UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C 20549

                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

                 For the fiscal year ended December 31, 2003

                                       OR

  [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

                                   ACT OF 1934

           For the transition period from ___________to______________

                         COMMISSION FILE NUMBER 33-94884

                           COATES INTERNATIONAL, LTD.
     ----------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

       DELAWARE                                           22-2925432
----------------------                         ---------------------------------
(State or other jurisdiction of                (IRS Employer identification No.)
incorporation or organization)

Highway 34 & Ridgewood Road
Wall Township, New Jersey                                   07719
----------------------------------------             -------------------
(Address of principal executive offices)                 (Zip code)

         Issuer's telephone number, including area code (732) 449-7717

        Securities registered pursuant to Section 12(b) of the Act: NONE

                              Title of Class: NONE

          Securities registered pursuant to Section 12(g) of the Act:

                Title of Class: Common Stock, $.00001 par value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-ISB
or any amendment to this Form 10-KSB. [_]

Issuer had no revenues for the year ended December 31, 2003.

During the fiscal year ended December 31, 2003, there was no established public
trading market for the issuer's Common Stock. As of December 31, 2003, there
were 265,591, 992 shares of Common Stock issued and outstanding.

<PAGE>

NOTE REGARDING FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report contains historical information as well as forward-looking
statements. Statements looking forward in time are included in this Annual
Report pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements involve known and unknown risks
and uncertainties that may cause our actual results in future periods to be
materially different from any future performance suggested herein. We wish to
caution readers that in addition to the important factors described elsewhere in
this Form 10-KSB, the following forward looking statements, among others,
sometimes have affected, and in the future could affect, our actual results and
could cause our actual consolidated results during 2003, and beyond, to differ
materially from those expressed in any forward-looking statements made by or on
our behalf.

Forward-looking statements include, but are not limited to, statements under the
following headings; (i) "Business Plan," about inquires from potential customers
and the Company's attempts to convert these inquiries into sales orders; (ii)
"Business Plan," about the intention of the Company to fund its business plan by
borrowings, sale of financial instruments and sale of sublicenses; (iii)
"Results of Operations," about the Company's plans to place on hold its
potential transactions concentrating its efforts in the transactions with Well
to Wire Energy, a Canadian company and McLean, England & Associates, LLC; (iv)
"Liquid and Capital Resources," about the company's plan to raise additional
capital; (v) "Liquid and Capital Resources," about the contingent nature of the
consummation of any agreements with Well to Wire Energy and McLean England &
Associates, LLC.

<PAGE>

                           COATES INTERNATIONAL, LTD.

                                    CONTENTS


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PART I                                                                  Page
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     Item 1.  Business                                                    2
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     Item 2.  Properties                                                 10
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     Item 3.  Legal Procedures                                           10
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     Item 4.  Submission of Matters to a Vote of Security Holders        11
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PART II
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     Item 5.  Market for Registrant's Common Equity and Related
              Shareholder Matters                                        11
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     Item 6.  Selected Financial Data                                    11
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     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                        12
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     Item 8.  Financial Statements and Supplementary Data                15
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     Item 8a. Controls and Procedures                                    16
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     Item 9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                        16
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PART III
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     Item  10.  Directors and Executive Officers of the Registrant       16
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     Item  11.  Executive Compensation                                   18
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     Item  12.  Security Ownership of Certain Beneficial Owners and
                Management                                               18
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     Item  13.  Certain Relationships and Related Transactions           19
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     Item  14.  Principal Accountant Fees and Services                   19
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PART IV
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     Item 15.  Exhibits and Reports on Form 8-K                          20
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Signatures                                                               22
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                                       1
<PAGE>

                                     PART I
                           COATES INTERNATIONAL LTD.

ITEM 1: DESCRIPTION OF BUSINESS

(a)   Business Development

      1.  Form and Year of Organization

      Coates International Ltd. ( "we", "us", "our", "CIL" or the "Company") is
a Delaware corporation organized in October 1991 by George J. Coates as
successor in interest to a Delaware corporation of the same name incorporated in
August, 1988.

      We have completed the development of a spherical rotary valve system (the
"Coates System") for use in piston driven internal combustion engines of all
types. Development of the Coates System was initiated by our founder, George J.
Coates, in Ireland in the late 1970's. In 1982, Mr. Coates obtained a patent
from the Republic of Ireland for the Mark I version of the Coates spherical
rotary valve system for use in piston driven engines. In 1986, George J. Coates
emigrated to the United States where he commenced development of the Mark II
version and subsequently, the Mark III version of his spherical rotary valve
system. Mr. Coates has also been issued a number of U.S. and foreign patents
with respect to various aspects of the Coates System and has patent applications
pending in several foreign jurisdictions. See "Patents and Licenses".

      We hold an exclusive license from George J. Coates and his son Gregory
Coates, to manufacture, sell and grant sublicenses with respect to products
based on the Coates Patent, within all of the countries, their territories and
possessions, comprising North America, Central America and South America (the
"Licensed 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 Area,
or to grant any 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 us the right to retain any monies 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. "See Patents and Licenses".

      Since our inception, the bulk of our development costs and related
operational costs have been funded primarily through cash generated from the
sale of stock, through capital contributions and loans made by Gregory Coates
and from several entities for prototype models and licensing fees. We have
incurred losses from the inception of our predecessor entity in August 1988
through December 31, 2003 of $16,664,024 and at December 31, 2003, had a
Stockholders' deficit of $451,189 and a working capital of $96,510.

(b)  Business of the Company

      Our ability to generate revenues and achieve profitable operations is
principally dependent upon the execution and funding of sublicense agreements
with engine manufacturers or retrofitters, and upon the manufacture and sale, by
CIL, of combustion engines modified with the Coates System in high performance

                                       2
<PAGE>

automotive, motorcycle, marine racing engines, and other types of combustion
engines. We are actively attempting to market our technology and are in
communication with various persons and entities that may be interested in
acquiring sub- licenses to use the technology.

The Coates Spherical Rotary Valve Engine

      The Coates Spherical Rotary Valve Engine (the "Coates SRV" Engine) differs
from the conventional poppet valve currently used in almost all piston driven
automotive, motorcycle and marine engines by changing the method which the air
and fuel mixture is delivered to the engine cylinder as well as the method of
expelling the exhaust gases after the mixture is ignited. Unlike the poppet
valve which protrudes into the engine cylinder, the Coates SRV Engine utilizes
spherical valves which do not protrude into the cylinder head but rotate in a
cavity formed between a two piece cylinder head. As a result of employing fewer
moving parts as compared to the poppet valve and not protruding into the engine
cylinder, management believes that the Coates SRV Engine will promote less
engine wear and will require less lubrication over the life of the engine. In
addition, because the Coates SRV Engine does not employ parts which protrude
into the engine cylinder, it is designed with larger openings into the cylinder
than the conventional poppet valves so that more fuel and air mixture can be
inducted into and expelled from the engine cylinder in a shorter period of time
using the Coates SRV Engine, leading to an eligibility to operate the engine
faster and an ability to utilize higher compression ratios with lower
compression chamber temperatures. Management believes that as a result, engines
modified with the Coates SRV Engine will produce more power than similar engines
utilizing the poppet valve system. However, there can be no assurance that the
Coates SRV Engines will find general acceptance in the marketplace.

      The combustion engine has been in use for approximately 100 years and is
the most widely used powerpack in the world. There are more than 120 million new
combustion engines built in the world every year, and 40 million engines are
rebuilt annually. Management of CIL believes that the Coates Engine will be the
engine of the future. In the late 1960's and 1970's, most vehicle combustion
engines in the USA were running at a compression ratio of 12 to 1 which resulted
in an engine efficiency of approximately 55 percent. The rest of the engine's
power was lost in friction, pumping and heat loss. When it was found that lead
additives in fuel had an adverse effect on the environment, it was removed from
the fuel. This causes the poppet valve engine combustion chamber to overheat,
raising the temperature in excess of 2500 degrees farenheit and damaging the
poppet valves. The answer to this problem was to lower the compression ratios of
all engines to 10 to 1 or lower, thus reducing efficiency of the combustion
engine to approximately 24 percent. This means less miles per gallon (MPG),
lower brake horse power (BHP) and lower torque. The air traveling through the
inlet venturi of a combustion engine inlet travels at a speed of up to 450 ft
per second. In normally aspirated engines this works, but in poppet valve
engines, the BHP and torque decreased as the air traveling in does not increase
in speed unless a turbo or supercharger is incorporated. At higher RPM's the
poppet valve tends to float or bounce and is unable to service the cylinder and
chamber to capacity with air and fuel mixture. This is the reason for adding two
extra valves to modern engines including turbos or superchargers. The large
overlap is another common defect in poppet valve engines, causing unburned fuel
to escape through the exhaust poppet valves which leads to a loss of power,
lower MPG and production of pollution.

