stockholders' Impairment                         $  3,448,876
                                                                             ============
</TABLE>

See notes to the condensed financial statements.


                                       2
<PAGE>
                           Coates International, Ltd.
                       Condensed Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended                 Six Months Ended
                                                         June 30,                          June 30,
                                              ------------------------------    ------------------------------
                                                   2006             2005             2006             2005
                                              -------------    -------------    -------------    -------------
<S>                                           <C>              <C>              <C>              <C>

Revenue                                       $          --    $          --    $          --    $          --
                                              -------------    -------------    -------------    -------------

Operating Expenses:
  General and administrative expenses               380,768          210,629          760,310          413,926
  Research and development                               --            4,530               --            6,451
  Depreciation and amortization expense              12,858           15,902           25,495           31,634
                                              -------------    -------------    -------------    -------------
      Total Operating Expenses                      393,626          231,061          785,805          452,011
                                              -------------    -------------    -------------    -------------

Loss From Operations                               (393,626)        (231,061)        (785,805)        (452,011)
                                              -------------    -------------    -------------    -------------

Other Income (Expense)
  Equity loss on investment - related party              --         (161,720)              --         (183,369)
  Interest income                                    25,864               --           25,864               --
  Interest expense                                  (94,735)         (33,431)        (192,166)         (61,772)
  Gain on sale of stock -related party                   --           15,000               --           15,000
                                              -------------    -------------    -------------    -------------
      Total Other (Expense)                         (68,871)        (180,150)        (166,302)        (230,141)
                                              -------------    -------------    -------------    -------------

Loss Before Income Taxes                           (462,497)        (411,211)        (952,107)        (682,152)

Income Taxes                                             --               --               --               --
                                              =============    =============    =============    =============
Net Loss                                      $    (462,497)   $    (411,211)   $    (952,107)   $    (682,152)
                                              =============    =============    =============    =============

Net Loss per share (Basic and diluted)        $         -0-    $         -0-    $         -0-    $         -0-
                                              =============    =============    =============    =============
Weighted Average Number of Common
Shares Outstanding                              266,894,278      265,866,718      266,894,278      265,863,195
                                              =============    =============    =============    =============
</TABLE>

See notes to the condensed financial statements.


                                       3
<PAGE>
                           Coates International, Ltd.
                       Condensed Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               Six Months Ended
                                                                   June 30,
                                                          --------------------------
                                                              2006           2005
                                                          -----------    -----------
<S>                                                       <C>            <C>

Cash Flow From Operating Activities                       $  (753,026)   $  (409,138)
                                                          -----------    -----------

Cash Flow From Investing Activities
   Acquisition of Fixed Assets                                (26,990)        (2,255)
   Sale of Stock in Minority Interest - related party              --         15,000
   Outlays for Patents and Trademarks                         (14,929)       (51,089)
                                                          -----------    -----------
   Net Cash Used for Investing Activities                     (41,919)       (38,344)
                                                          -----------    -----------

Cash Flow From Financing Activities
   Payments for deferred offering costs                       (75,185)
   Repayment of mortgage                                           --         (1,716)
   Proceeds (repayment) of related party loan                 (45,300)       200,437
   Short term borrowings                                           --         31,092
   Proceeds from issuance of stock                                 --        145,000
                                                          -----------    -----------
   Net Cash (Used for) Provided by Financing Activities      (120,485)       374,813
                                                          -----------    -----------

   Net (Decrease) in Cash                                    (915,430)       (72,669)
   Cash - Beginning of Period                               1,928,123        180,182
                                                          -----------    -----------

   Cash - End of Period                                   $ 1,012,693    $   107,513
                                                          ===========    ===========
</TABLE>

See notes to the condensed financial statements.


                                       4
<PAGE>
                           Coates International, Ltd.
                   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 and six months ended June 30, 2006 and 2005 are
not  necessarily  indicative  of the  results  that may be  expected  for future
periods.  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-KSB  for the year  ended
December 31, 2005, and its quarterly  report on Form 10-QSB for the period ended
March 31, 2006.