                                       3
<PAGE>

      The poppet valves' stems are lubricated with engine oil which is burnt off
the exhaust valve, directly into the atmosphere. The stem of the inlet valve
system is also lubricated with engine oil, which is washed off and inducted into
the combustion chamber with air and fuel mixture. This slows combustion and
produces further emissions and eventually clogs the catalytic converter.

      Variable valve timing has advantages at lower RPM's as it can shorten the
overlap duration of the valves, but the extra moving parts eventually wear. On
quick deceleration, it can cause piston and valve contact where serious damage
can occur. Poppet valves, if not activated with hydraulic systems, must have
clearances readjusted periodically. The poppet valve of the original engine has
been used and modified continuously until the present, However, it is the most
troublesome part of a combustion engine and has lower efficiency at higher
RPM's.

      Because the CSRV valves rotate away from the combustion chamber and are
vented and charged on the opposite side of each sphere, a lower combustion
chamber temperature is created, allowing higher compression ratios to be used
thus creating an extremely efficient engine. Some of the Coates Spherical Rotary
Combustion Engines have run at 12 to 1 and up to as high as 18.7 to 1
compression ratios depending on the application and such compression ratios may
potentially exceed these ratios as further testing is accomplished.

License Agreement - Well to Wire Energy, Inc.

      On September 29, 1999, we signed a license agreement with Well to Wire
Energy, Inc., an oil and gas company in Canada, to license the exclusive use of
V-8 cylinder engines modified with the Coates System to be fueled by natural gas
to generate electrical power for the Country of Canada (the "License
Agreement"). Following due diligence investigation of the proposed applications
for the production of electrical energy and the location of the engines in the
natural gas fields or generation sites, it was agreed between us and Well to
Wire Energy, Inc. (sometimes referred to as "WWE") that a larger engine modified
with the Coates System would be more appropriate. CIL and WWE subsequently
agreed that a new and larger prototype engine would be more efficient than the
originally conceived 351 cubic inch engine. Accordingly, CIL and Well to Wire
agreed that CIL would research and develop a natural gas fed, 855 cubic inch, 6
cylinder, industrial electric generator engine (the "Coates Generator Engine")
under the License Agreement. Under the terms of the License Agreement, we are
entitled to receive a licensing fee in the amount of $5,000,000 and royalties in
amounts equal to 5% of the gross profits (defined as sales less cost of sales,
plus $400,000) which WWE derives from all sources which use the Coates Generator
Engine in Canada. The term of the License Agreement continues until the
expiration of the last to expire patent of the "Patent Rights", including any
"Improvement Patents" added later. "Patent Rights" under the License Agreement
consist of 7 principal patents issued during the period from July 31, 1990
through November 8, 1994 and cover the main design and function of the Coates
spherical rotary valve and its assembly, with each such patent extending for 17
years from its patent application date; "Improvement Patents" currently consist
of 3 additional patents issued in February, 1997 (covering valve apparatus for
steam turbines), in September, 2001 (covering the exhaust system), with the most
recent "Improvement Patent" being issued in October, 2001 (covering the cooling
system). This most recently issued Improvement Patent, covering the cooling
system for the Coates spherical rotary valve technology, which was issued on
October 30, 2001, is valid for 20 years from its application date, extending
through September 30, 2020. Accordingly and unless extended by future

                                       4
<PAGE>

"Improvement Patents", the current expiration date of the License Agreement with
WWE is September 30, 2020.

R&D Agreement - Well to Wire Energy, Inc.

      Pursuant to further negotiations, CIL and WWE agreed that WWE would pay us
a $5,000,000 fee to research and develop a production model of the Coates
Generator Engine (this research and development agreement between CIL and WWE is
referred to as the "R&D Agreement"). On July 21, 2000, we memorialized the R&D
Agreement in the form of a signed invoice, a copy of which is annexed hereto as
Exhibit 10.8. The July 21, 2000 invoice served as the new R&D Agreement and as
an amendment to the License Agreement by substituting the Coates Generator
Engine for the earlier engine specifications.

      During1999, Well to Wire Energy, Inc. made two payments to us aggregating
$300,000 as deposits under the License Agreement and a payment of $250,000
applied against the $5,000,000 fee due under the R&D Agreement..

      As part of our understanding under the R&D Agreement, we agreed to develop
a total of three prototype engines meeting these new specifications: two testing
prototypes and one production model prototype. To date, including the $250,000
payment made to us in 1999, Well to Wire Energy, Inc. has made aggregate
payments of $1,200,000 to us for these prototypes under the R&D Agreement,
$250,000 of which was paid in calendar 1999; $845,000 of which was paid in
fiscal year 2000, and; $105,000 was paid in fiscal year 2001.

      The $5,000,000 research and development fee due us under the R&D Agreement
was negotiated as the fee we required in order to research and develop the three
prototype Coates Generator Engines for WWE. This negotiated fee was not based
upon any reimbursement formula tied to our costs or expenses incurred during the
research and development project but represents our negotiated price for the
project, without adjustments of any kind. Following our negotiation of the R&D
Agreement, CIL and WWE have , from time to time, separately negotiated the
timing and amounts of the aggregate $1,200,000 WWE payments made to us against
the $5,000,000 fee over the last several years. These prior WWE payments have
been made without reference to a specific payment schedule, all as negotiated
from time to time between CIL and WWE. Accordingly, we have recognized and will
continue to recognize these WWE payments against the $5,000,000 fee due under
the R&D Agreement as revenue when received.

      We have completed the construction of the first two prototypes and the
third prototype, representing the production version of the Coates Generator
Engine. The first two prototype Coates Generator Engines were delivered to Well
to Wire Energy, Inc. in December, 2000 and April, 2001, respectively. As of the
date hereof, the third prototype production model Coates Generator Engine has
been completed and is currently undergoing testing.

      Upon WWE's payment in full of the $5,000,000 licensing fee, with a current
outstanding balance of $4,700,000 due under the License Agreement, and its
payment in full of the $5,000,000 research and development fee, with a current
outstanding balance of $3,800,000 due under the R&D Agreement, WWE will maintain
the exclusive right to use the Coates Generator Engine in Canada. In order to
retain its "exclusive" license rights under the License Agreement, WWE is
required to purchase no less than 120 Coates Generator Engines per year. Revenue

                                       5
<PAGE>

generated under this License Agreement will be booked as earned by us,
commencing when we deliver our third prototype engine to WWE and continuing
until the expiration of the last patent covered in the patent rights licensed
which currently has an expiration date of September 30, 2020. In the event WWE
fails to purchase the minimum 120 Coates Generator Engines during any year of
the term of the License Agreement, WWE will automatically lose its exclusivity
under the License Agreement. In such a case, WWE will retain non-exclusive
rights under the License Agreement to continue to use the Coates Generator
Engine but we will have the right to enter into additional license or sublicense
agreements with other entities intending to utilize the Coates Generator Engine
in Canada.

      Following the testing and delivery of the third prototype, production
model, Coates Generator Engine, we expect to receive the balance our license
payment due in the amount of $4,700,000, payable in 16 quarterly payments
beginning 180 days after delivery, and the balance due under the R&D AGREEMENT
of $3,800,000 from Well to Wire Energy, Inc.

Agreement with McLean, England and Associates, LLC

      We negotiated a license arrangement with McLean, England and Associates,
LLC ("McLean") and on April 12, 2002, we signed the final agreement. The license
agreement calls for $25,000,000 in license fees for specific uses of the Coates
CSRV engine technology in certain applications, within the United States of
America. Payment of the license fee is contingent upon the successful completion
of tests of two prototype engines fitted with the CSRV system. McLean has paid
us an aggregate, non-refundable deposit of $565,000 against the license fee and
we received payments of $25,000 and $540,000 in 2002. The entire amount of
$565,000 has been recognized in the balance sheet at December 31, 2003, as a
non-current liability, to be re-classified in subsequent periods as income.

Under the original terms of the license agreement, we were required to
manufacture, research, develop and then test two prototype heavy truck engines
for McLean, both of which were to be diesel fueled, one stationary and one
fitted into a truck. McLean requested that we change one of the prototype
engines to be redesigned to be fueled by gasoline. This design change resulted
in a significant increase in research and development costs. We have completed
the basic construction of both prototype engines. However, due to the continuing
costs and expenses associated with these changes in the McLean project,
including redesigning one of the prototype engines to run on gasoline, we
amended our license agreement with McLean on April 1, 2004. Pursuant to the
terms of the amendment, we will deliver the diesel fuel prototype engine to
McLean, who, at its own expense, will undertake the further development of this
diesel prototype engine to completion while we continue to complete the gasoline
fueled prototype truck engine. All of the other terms and provisions of our
license agreement with McLean remain as originally conceived, including all
provisions covering testing and license fee and royalty payments. We are
currently testing the gasoline fueled prototype engine and we anticipate that
the development and testing protocol for both engines will continue through the
next several months.

Our Affiliate, Coates Motorcycle Company, Ltd.

      On April 30, 2003, we sublicensed the rights to use the Coates CSRV
technology in motorcycle applications to Coates Motorcycle Company, Ltd.
throughout the territory of North, South and Central America. In exchange for
these technology rights, we received 2,558,000 Coates Motorcycle common shares,
representing an ownership interest over 50%, and an anti-dilution right to
maintain our majority ownership interest in Coates Motorcycle throughout the
term of the sublicense. As a result of this technology transfer and issuances of
control shares to us, we became the parent corporation of Coates Motorcycle

                                       6
<PAGE>

Company, Ltd. which became our subsidiary corporation. At the same time, Coates
Motorcycle received similar technology licensing rights covering the rest of the
world from George Coates, Gregory Coates and the Coates family trust in exchange
for an aggregate 2,500,000 Coates Motorcycle common shares.

      On March 5, 2004, we amended our sublicense with Coates Motorcycle,
converting the sublicense to an exclusive one and agreeing to terminate our
anti-dilution rights. In exchange for these rights we received an additional
1,000,000 shares of Coates Motorcycle common shares and its commitment to
register these 1,000,000 Coates Motorcycle shares under applicable securities
laws so that we can distribute them as a stock dividend to our shareholders.
Coates Motorcycle has filed a registration statement with the Securities and
Exchange Commission, seeking to register its common shares under the Securities
Act for sale to the public. Our 1,000,000 Coates Motorcycle shares are included
in this registration statement Coates Motorcycle amended its license agreement
with the Coates family as well on March 5, 2004, receiving exclusive licensing
rights in the rest of the world and issuing an additional aggregate 5,924,000
Coates Motorcycle shares to George Coates, Gregory Coates and the Coates trust.
As a result of the March 5, 2004 transactions, we currently own 3,558,000 shares
of Coates Motorcycle, representing an approximate 30% ownership interest and
Coates Motorcycle is no longer our subsidiary.

Competition

     Notwithstanding  Company  management's  strong  beliefs  in  the  potential
superior  performance  of the  Coates  Generator  Engine,  the power  generation
marketplace is a highly  competitive  industry  currently  occupied by companies
such as Caterpillar,  Inc. which owns MAK, Perkins and FG Wilson, Detroit Diesel
Corporation,  AB  Volvo,  Cummins  and  Marathon,  among  others.  All of  these
companies are much better capitalized than we are and already occupy segments of
the  power  generation  marketplace.  In order to  successfully  penetrate  this
industry,  the Coates  Generator Engine will have to produce the performance and
durability results  anticipated by management and sell at a price or prices that
will enable it to effectively compete and gain entrance into this market.

                                       7
<PAGE>

Parts and Supplies

      To date, Company management has utilized the services of various vendors
and manufacturers available throughout the United States to provide all of the
parts necessary to assemble the Coates Generator Engine. We expect to continue
to purchase all of our raw materials and parts, manufactured to our
specifications, from a wide assortment of suppliers. We intend to commence the
assembly of the Coates Generator Engines at our facility located in Wall, New
Jersey. Thereafter, corresponding to anticipated growth in revenues, we will
either acquire or lease additional facilities for assembly and inventory.

Patents and Licenses

      In 1982, George J. Coates obtained a patent from the Republic of Ireland
for the Mark I version of the Coates spherical rotary valve SRV Engine for use
in piston driven internal combustion engines. In 1986, George J. Coates
emigrated to the United States where he commenced development of the Mark II
version and subsequently the Mark III version of his spherical rotary valve SRV
Engine. Between 1990 and 1994, George J. Coates was issued seven United States
patents (the Coates Patents) with respect to various aspects of the Coates SRV
Engines including the Mark II and Mark III version. The Coates Patents are as
follows:

                                      Date                         Date
US Patent No.                   Application Filed                Of Patent
-------------                   -----------------                ---------

4,989,576 (Mark I)                July 26,1982               February 5,1991
4,953,527 (Mark II)               November 14,1998           September 4,1990
4,989,558 (Mark II)               September 14,1998          February 5, 1991
4,944,261 (Mark IIB)              October 16,1989            July 31, 1990
4,976,232 (Valve Seal)            December 6,1989            December 11, 1990
5,109,814 (Spherical Valve)       May 10,1991                May 5, 1992
5,361,739 (Mark III)              May 12,1993                November 8,1994
5,048,979 (Self-Adjusting
           Bearing Assembly)      June 13, 1990              September 17, 1991
5,601,405 (Valve Apparatus
           for Steam Turbines)    August 14, 1995            February 11, 1997
6,008,710 (Magnetic Inductor
           Water Conditioner)     May 17, 1999
December 28, 1999
6,308,676B1 (Cooling System
  for Rotary Valve Engine)        September 8, 2000          October 30, 2001
6,293,098B1 (Methods &
  Apparatus for Joining
   Pressurized Exhaust

                                       8
<PAGE>

      In addition to the foregoing issued patents, Mr. George Coates has filed
U.S. patent applications to obtain protection for further inventions covering:

      Application No.                     Description

      10/074311               Improved Valve Seals for Rotary Valve Engine
      PCT/USO1/26872          Cooling Assembly for Spherical Rotary Valve Engine
      10/336,896              Rotary Valve & Valve Seal Assembly
      10/313,540              Improved Spherical Rotary Intake Valve
      10/287,419              Piston Head for Internal Combustion Engine
      235-0035                Piston Head for Diesel Engine
      235-034                 Bearing Assembly
      20010023                Mark IIIB (Divisional Spheres)

      The Mark I, Mark II, Mark IIB, and Mark III patents were also the subject
of foreign filings by Mr. Coates who has been issued foreign patents with
respect to some of these filings by Australia, Austria, Belarus, Belgium, China,
Denmark, Finland, France, Republic of Georgia, Germany, Great Britain, Greece,
Hungary, India, Indonesia, Ireland, Israel, Italy, Jordan, Korea, Luxembourg,
The Netherlands, Portugal, Spain, Sweden, Switzerland as well as by Australia,
Brazil, Bulgaria, Canada, Chile, the Czech Republic, Egypt, Hong Kong, Japan,
Liechtenstein, Malaysia, Mexico, New Zealand, Nigeria, Norway, Pakistan,
Philippines, Poland, Romania, Republic of Russia, Saudi Arabia, Slovakia,
Singapore, South Africa, Taiwan, Thailand, Turkey, Ukraine and Venezuela. Mr.
Coates continues to have patent applications pending in some of these as well as
other foreign countries.

      On December 22, 1997, George Coates, Gregory Coates and CIL entered into a
new License Agreement, superceding and substituting the prior agreement and
amendments thereto. This new License Agreement granted us an "exclusive" license
to manufacture, sell and grant sub-licenses for products covered under the
Coates Patents, expanding the territories covered from the original territory of
the United States and its territories, identified in the earlier license
agreement, to "all of the countries, their territories and possessions
comprising North America, Central America and South America". In consideration
of this new License Agreement, granting us exclusive rights in the expanded
license territories, we agreed to issue to George Coates an additional 500,000
shares of Series A stock, valued at par, or $500, which were issued in 1997.