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.

RELATED PARTY TRANSACTIONS

On April 30, 2003, the Company  entered into a sublicense  agreement with Coates
Motorcycle  Company Ltd., a company that researches and develops a heavy cruiser
motorcycle equipped with the Coates SRV engine. Prior to the agreement,  Gregory
Coates,  the son of George J Coates,  an officer of the  Company,  owned 100% of
Coates  Motorcycle.  Pursuant  to the  agreement,  the Company  granted  certain
exclusive  licenses in exchange for  approximately  51% of the common  shares of
Coates Motorcycle. In addition, the Company had an anti-dilution right.

During 2004, the Company amended its license agreement with Coates Motorcycle to
expand the license rights granted and to remove the  anti-dilution  provision in
exchange for 1,000,000  common shares of Coates  Motorcycle.  As a result of the
transactions,   the  Company  owned  3,558,000  shares  of  Coates   Motorcycle,
representing approximately a 30% ownership interest. During the six months ended
June 30, 2005,  the Company sold 3,000 shares of Coates  Motorcycle  for $15,000
and the Company currently owns 3,555,000 shares.

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.


                                       5
<PAGE>

                           Coates International, Ltd.
                   Notes to the Condensed Financial Statements

RELATED PARTY TRANSACTIONS (CONTINUED)

Summarized information for Coates Motorcycle is as follows:

      For the Six Months Ended June 30,         2006           2005
      -----------------------------------   -----------    -----------

        Revenue                             $        --    $        --
        Operating expenses                      491,297        639,571
        Net loss                               (524,364)      (613,270)

      As of June 30,                            2006           2005
      -----------------------------------   -----------    -----------

      Current assets                        $   232,184    $    56,849
        Total assets                            797,006        458,248
        Current liabilities                    (454,503)      (422,920)
        Total liabilities                    (1,359,987)      (427,420)
        Stockholders' impairment (equity)       562,892        (30,828)


The Company  also made loans to Coates  Motorcycle  from time to time to provide
working  capital for the  development  and testing of  motorcycle  engines which
incorporate  the  Company's  technologies.  As of December 31,  2004,  the total
outstanding  balance of these loans,  including  accrued interest  thereon,  was
$362,200 and was converted  into 362,200  shares of Series A Preferred  Stock of
Coates  Motorcycle.  This amount was  recorded by the  Company as  Investment  -
related party.

During the three month period ended June 30, 2005, the Company  received $10,991
from Coates Motorcycle as reimbursement of general and  administrative  expenses
incurred on its behalf.

George J.  Coates  has made loans to the  Company  at  various  times to provide
working capital,  the outstanding  balance of which is $92,337 at June 30, 2006.
These borrowings are in the form of demand loans which carry no interest and are
repaid from time to time depending upon cash availability.

EQUITY METHOD LOSSES AND IMPAIRMENT OF INVESTMENT IN RELATED PARTY

Emerging  Issues Task Force  ("EITF")  98-13,  "Accounting  by an Equity  Method
Investor for Investee  Losses When the Investor has Loans to and  Investments in
Other Securities of the Investee", requires an investor using the equity method,
that has  reduced  the  value of the  investment  to  $-0-,  but also has  loans
outstanding  or other  forms of equity  such as  preferred  stock to continue to
report its share of the losses.  Accordingly,  during the six months  ended June
30, 2005, the Company  recorded losses from its investment in Coates  Motorcycle
in the amount of $183,369.

The  Company  computed  its share of the  losses in  accordance  with EITF 99-10
"Percentage  Used to Determine  the Amount of Equity Method  Losses,"  where the
percent ownership was based on the assumed  conversion of the Preferred Series A
Stock held by the Company.


                                       6
<PAGE>
                           Coates International, Ltd.
                   Notes to the Condensed Financial Statements

SALE OF COMMON STOCK

In June 2005,  the Company issued 33,000 shares of its common stock at $5.00 per
share to an accredited investor for $135,000 in cash and $30,000 in repayment of
accounts payable and accrued interest owed to such accredited investor.