      In addition, George J. Coates and Gregory Coates have executed an
agreement granting us the right to retain any monies 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. In 1996, George J. Coates and Gregory Coates
entered into a license agreement with Nicholson McLaren, headquartered in
England. As part of its obligations under this agreement, we researched,
developed and delivered two high performance, Coates SRV 351 Dyno racing car
engines utilizing the Coates spherical rotary valve assembly and was paid an
aggregate of 50,000 British pounds. Although we have concentrated our efforts in
completing the research and development of our three prototype Coates Generator
Engines pursuant to our agreements with Well to Wire Energy, Inc. during the
past several years, we intend to continue our development efforts with Nicholson
McLaren during fiscal year 2003.

                                       9
<PAGE>

Environmental Regulatory Compliance

All of our new engines, including the Coates Generator Engine and our prototype
truck engines will be subject to extensive environmental laws, rules and
regulations that impose standards for emissions and noise. Initially, compliance
with the emissions standards promulgated by the U.S. Environmental Protection
Agency ("EPA") as well as those imposed by the State of New Jersey and other
jurisdictions where CIL expects its engines to operate, will have to be achieved
in order to successfully market the Coates Generator Engine as well as our truck
engines. Company management expects that the Coates Generator Engine and its
truck engines will successfully comply with all EPA requirements. The third
prototype, production model of the Coates Generator Engine constructed pursuant
to its agreements with Well to Wire Energy, Inc. is currently undergoing such
testing. The Company's ability to comply with applicable and future emissions
standards is one of the most significant business objectives to attain in order
to enter both the power generation and truck engine marketplaces. Failure to
comply with these standards could result in material adverse effects on the
financial results of the Company.

Employees

At December 31, 2003, CIL employed eight (8) employees, including George J.
Coates and his son Gregory Coates who perform both management, assembly and
research and development functions, and; Bernadette Coates, the spouse of George
J. Coates, is employed as administrative manager for the Company. The financial
controller and bookkeeper for the Company is Ms. Shirley Naidel.

Subcontract Labor

We subcontract for certain labor services from a related company, Coates
Precision Engineering, Inc., a corporation owned by George J. Coates, which
during 2003 was paid $113,000 for labor services, parts and materials.

ITEM 2: DESCRIPTION OF PROPERTY

Our executive offices and testing facility are located in an approximately
25,000 square foot one and one-half story building of concrete and steel
construction in a 6 acre site in Wall Township, New Jersey. We acquired this
property from the George J. Coates 1991 Family Partnership, L.P in 1995. On
January 1, 2004, we refinanced this property and gave and gave a first mortgage
in the amount of $870,618 to Eastern Savings Bank, FSB of New York. The first
mortgage requires monthly payments of $10,512, accrues interest at the rate of
13.99 percent, per annum, and its outstanding principal balance and accrued
interest become due and payable on January 1, 2024.

In our development operations, we own and utilize milling machines, lathes,
grinders, hydraulic lifts and presses, tooling, dynamometers and emission
testing machines and computerized drafting and printing equipment. All of such
equipment is in good condition, reasonable wear and tear excepted.

ITEM 3:  LEGAL PROCEEDINGS

There are no material legal proceedings against the Company.

                                       10
<PAGE>

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In August, 2001, the shareholders approved a resolution increasing the Company's
authorized common shares from 200,000,000 to 1,000,000,000 common shares,
resulting in the change of the par value to $.00001 per share.

On April 23, 2002, the Board of Directors authorized a four (4) for one (1)
forward stock split for all issued and outstanding Common Shares held of record
as of 5:00 PM Eastern Time on that date, thereby increasing the issued and
outstanding shares on that date to 265,068,440 Common shares.

On March 5, 2004, the Board of Directors declared a stock dividend for all
stockholders of record on that date, subject to certain conditions, to
distribute to them 1,000,000 shares of the common stock of Coates Motorcycle
Company, Ltd., which we received in exchange for certain sublicensing rights
last year. Coates Motorcycle Company, an affiliate of our Company, is seeking to
register these 1,000,000 common shares under applicable securities laws so that
we can distribute them as the intended stock dividend to our stockholders. The
stock dividend provides that all stockholders of record on March 5, 2004, the
record date, will receive one share of Coates Motorcycle Company's common stock
for every 44.3067 shares of our common stock, with any fractional shares being
settled with cash payments. The dividend and its distribution to our
stockholders is subject, however to two conditions: first, these 1,000,000
Coates Motorcycle Company shares must be fully registered for distribution to
our stockholders under the Securities Act, and; second, Coates Motorcycle
Company must succeed in its initial public offering. If both of these conditions
are not accomplished by June __, 2004, then the stock dividend will
automatically be cancelled and terminated. The intended stock dividend
distribution, or payment date, is the day following the initial closing of
Coates Motorcycle Company's initial public offering. Our stock transfer agent,
American Stock Transfer & Trust Company of New York, will be our agent to
distribute the stock dividend when the conditions have been met.

                                    PART II

ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         SHAREHOLDER MATTERS

There is no established public trading market for our only outstanding class of
capital stock, our Common Stock. At December 31, 2003 the approximate number of
holders of record of the Common Stock was 1,068. We have not paid any dividends
with respect to our Common Stock and anticipated capital requirements make it
highly unlikely that we will pay any dividends in the year 2004 or in the
foreseeable future.

Recent Issuances of Unregistered Securities: We did not issue any
unregistered securities during the fourth quarter of fiscal year 2003.

ITEM 6:  SELECTED FINANCIAL DATA

            The selected financial information presented below under the
      captions "Statement of Operations" and "Balance Sheet" for the years ended
      December 31, 2003 and 2002 is derived from the financial statements of the

                                       11
<PAGE>

      Company and should be read in conjunction with the financial statements
      and notes thereto.

   Balance Sheet                                          December 31,
                                                              2003
                                                          ------------
Total assets .........................................   $ 2,594,174
Current liabilities ..................................     1,028,909
Long-term debt .......................................     1,806,374
Working capital ......................................       (96,510)
Shareholders' equity .................................   $  (451,180)

   Statements of Operations                  For The Year Ended December 31,
                                                 2003              2002
                                              -----------      -----------
Total revenues ..........................   $           0    $           0
Operating income (loss) .................      (2,174,083)      (2,511,394)
(Loss) before provision for incomes taxes      (2,141,637)      (2,633,292)
Net (loss) ..............................      (1,931,433)      (2,633,792)
Net loss per common share ...............   $       (0.01)   $       (0.01)
Number of shares used in computing
per share data ..........................     265,269,092      264,965,420
                                              -----------      -----------


ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

            Except for historical information, the Company's reports to the
      Securities and Exchange Commission on Form 10-KSB and Form 10-QSB and
      periodic press releases, as well as other public documents and statements,
      contain "forward-looking statements" within the meaning of Section 21E of
      the Securities Exchange Act of 1934. Forward-looking statements are
      subject to risks and uncertainties that could cause actual results to
      differ materially from those expressed or implied by the statements. These
      risks and uncertainties include general economic and business conditions,
      development and market acceptance of the Company's products, current
      dependence on Well to Wire Energy, Inc. and McLean, England and
      Associates, LLC as the Company's principal licensees and other risks and
      uncertainties identified in the Company's reports to the Securities and
      Exchange Commission, periodic press releases, or other public documents or
      statements.

            Readers are cautioned not to place undue reliance on forward-looking
      statements. The Company undertakes no obligation to republish or revise
      forward-looking statements to reflect events or circumstances after the
      date hereof or to reflect the occurrences of unanticipated events.

      Background

      Coates International Ltd. ( "We", "our", "us", "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.

                                       12
<PAGE>

      CIL has completed the development of a spherical rotary valve SRV Engine
      (the "Coates SRV Engine"), the development of which was initiated by its
      founder, George J. Coates, for use in internal combustion engines of all
      types. We are now engaged in adapting our technology to various combustion
      engine applications in connection with several licensing agreement
      arrangements.

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

      On September 29, 1999, CIL signed a license agreement (the "License
      Agreement") with Well to Wire Energy, Inc. ("WWE"), an oil and gas company
      in Canada, to license the exclusive use of V-8 cylinder engines modified
      with the Coates System to be fueled by natural gas to generate electrical
      power for the Country of Canada (the "License Agreement") against payment
      of $5,000.000, of which a deposit payment in the amount of $300,000 was
      made. The agreement also provides for development and delivery of certain
      prototype engines under a separate research and development agreement
      between CIL and WWE, referred to as the "R&D Agreement", and stipulates
      that following the testing and delivery of the third prototype - a
      production model Coates Generator Engine - the balance of the license fee
      in the amount of $4,700,000 would be paid in 16 quarterly payments
      beginning 180 days after delivery.

      Following due diligence investigation of the proposed applications for the
      production of electrical energy and the location of the engines in the
      natural gas fields or generation sites, it was agreed between CIL and Well
      to Wire Energy, Inc. that a larger engine modified with the Coates System
      would be more appropriate. Accordingly, CIL and Well to Wire agreed that
      CIL would research and develop a natural gas fed, 855 cubic inch, 6
      cylinder, industrial electric generator engine (the "Coates Generator
      Engine").

      Pursuant to further negotiations, CIL and WWE agreed that WWE would pay to
      CIL a $5,000,000 fee to research and develop a production model of the
      Coates Generator Engine. As part of the understanding between CIL and WWE
      under the R&D Agreement, CIL would develop a total of three prototype
      engines meeting these new specifications: two testing prototypes and one
      production model prototype. To date, Well to Wire Energy, Inc. has made
      aggregate payments of $1,200,000 to CIL for these prototypes, $250,000 of
      which was paid in calendar 1999; $845,000 of which was paid in fiscal year
      2000, and $105,000 was paid during the first quarter in fiscal year 2001.
      The balance of $3,800,000 is due to be paid by from Well to Wire Energy,
      Inc. 180 days after delivery of the production model.

      CIL has completed the construction and delivery of the first two
      prototypes and the basic construction of the third prototype, representing
      the production version of the Coates Generator Engine. The first two
      prototype Coates Generator Engines were delivered to Well to Wire Energy,
      Inc. in December, 2000 and April, 2001, respectively. The third prototype
      855 cubic inch engine for WWE was completed and testing has started.
      During testing of this engine it was discovered that the head castings
      contained defects. These defects were apparently caused when they were
      cast at the foundry. As a result of these defects, new engine heads have
      been ordered and once they are installed, the testing of the third
      prototype will continue.

                                       13
<PAGE>

      Agreement with McLean, England and Associates, LLC
      --------------------------------------------------

      During the first quarter, we negotiated a license arrangement with McLean,
      England and Associates, LLC ("McLean") which, on April 12, 2002, produced
      a final agreement that calls for $25,000,000 in license fees for specific
      uses of the Coates CSRV engine technology in certain applications, within
      the United States of America. Payment of the license fee is contingent
      upon the successful completion of tests of two prototype engines fitted
      with the CSRV system. McLean has paid us a non-refundable deposit of
      $565,000 against the license fee, of which $25,000 and $540,000 were
      received during the first and second quarters, respectively. The entire
      amount of $565,000 has been recognized in the balance sheet at December
      31, 2003, as a non-current liability, to be re-classified in subsequent
      periods as income.

      We are required to manufacture, research, develop and then test two
      prototype heavy truck engines for McLean. One of these prototypes is
      fueled by diesel fuel and the other prototype will be fueled by gasoline.
      We have completed the basic construction of both prototype engines. We are
      currently starting to test the diesel prototype engine and it is expected
      that the testing protocol for both engines will continue through the next
      several months.

      Preliminary Agreement with Dominion International
      -------------------------------------------------

      During the quarter ended June 30, 2002, we commenced negotiations with a
      Florida-based group, Dominion International ("Dominion") for several
      license agreements covering specific uses of the Coates CSRV engine
      technology in certain applications, within the territory of the United
      States. Dominion paid us a non-refundable deposit of $75,000, to be
      applied against the license fees and which amount has been recognized in
      the balance sheet as a non-current liability; to be re-classified as
      income in future periods after the parties performed in accordance with
      the terms of the finalized agreement.

Results of Operations for the Years Ended December 31, 2003
-----------------------------------------------------------

      We did not earn any revenues during 2003. All of our principal business
activities and efforts during 2003, were devoted to the completion of the
research, development, construction and testing of the prototype engines for WWE
and McLean.

      Total operating expenses for the year ended December 31, 2003 were
$2,174,083 compared to $2,511,394 for 2002, representing a decrease of
approximately 13%. This decrease was primarily due to a reduction in research
and development costs of approximately $1,284,000, representing an approximate
80% decrease from last year's approximate $1,600,000 in research and development
costs. This decrease was offset by a significant increase in general and
administrative costs of approximately 120%, from $749,848 in 2002 to $1,669,643
in 2003.

      Lack of revenues and a significant increase in general and administrative
costs, coupled with the absence of license deposits or payments, resulted in a
loss from operations of $2,174,083 for the year as compared with a loss from
operations of $2,511,394 in 2002. Other non-operating expenses for the twelve
months ended December 31, 2003, remained relatively constant with those of 2002,
with any differences not representing a material change from those of the prior
year. The net results for the year was a loss of $1,931,433 or $0.01 per share,
as compared to a net loss of $ 2,633,792 for 2002.

                                       14
<PAGE>

Results of Operations for the Years Ended December 31, 2002
-----------------------------------------------------------

            During 2002, we did not earn any revenues but we did receive
aggregate cash license payments of $1,140,000 from McLean, 1107 N.W. Central
Avenue, Inc and Dominion. We did not book these payments as revenue during 2002
since our agreements with these parties were not finalized, but we could and did
use the cash to fund our operations. No such cash license payments were
available to us in 2003. Research and development costs of $1,599,327 during
2002 were represented primarily by our focused efforts that year on the design
and construction of the two McLean truck engines. Research and development costs
in 2002 represented an approximate 300% increase over such expenditures of
$461,157 during fiscal year 2001. Our concentrated efforts in 2002 with the
McLean truch engines resulted in increases in purchases of parts and supplies of
approximately $328,000 that year. General and administrative expenses in 2002 of
approximately $750,000 more than doubled in 2003, to $1,669,643, as compared to
$530,539 in 2001. Liquidity and Capital Resources

            During 2003, we received subscription proceeds of $895,014 in cash
from 3 accredited investors for the issuance of 156,002 restricted common
shares, concluding our private placement. During 2002, we received $1,562,500 in
cash subscription proceeds and an aggregate $640,000 in non-refundable deposit
payments against future license agreements. Absent such license deposits and the
almost 50% decrease in cash subscription proceeds, coupled with continuing
losses from operations during 2003 resulted in a substantial decrease in cash
balances for the year, from approximately $1,080,000 at December 31, 2002 to
approximately $567,000 at December 31,2003. We deposit our cash in our interest
bearing bank accounts. Our current liabilities at December 31, 2003 of
$1,028,909 are primarily composed of an approximate $ 676,606 balance due one
law firm for its representation of our Company in litigation over the past
several years.

We anticipate completing the final research and testing of the production
prototype Coates Generator Engine for Well to Wire Energy, Inc. during the
current, 2004 fiscal year. We expect to receive the balance of $3,800,000 from
WWE under our R&D Agreement upon completion of successful testing and delivery
of this engine. Under our license agreement with WWE, we will receive the
balance due us of $4,700,00, payable in equal quarterly payments over a four
year period, commencing 180 days following delivery to WWE of this third
prototype. We also expect to sell additional licenses for our Coates Generator
Engine during 2004, covering available territories in the United States. There
can be no assurance, however, that these agreements, as well as those presently
in negotiations with the other licensees, will be consummated in accordance with
these expectations and that payments will be received as called for in the
agreements.

ITEM 8:  FINANCIAL STATEMENTS

      The Company's Financial Statements and Notes to Financial Statements are
attached hereto as Exhibit A and incorporated herein by reference.

                                       15
<PAGE>



                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


<PAGE>






                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       INDEX TO THE FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002





                                                                        Page

Independent Auditors' Report                                             F-1

Financial Statements

    Balance Sheet                                                        F-2

    Statements of Operations                                             F-3

    Statement of Stockholders' Equity                                    F-4

    Statements of Cash Flows                                             F-5

    Notes to the Financial Statements                                  F-6-F-12

<PAGE>

                          Independent Auditors' Report



To the Board of Directors and Shareholders of
Coates International, Ltd. and Subsidiary

We have audited the balance sheet of Coates International, Ltd. and Subsidiary
as of December 31, 2003 and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 2003 and 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coates International, Ltd. and
Subsidiary as of December 31, 2003 and the results of their operations, and cash
flows for the years ended December 31, 2003 and 2002 in conformity with
accounting principles generally accepted in the United States of America.