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 certain 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  period  reports  filed with the SEC.
Readers are also urged to carefully review and consider the various  disclosures
we have made in this report.

Background

Coates  International  Ltd.  ("We",  "our",  "us",  "CIL" or the  "Company")  is
completing  the  development  of the Coates  Spherical  Rotary Valve engine (the
"CSRV" engine),  which has been designed for use in internal  combustion engines
of all  types.  We are  now  engaged  in  adapting  our  technology  for  use in
conjunction with electric generators and other applications.

Agreements with Well to Wire Energy, Inc.

On September 29, 1999, CIL signed an agreement (the "WWE  Agreement")  with Well
to Wire Energy, Inc. ("WWE"), an oil and gas company in Canada,  relating to the
distribution in Canada of V-8 cylinder  engines  modified with the Coates Rotary
Valve System to be fueled by natural gas to generate electrical power for future
payments,  of which a deposit  payment in the  amount of  $300,000  was made.  A
separate  research and development  agreement  between CIL and WWE, provides for
development and delivery of certain prototype engines.


                                       7
<PAGE>

On July 7, 2006, we and Coates  Motorcycles  Company Ltd.  signed a confirmation
letter agreement with WWE, that provides as follows:

      o     The Company  expects to ship to WWE in the near term the third power
            unit of the  Company's  generator up to 300 kw 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  Generator,  and pending test results  meeting  WWE's
            expectations,  the balance of  $3,905,000 on account of the research
            and  development  agreement  mentioned  above will become due to the
            Company by WWE.  In  addition,  180 days  later,  the  balance of US
            $4,700,000 on account of the distribution  agreement mentioned above
            will  become  due  to the  Company  by  WWE  in 16  equal  quarterly
            installments.

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

      o     WWE will have a right of first refusal to market the generators that
            are based on the CSRV System technology worldwide.

      o     The Company and WWE have  agreed that the minimum  annual  number of
            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 start in 2007.

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

      o     Patent Rights.  All patent and other  intellectual  property  rights
            related to the engine will remain with CIL.

RESULTS OF OPERATIONS -THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS
ENDED JUNE 30, 2005

No revenues  were  generated  during the three month periods ended June 30, 2006
and 2005.  Total  operating  expenses for the three month periods ended June 30,
2006 and 2005, respectively, were $393,626 as compared to $231,061. Research and
development  expenses  were $ -0- and $4,530 for the three month  periods  ended
June 30, 2006 and 2005, respectively.  This decrease in research and development
expenses  reflects the Company's  shift from R&D  activities  to  pre-production
activities as efforts were directed  towards  completion of the third  prototype
production  engine for  Well-to-Wire.  Approximately  $93,630  represented labor
charges for the three month period ended June 30, 2006.

General and  administrative  expenses increased to $380,768 for the three months
ended June 30, 2006 from  $210,629 in the  corresponding  three month  period in
2005.  This $170,139,  or 81% increase  primarily  resulted from increased legal
fees of approximately  $141,000,  increased  professional  fees of approximately
$17,000,  an  increase  in  scrapped  materials  of  approximately  $19,000,  an
approximately  $11,000  reduction  in the amount of general  and  administrative
expenses  reimbursed  by Coates  Motorcycle  Company,  Ltd.,  an increase in the
accrual  in 2006 for  federal  alternative  minimum  taxes  for tax year 2005 of
approximately  $17,000 and an increase  in real  estate  taxes of  approximately
$14,000, offset by a refund of previously expensed testing fees in the amount of
($40,000) and lower expenditures for marketing of approximately ($9,000).