            /s/Rosenberg Rich Baker Berman & Company
            ----------------------------------------
               Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
April 12, 2004

                                                                             F-1
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                                 BALANCE SHEET
                               DECEMBER 31, 2003



      Assets
Current Assets
   Cash                                                            $    567,212
   Inventory                                                            302,706
   Prepaid expenses                                                      62,481
                                                                   ------------


      Total Current Assets                                              932,399

Property, Plant and Equipment, net of accumulated
  depreciation of $589,933                                            1,656,032

Other Assets
   Mortgage loan costs, net of accumulated amortization of
     $61,617                                                              3,243
   Deposit                                                                2,500
                                                                   ------------

      Total Assets                                                 $  2,594,174
                                                                   ============

      Liabilities and Stockholders' Equity

Current Liabilities
   Current portion of mortgage payable                             $      4,770
   Accounts payable                                                      38,594
   Accrued expenses                                                     885,545
   Loan payable                                                         100,000
                                                                   ------------

      Total Current Liabilities                                       1,028,909

License deposits                                                        940,000
Mortgage payable, net of current portion                                866,374
                                                                   ------------

      Total Liabilities                                               2,835,283
                                                                   ------------

Minority interest in equity of subsidiary                               210,071

Stockholders' Equity (Deficit)
   Preferred stock, Series A, .001 par value 14,000,000
     shares authorized - no shares issued                                  --
   Common stock, .00001 par value, 1,000,000,000 shares
     authorized - 265,591,992 shares issued and outstanding               2,655
   Additional paid-in capital                                        16,210,189
   Accumulated deficit                                              (16,664,024)
                                                                   ------------

      Total Stockholders' Equity (Deficit)                             (451,180)
                                                                   ------------

      Total Liabilities and Stockholders' Equity (Deficit)         $  2,594,174
                                                                   ============

See notes to the financial statements.                                       F-2
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        -----------------------
                                                         2003             2002
                                                        ------           ------
<S>                                                 <C>              <C>
Revenue                                             $        --      $        --
                                                    -------------    -------------

Operating Expenses:
   Research and development costs                         315,168        1,599,327
   Research and development costs - related party         113,000           97,000
   General and administrative expenses                  1,669,643          749,848
   Depreciation                                            63,300           52,247
   Amortization                                            12,972           12,972
                                                    -------------    -------------

      Total Operating Expenses                          2,174,083        2,511,394
                                                    -------------    -------------

   Loss From Operations                                (2,174,083)      (2,511,394)
                                                    -------------    -------------

Other Income (Expense):
   Gain from sale of equipment                               --              2,800
   Interest income                                          3,264           11,979
   Interest expense                                      (142,341)        (136,677)
                                                    -------------    -------------

      Total Other (Expense)                              (139,077)        (121,898)
                                                    -------------    -------------

Minority interest in subsidiary                           171,523             --

Loss Before Income Taxes                               (2,141,637)      (2,633,292)

Benefit from (Provision) for Income Taxes                 210,204             (500)
                                                    -------------    -------------

Net Loss                                            $  (1,931,433)   $  (2,633,792)
                                                    =============    =============

Loss Per Share                                      $       (0.01)   $       (0.01)
                                                    =============    =============

Weighted Average Number of Shares                     265,269,092      264,965,420
                                                    =============    =============
</TABLE>

See notes to the financial statements.                                       F-3
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                   Total
                                                                 Additional                    Stockholder's
                                         Common Stock             Paid-In       Accumulated       Equity
                                     Shares         Amount        Capital         Deficit        (Deficit)
                                   --------------------------   ------------    ------------  --------------

<S>                                 <C>          <C>            <C>             <C>             <C>
Balance - January 1, 2002           66,165,010   $        661   $ 12,596,231    $(12,098,799)   $    498,093

Issuance of stock                       76,600              1      1,562,499            --         1,562,500

Stock issued for services and
patent costs                            25,500           --          510,000            --           510,000

Effect of 4:1 Stock Split          199,120,130          1,991         (1,991)           --              --

Net loss for the year                     --             --             --        (2,633,792)     (2,633,792)
                                  ------------   ------------   ------------    ------------    ------------

Balance - December 31, 2002        265,387,240   $      2,653   $ 14,666,739    $(14,732,591)   $    (63,199)
                                  ============   ============   ============    ============    ============

Issuance of stock                      156,002              2        895,012                         895,014

Stock issued for services               23,750           --          148,438                         148,438

Conversion of license agreement         25,000           --          500,000                         500,000

Net loss for the year                     --             --             --        (1,931,433)     (1,931,433)
                                  ------------   ------------   ------------    ------------    ------------

Balance - December 31, 2003        265,591,992   $      2,655   $ 16,210,189    $(16,664,024)   $   (451,180)
                                  ============   ============   ============    ============    ============
</TABLE>

See notes to the financial statements.                                       F-4
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                                    -----------------------
                                                                     2003             2002
                                                                    ------           ------
Cash Flows From Operating Activities
<S>                                                              <C>            <C>
   Net Loss                                                      $(1,931,433)   $(2,633,792)
                                                                 -----------    -----------
   Adjustments to Reconcile Net Loss to Net Cash Used in
   Operating Activities
      Depreciation                                                    63,300         52,247
      Amortization                                                    12,973         12,972
      Write-off of obsolete inventory                                137,413           --
      Gain on sale of equipment                                         --           (2,800)
      Stock issued for services, compensation and patent costs       148,438        510,000
      Minority interest in subsidiary                                210,071           --
Changes in Assets and Liabilities
   (Increase) Decrease in
      Inventory                                                     (154,607)       (86,692)
      Prepaid insurance                                                 --            7,002
      Prepaid expenses                                               (17,611)       (15,000)
   Increase (Decrease) in
      License deposits                                                  --        1,140,000
      Accounts payable and accrued expenses                           78,855        (42,623)
      Accrued interest payable                                          --              (87)
                                                                 -----------    -----------
   Total Adjustments                                                 478,832      1,575,019
                                                                 -----------    -----------
Net Cash Used in Operating Activities                             (1,452,601)    (1,058,773)
                                                                 -----------    -----------

Cash Flows from Investing Activities
      Proceeds from sale of equipment                                   --            2,800
      Payments for property and equipment                            (38,185)      (128,108)
                                                                 -----------    -----------
Net Cash Used in Investing Activities                                (38,185)      (125,308)
                                                                 -----------    -----------

Cash Flows From Financing Activities
      Proceeds from issuance of stock                                895,014      1,562,500
      Repayment of mortgage                                           (7,883)       (13,481)
      Proceeds loan                                                  100,000           --
      Repayments of officer advances                                  (8,400)          --
                                                                 -----------    -----------
Net Cash Provided by Financing Activities                            978,731      1,549,019
                                                                 -----------    -----------

   Net Increase (Decrease) in Cash                                  (512,055)       364,938
   Cash - Beginning of Periods                                     1,079,267        714,329
                                                                 -----------    -----------
   Cash - End of Periods                                         $   567,212    $ 1,079,267
                                                                 ===========    ===========


Supplemental Disclosures of Cash Flow Information
  Cash paid during the periods for:
      Interest                                                   $   142,284    $   136,677
                                                                 ===========    ===========
      Income taxes paid                                          $       700    $       200
                                                                 ===========    ===========
</TABLE>

Non-Cash Investing and Financing Activities
   During 2003, the Company converted a license deposit of $500,000 to 25,000
   common shares.

See notes to the financial statements.                                       F-5
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       NOTES TO THE FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Nature of Organization
      Coates International, Ltd. ("CIL" or the "Company") is a Delaware
      corporation organized in October 1991 by its President and majority
      stockholder George J. Coates ("GJC") as the successor in interest to a
      Delaware corporation, also organized by GJC, of the same name incorporated
      in August 1988.

   Principles of Consolidation
      The consolidated financial statements include the accounts of Coates
      International, Ltd. And its majority owned subsidiary, Coates Motorcycle
      Company, Ltd. All significant intercompany balances and transactions have
      been eliminated.

   Inventory
      Inventories are stated at the lower of cost or market determined by the
      first-in, first-out method.