                                       8
<PAGE>

Interest expense  increased to $94,735 from $33,430  primarily due to the higher
balance  of  the  finance   obligation,   arising  from  a  2005  sale/leaseback
transaction, amounting to $3,876,607 at June 30, 2006. This transaction is being
accounted  for under the finance  obligation  method  required  under  generally
accepted  accounting  principles for  sale/leasebacks  as a result of the option
granted to the Company to repurchase the property. In 2005, the interest expense
incurred  primarily related to interest on the mortgage loan which had a balance
of  approximately  $863,000 at June 30, 2005.  This mortgage loan was secured by
the  Company's  property  that  contains its  principal  offices,  warehouse and
manufacturing facilities.

The Company  experienced  a net loss for the three month  periods ended June 30,
2006 and 2005,  of $462,498  and  $411,211,  respectively.  The net loss for the
three month period ended June 30, 2005  included the  Company's  share of losses
based on it equity  ownership in Coates  Motorcycle  amounting to $161,720 and a
gain on sale of stock of $15,000.

The Company received net proceeds of approximately  $3,025,000 from the sale and
leaseback of the property  which contains its principal  offices,  warehouse and
manufacturing  facility  in the  fourth  quarter  of  2005.  In the  opinion  of
management,  the additional  working  capital  generated  from this  transaction
should be  sufficient  to  enable  the  Company  to fund the  completion  of the
prototype  generator  engines under the agreements  with WWE, and depending upon
its  successful  completion,  management  expects  the  agreements  with  WWE to
contribute an increasing stream of revenues during the succeeding periods. There
can be no  assurance,  however,  that  completion  and testing of the  prototype
engines can be completed  in a  satisfactory  manner and within the  anticipated
time frames or that WWE will honor its payment  obligations  to us or purchase a
meaningful number of Generators.

RESULTS OF  OPERATIONS  -SIX MONTHS  ENDED JUNE 30, 2006  COMPARED TO SIX MONTHS
ENDED JUNE 30, 2005

CIL's currently anticipated sources of revenues are the payments due to CIL from
WWE under the  agreements  with WWE. In the fourth quarter of 2005, CIL received
net  proceeds of  approximately  $3,025,000  from the sale and  leaseback of the
property  which  houses  its  principal  offices,  warehouse  and  manufacturing
facility. In the opinion of management, the additional working capital generated
from this transaction should be sufficient to enable the Company to complete the
final testing under the WWE R&D Agreement and WWE Agreement.

No revenues were generated  during the six month periods ended June 30, 2006 and
2005. Total operating expenses for the six month periods ended June 30, 2006 and
2005, were $785,805 and $452,011, respectively, an increase of 74%. Research and
development  expenses were $ -0- and $6,451 for the six month periods ended June
30, 2006 and 2005,  respectively.  This  decrease in  research  and  development
expenses  reflects  the  Company's  shift  from  R&D  activities  to  production
activities as effort were  directed  towards  completion of the third  prototype
production  engine for  Well-to-Wire.  Approximately  $187,515 for the six month
period ended June 30, 2006 represented labor charges.

General and  administrative  expenses  increased  to $760,310 for the six months
ended June 30, 2006 from $413,926 in the corresponding six month period in 2005.
This $346,383,  or 84% increase  primarily resulted from increased legal fees of
approximately  $200,000,  increased  professional fees of approximately $68,000,
increased  patent  maintenance  costs of approximately  $46,000,  an increase in
scrapped materials of approximately  $19,000, an approximately $11,000 reduction
in the  amount of  general  and  administrative  expenses  reimbursed  by Coates
Motorcycle  Company,  Ltd.,  an  increase  in the  accrual  in 2006 for  federal
alternative  minimum  taxes for tax year 2005 of  approximately  $17,000  and an
increase in real estate taxes of  approximately  $17,000,  offset by a refund of
previously   expensed  testing  fees  in  the  amount  of  ($40,000)  and  lower
expenditures  for  marketing  of  approximately   ($15,000).


                                       9
<PAGE>

Interest expense  increased to $192,166 from $61,770 primarily due to the higher
balance  of  the  finance  obligation,  arising  from  the  2005  sale/leaseback
transaction, amounting to $3,876,607 at June 30, 2006. This transaction is being
accounted  for under the finance  obligation  method  required  under  generally
accepted  accounting  principles for  sale/leasebacks  as a result of the option
granted to the Company to repurchase the property. In 2005, the interest expense
incurred  primarily related to interest on the mortgage loan which had a balance
of  approximately  $863,000 at June 30, 2005.  This mortgage loan was secured by
the  Company's  property  which  contains its principal  offices,  warehouse and
manufacturing facility.

The Company experienced a net loss for the six month periods ended June 30, 2006
and 2005, of $952,107 and $682,150 respectively.  The net loss for the six month
period ended June 30, 2005 included the  Company's  share of losses based on its
equity ownership in Coates  Motorcycle  amounting to $183,369 and a gain on sale
of stock of $15,000.

The Company received net proceeds of approximately  $3,025,000 from the sale and
leaseback of the property  which contains its principal  offices,  warehouse and
manufacturing  facility  in the  fourth  quarter  of  2005.  In the  opinion  of
management,  the additional  working  capital  generated  from this  transaction
should be  sufficient  to  enable  the  Company  to fund the  completion  of the
prototype  generator  engines under the agreements  with WWE, and depending upon
its  successful  completion,  management  expects  the  agreements  with  WWE to
contribute an increasing stream of revenues during the succeeding periods. There
can be no  assurance,  however,  that  completion  and testing of the  prototype
engines can be completed  in a  satisfactory  manner and within the  anticipated
time frames or that WWE will honor its payment  obligations  to us or purchase a
meaningful  number of Generators.

Liquidity and Capital Resources

The Company's cash position at June 30, 2006 was $1,012,693, an approximate 845%
increase  from the $107,113 cash position at June 30, 2005 and a decrease of 33%
from the $1,516,212  cash position at March 31, 2006.  CIL's working  capital of
$678,023 at June 30, 2006 represents a $3,062,442 increase from the $(2,383,419)
working capital deficit position at June 30, 2005. CIL's current  liabilities of
$902,390 at June 30, 2006 have decreased  $1,946,741 from $2,849,131 at June 30,
2005 and  increased  $36,220 from current  liabilities  of $866,170 at March 31,
2006.

Operating activities utilized cash of approximately $(753,000) in the six months
ended June 30, 2006 and $347,809 in the three  months ended June 30, 2006.  Cash
utilized by operating  activities  in the six months ended June 30, 2006 results
primarily from a net loss of approximately $(952,000),  increase in inventory of
approximately  $(121,000),  payment  of  state  income  taxes  of  approximately
$(110,000), offset by non-cash expenses of approximately $430,000.

Investing activities utilized cash of approximately  $(42,000) in the six months
ended June 30, 2006 and approximately $(35,000) in the three months ended in the
same period. Cash utilized by investing  activities in the six months ended June
30,  2006  was  primarily  used  for  outlays  for  patents  and  trademarks  of
approximately  $(15,000)  and  purchases  of  property,  plant and  equipment of
approximately $(27,000).


                                       10
<PAGE>

Financing  activities  utilized cash of $(120,000) for the six months ended June
30,  2006 and for the three  months  ended  June 30,  2006.  Cash  utilized  for
financing  activities for the six month period ended June 30, 2006 was primarily
used for  deferred  offering  costs  incurred of  $(75,000)  and  repayment of a
related party loan of approximately $(45,000).

In the  fourth  quarter of 2005,  we  received  net  proceeds  of  approximately
$3,025,000  from  the  sale and  leaseback  of the  property  which  houses  its
principal offices,  warehouse and manufacturing  facility. Such net proceeds are
being utilized for working capital purposes.