   Property, Plant & Equipment
      Property, plant and equipment are stated at cost. Depreciation is computed
      using the straight line method over the estimated useful life of the
      assets: 40 years for building and building improvements, 5 to 7 years for
      machinery and equipment and 5 to 10 years for furniture and fixtures.
      Repairs and maintenance expenditures which do not extend the useful lives
      of the related assets are expenses as incurred.

      In the event that facts and circumstances indicate that long-lived assets
      may be impaired, an evaluation of recoverability would be performed and,
      accordingly, a determination of the write-down related to the specific
      assets made.

   Loss Per Share
      Loss per share, in accordance with the provisions of Financial Accounting
      Standards Board No. 128, "Earnings Per Share," is computed by dividing the
      net loss by the weighted average number of common shares outstanding
      during the period.

   Revenue Recognition
      The Company has not generated revenue from the sales of engines. Revenue
      from the granting of sub-licenses is recognized when earned, generally
      commencing upon its utilization by the licensee over the period of time
      that the sub-license has been granted (i.e. upon expiration of the
      Company's patent protection period which expires at the earliest in 2007),
      using the straight-line method. Revenue from research and development
      activities is recognized when earned provided that financial risk has been
      transferred from the Company to its customer.

   Advertising Costs
      Advertising costs are charged to operations when incurred. Advertising
      expense was $6,233 and $36,359 for the years ended December 31, 2003 and
      2002, respectively.

   Research and Development
      Research and development costs are charged to operations as incurred.

                                                                             F-6
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       NOTES TO THE FINANCIAL STATEMENTS


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

   Income Taxes
      In accordance with the provisions of Financial Accounting Standards No.
      109, "Accounting for Income Taxes" ("SFAS No. 109"), deferred taxes are
      recognized for operating losses that are available to offset future
      taxable income. Valuation allowances are established when necessary to
      reduce deferred tax assets to the amount expected to be realized. The
      Company incurred net operating losses for financial-reporting and
      tax-reporting purposes. Accordingly, the benefit from income taxes has
      been offset by a valuation allowance against the related deferred tax
      asset.

   Securities Issued for Services, Patent Costs and License Agreement The
      Company accounts for stock issued for services, patent costs and license
      agreement under the intrinsic value method. For stock so issued, the fair
      market value of the Company's stock on the date of stock issuance is used.
      The Company has adopted Statement of Financial Accounting Standard (SFAS)
      No. 123, "Accounting for Stock-Based Compensation". The Statement
      generally suggests, but does not require, stock-based compensation
      transactions to be accounted for based on the fair value of the services
      rendered or the fair value of the equity instruments issued whichever is
      more reliably measurable.

   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 reporting period. Actual results could differ from those
      estimates.

CONCENTRATIONS OF CREDIT AND BUSINESS RISK

   The Company maintains cash balances in several financial institutions.
   Accounts at each institution are insured by the Federal Deposit Insurance
   Corporation up to $100,000, of which the Company's accounts may, at times,
   exceed the federally insured limits.

   Development of the Coates System technology was initiated by GJC, CIL's
   founder, President and controlling stockholder in the late 1970's and
   development efforts have been conducted continuously since that. From July
   1982 through May 1993, seven U. S. patents as well as a number of foreign
   patents were issued to GJC with respect to the Coates System. Since the
   inception of CIL in 1988, all aspects of the business have been completely
   dependent upon the activities of GJC, who does not have an employment
   contract with CIL. The loss of GJC's availability or service due to death,
   incapacity or otherwise would have a material adverse effect on the Company's
   business and operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

   Cash, Accounts Payable and Accrued Expenses
      The carrying amount approximates fair value because of the short maturity
      of these instruments.

   Limitations
      Fair value estimates are made at a specific point in time, based on
      relevant market information and information about the financial
      instrument. These estimates are subjective in nature and involve
      uncertainties and matters of significant judgment and therefore cannot be
      determined with precision. Changes in assumptions could significantly
      affect the estimates.

                                                                             F-7
<PAGE>


                  COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                      NOTES TO THE FINANCIAL STATEMENTS


 CONTINGENCIES

   The Company has entered into a research and development agreement with Well
   to Wire, Inc. (the "R&D Agreement"). The R&D Agreement requires the payment
   of $5,000,000 to the Company for research, development and delivery of three
   prototype Coates Generator Engines which revenue will be recognized by the
   Company as received since the financial risk has been transferred from the
   Company to its customer. Pursuant to the terms of the R&D Agreement, the
   Company only has the right to receive the present outstanding balance of
   $3,800,000 due thereunder upon testing and delivery of the last of three
   prototype engines. Further, the Company has no obligation to repay any of the
   $1,200,000 of payments previously received under this agreement regardless of
   the outcome of its research and development activities. The performance
   period during which the Company is required to conduct such activities has
   been extended from time to time by mutual agreement.

INVENTORY

   Inventory at December 31, 2003 consists of the following:

     Raw Materials                                               $   155,664
     Work in Process                                                 147,042
                                                                   ----------
                                                                 $   302,706
                                                                   ==========

LICENSE DEPOSITS

   Effective September 29, 1999 the Company entered into a license agreement
   with a Canadian corporation. Pursuant thereto, the Company has received a
   license deposit of $300,000.

   During 2002 the Company entered into various license agreements. Pursuant to
   such agreements, the Company received an aggregate $1,440,000 of license
   deposits.

   In 2003 $500,000 of license deposits were converted to 25,000 shares of
   common stock of the Company, pursuant to the agreement. No other license
   agreements have a convertible feature.

   License deposits received by the Company are non-refundable and are to be
   applied against the total licensing agreement fee upon the completion of
   certain tests and approval by the licensee.

   Revenue attributable to the above license payments will commence being
   recognized at such time as all conditions have been met and utilization has
   begun by the licensee. Thereafter, such revenue will be recognized over the
   term of the Company's patent protection period, which currently expires from
   2007 through September 30, 2020.

ACQUISITION

   On April 30, 2003, the Company acquired 51% of the outstanding voting stock
   of Coates Motorcycle Company, Ltd. Accordingly, the results of operation for
   Coates Motorcycle Company, Ltd. have been included in the accompanying
   consolidated financial statements from that date forward. The acquisition was
   made to allow Coates Motorcycle Company, Ltd. to manufacture and sell the
   Coates Motorcycle. Pursuant to the agreement, the Company granted the
   exclusive sublicense for North, South and Central America and their
   territories to manufacture and sell the motorcycles utilizing the Coates
   technology in exchange for 51% of the common shares of Coates Motorcycle
   Company, Ltd. In addition, the Company shall receive a royalty fee of $50 for
   each unit sold. Prior to the date of acquisition, CMC had no financial
   activity. Subsequent to December 31, 2003, the license agreement was amended.
   See the Subsequent Event for disclosure.

                                                                             F-8
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       NOTES TO THE FINANCIAL STATEMENTS


PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment at cost, less accumulated depreciation,
   consists of the following at December 31, 2003:
      Land                                                         $    920,550
      Building                                                          579,450
      Building improvements                                             256,957
      Machinery and equipment                                           449,713
      Furniture and fixtures                                             39,295
                                                                      ----------
                                                                      2,245,965
      Less:  Accumulated depreciation                                   589,933
                                                                      ----------

            Total                                                  $  1,656,032
                                                                      ==========

   Depreciation expense amounted to $63,300 and $52,247 for the years ended
   December 31, 2003 and 2002, respectively.

ACCRUED EXENSES

   Accrued expenses at December 31, 2003 is comprised of the following:

      Legal Fees                                                   $    676,606
      Accounting Fees                                                    35,868
      Mortgage interest                                                  12,076
      Audit Fees - prior auditors (1995 and 1996)                        31,975
      Audit Fees - prior auditors (1997)                                 77,040
      Other                                                              51,980
                                                                     -----------
                                                                   $    885,545
                                                                     ===========

MORTGAGE PAYABLE

   Interest at 15.99% per annum due in equal monthly installments of $12,521
   including interest, due on April 1, 2004 secured by land and building with a
   net book value of $1,528,954.

      Mortgage payable                                             $    871,144
      Less current maturities                                             4,770
                                                                     -----------
      Mortgage payable, net of current maturities                  $    866,374
                                                                     ===========

   Total maturities of mortgage payable are as follows:
      Year Ending December 31,
            2004                                                        871,144
                                                                     -----------
                                                                   $    871,144
                                                                     ===========

   The mortgage is personally guaranteed by the Company's president and majority
   stockholder.