We have completed the  construction  of the last of the three  prototype  Coates
Generator Engines for WWE, the production model,  which is currently  undergoing
testing in connection with our agreements  with WWE. Upon successful  completion
of delivery and testing of this third prototype engine, we expect to receive the
balance of $3,905,000 due from WWE under the  agreements.  Under the agreements,
the balance due to us of $4,700,000 is payable in equal quarterly  payments over
a four year  period,  commencing  180 days  following  successful  delivery  and
testing  of the third  prototype  engine.  In the  opinion  of  management,  the
additional working capital generated from the sale/leaseback  transaction in the
fourth  quarter of 2005 should be  sufficient  to enable the Company to complete
final testing of the third prototype  production  model Coates  Generator Engine
under  the  agreements  with  WWE.  The  remaining  tasks  include  testing  the
functionality,  design and  components  through  what we believe to be the final
evaluation protocols for the project.  There can be no assurance,  however, that
these   agreements   will  be  consummated  in  accordance  with  the  Company's
expectations nor that payments will be received as called for in the agreements.

During the second  quarter of 2003, the Company  organized a subsidiary,  Coates
Motorcycle Company, Ltd. ("Coates Motorcycle"),  to research and develop a heavy
cruiser motorcycle  equipped with the Coates SRV engine. In connection with this
project,  on April 30, 2003, CIL executed and delivered an exclusive  Sublicense
Agreement to Coates  Motorcycle in exchange for a 51% equity ownership  interest
and  anti-dilution  right to  maintain  this  majority  ownership  position.  In
consideration  for its receipt of this exclusive  Sublicense  Agreement,  Coates
Motorcycle  issued  2,550,000  of its  common  shares  to  CIL  and  became  its
subsidiary. In connection therewith, George J. Coates, Gregory G. Coates and the
Coates Trust granted a non-exclusive license to Coates Motorcycle for a minority
equity interest without any anti-dilution rights.

On March 5, 2004 this Sublicense Agreement was amended, the anti-dilution rights
were  terminated  and the Company  received an  additional  1,000,000  shares of
Coates  Motorcycle.  In connection with these  transactions,  Coates  Motorcycle
ceased to qualify as a  consolidated  subsidiary  of the Company.  The Company's
ownership  interest in Coates Motorcycle was approximately 30% at June 30, 2006.

Outlook

We believe  that our future  success  will  depend  upon our ability to (i) gain
acceptance  in the  marketplace  for our  technology  and products  based on the
competitive  advantages  that we believe are inherent in the Coates Rotary Valve
System  technology  (ii)  profitably   commence  the  manufacture  and  sale  of
generators  powered with V-8 engines that  incorporate  the Coates  Rotary Valve
System and meet or exceed the required  minimum  performance  specifications  to
WWE, (iii) identify and enter into  additional  agreements to license the Coates
Rotary Valve System technology to be applied by third party  manufacturers,  and
(iv) increase the demand for manufactured  products which incorporate our Coates
Rotary Valve System technology . Our current  anticipated  levels of revenue and
cash flow are subject to many  uncertainties and cannot be assured.  In order to
have sufficient cash to meet our  anticipated  requirements  for the next twelve
months, we may be dependent upon our ability to obtain additional financing. The
inability to generate  sufficient cash from operations or to obtain the required
additional funds could require us to curtail operations.


                                       11
<PAGE>

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 Chief Executive Officer ("CEO") 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 CEO 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 CEO 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 first six months of
2006 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.


                                       12
<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material  changes to the information  described under Part I,
Item 3 of our annual report on Form 10-KSB filed with the SEC on April 17, 2006.

Item 6. EXHIBITS

Exhibit
Number           Description
--------------   -----------

10.1             Letter agreement dated July 7, 2006 by and between the Company,
                 Coates Motorcycles Company Ltd. and Well to Wire Energy Inc.

31.1 and 31.2    Section  302  Certification  of  Chief  Executive  Officer  and
                 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 and 32.2    Certification   of  Chief   Executive   Officer  and  Principal
                 Financial  Officer  pursuant  to 18  U.S.C.  1350,  as  adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       13
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


Date: August 14, 2006                       COATES INTERNATIONAL, LTD.

By: /s/ George J. Coates
   ---------------------------
   George J. Coates, President
   Chief Executive Officer and
   Principal Financial Officer


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