   Subsequent to the year, the company refinanced the mortgage loan payable. The
   new mortgage is in the amount of $870,617, bears an annual interest rate of
   13.99% and is for a term of 20 years, maturing in January 2024.

                                                                             F-9
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       NOTES TO THE FINANCIAL STATEMENTS

CAPITAL STOCK

   On April 23, 2002, the Board of Directors authorized a four for one forward
   stock split for all issued and outstanding common shares as of 5:00 P.M.
   Eastern Time on that date.

INCOME TAXES

   The income tax benefit provision is comprised of the following:
                                                            December 31,
                                                      --------------------------
                                                         2003           2002
                                                      ------------   -----------
      Current Income Taxes
            Federal                                 $      --      $     --
            State                                         210,204         (500)
                                                      ------------   -----------
                                                    $     210,204  $      (500)
                                                      ============   ===========

   In 1998, the State of New Jersey enacted legislation allowing emerging
   technology and/or biotechnology companies to sell their unused New Jersey Net
   Operating Loss ("NOL") Carryover and Research and Development Tax Credits
   ("R&D" Credits) to corporate taxpayers in New Jersey. During 2003 the Company
   entered into an agreement under which it retained a third party broker to
   identify a buyer for its NOL Carryover. As a result, the Company realized a
   current tax benefit of $210,204 (net of $41,537 of commissions) from the sale
   of NOL Carryforwards totaling $4,762,686.

   The Company's total deferred tax asset and valuation allowance are as follows
   at December 31, 2003:

      Total deferred tax asset                                     $  5,348,622
      Less valuation allowance                                        5,348,622
                                                                     -----------
      Net deferred tax asset                                       $     --
                                                                     ===========

   The  differences  between  income tax benefits in the financial  statements
   and the tax benefit computed at the U. S. Federal  statutory rate of 34% at
   December 31, 2003 are as follows:

      Tax benefit                                                      34%
      Valuation allowance                                             (34%)
                                                                 ----------
      Effective tax rate                                               --%
                                                                 ==========

   At December 31, 2003, the Company has available $15,731,241 of net operating
   losses to carryforward which may be used to reduce future federal taxable
   income and expire between December 31, 2008 and 2023.

RELATED PARTY TRANSACTIONS

   The Company subcontracts its project expense from certain entities of which
   GJC is the sole shareholder. During the years ended December 31, 2003 and
   2002, the Company paid $113,000 and $97,000, respectively, for these
   services.

                                                                            F-10
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       NOTES TO THE FINANCIAL STATEMENTS


NEW ACCOUNTING PRONOUNCEMENTS

   In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of
   Statement 133 on Derivative Instruments and Hedging Activities", which amends
   and clarifies financial accounting and reporting for derivative instruments,
   including certain derivative instruments embedded in other contracts
   (collectively referred to as derivatives) and for hedging activities under
   FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
   Activities. This Statement is effective for contracts entered into or
   modified after June 30, 2003, except for certain hedging relationships
   designed after June 30, 2003. Most provisions of this Statement should be
   applied prospectively. The adoption of this statement is not expected to have
   a significant impact on the Company's results of operations or financial
   position.

   In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain
   Financial Instruments with Characteristics of both Liabilities and Equity".
   This Statement establishes standards for how an issuer classifies and
   measures certain financial instruments with characteristics of both
   liabilities and equity. It requires that an issuer classify a financial
   instrument that is within its scope as a liability (or an asset in some
   circumstances). This statement is effective for financial instruments entered
   into or modified after May 31, 2003, and otherwise is effective at the
   beginning of the first interim period beginning after June 15, 2003, except
   for mandatorily redeemable financial instruments of nonpublic entities, if
   applicable. It is to be implemented by reporting the cumulative effect of a
   change in an accounting principle for financial instruments created before
   the issuance date of the Statement and still existing at the beginning of the
   interim period of adoption. The adoption of this statement is not excepted to
   have a significant impact on the Company's results of operations or financial
   position.

   In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
   Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
   FIN 46 requires certain variable interest entities to be consolidated by the
   primary beneficiary of the entity if the entity investors in the entity do
   not have the characteristics of a controlling subordinated financial support
   from other parties. FIN 46 is effective for all new variable interest
   entities created or acquired after January 31, 2003. For variable interest
   entities created or acquired prior to February 1, 2003, the provisions of FIN
   46 must be applied for the first interim or annual period beginning after
   June 15, 2003. The adoption of FIN 46 did not have a significant impact on
   the Company's results of operations or financial position.

SUBSEQUENT EVENTS

   Subsequent to the year end, the Company's subsidiary, Coates Motorcycle
   Company, Ltd. filed a "best efforts" public offering of a minimum of
   $5,637,500 and up to a maximum of $20,500,000 of equity securities. The
   securities to be offered are "units", comprised of two common shares and one
   warrant, priced at $10.25 per unit. The minimum is 550,000 units, or
   1,100,000 common shares and 550,000 warrants, and the maximum is 2,000,000
   units, or 4,000,000 common shares and 2,000,000 warrants. The warrants are
   exercisable at $6.00 at anytime during the 5 year period following the
   effective date of the offering. If the minimum 550,000 units are not sold
   within the offering period, all unit sales proceeds will be returned to the
   investors without interest.

   On March 5, 2004, the Company amended its Sublicense Agreement with its 51%
   subsidiary, Coates Motorcycle Company, Ltd. whereby, the anti-dilution
   provision was removed, the license rights granted have been extended and the
   Company received an additional 1,000,000 shares of Coates Motorcycle Company,
   Ltd.

                                                                            F-11
<PAGE>

                   COATES INTERNATIONAL, LTD. AND SUBSIDIARY
                       NOTES TO THE FINANCIAL STATEMENTS

SUBSEQUENT EVENTS (continued)

   The board of directors of the Company have declared a dividend of the
   additional 1,000,000 shares of Coates Motorcycle Company, Ltd. which were
   issued pursuant to the amended license agreement. The dividend was declared
   on March 5, 2004 and is in the proportion of 1 share of common stock of
   Coates Motorcycle Company, Ltd. For each 44.3067 shares of Coates
   International, Ltd. The dividend shall only be paid upon the occurrence of
   the effectiveness of the registration statement filed by Coates Motorcycle,
   Ltd. and the initial closing of the sale of the minimum amount of securities
   described in the registration statement. The Company's majority shareholders,
   George Coates, Bernadette Coates and Gregory Coates have waived their rights
   to participate in the dividend.

                                                                            F-12
<PAGE>

ITEM 8A  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures:

Based on his evaluation as of a date within 90 days of the filing date of this
report, George J. Coates, our principal executive officer and principal
financial officer, has concluded that our Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") are sufficiently effective
to ensure that the information required to be disclosed by the Company in the
reports that we file under the Exchange Act is gathered, analyzed and disclosed
with adequate timeliness, accuracy and completeness.

Changes in internal controls:

There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation referred to above, nor were there any significant deficiencies or
material weaknesses in the Company's internal controls. Accordingly, no
corrective actions were required or undertaken.

Limitations on the effectiveness of controls:

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues, if any,
within a company have been detected.

ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      There have been no changes in or disagreements with the Registrant's
independent auditors during the last two years.

                                    PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      At December 31, 2003 the executive officers and directors of CIL were as
follows:

<TABLE>
<CAPTION>
      Name                        Position                        Term(s) of Office
-----------------          -----------------------                -----------------
<S>                        <C>                                    <C>
George J. Coates, age 63   President, Treasurer, Chief Executive
                           Officer, Chief Financial Officer and
                           Director                               From Inception to
                                                                  present

Richard W. Evans, age 69   Secretary and Director                 May, 1996 until
present

Michael J. Suchar, age 49  Director                               May, 1996 until
                                                                  present
</TABLE>

                                       16
<PAGE>

      George J. Coates has been employed by CIL since its inception as president
and chief executive officer. Mr. Coates is an Irish citizen but has been granted
resident alien status in the United States. He served two apprenticeships in
Europe while attending the College of Technology, and as an Associate member of
the S.A.E. He received The City and Guilds of London for electrical and
mechanical engineering. He is a former management director of SCR motor
engineers of Europe and holds the certificates of Ministry of Transport in the
United Kingdom. He worked as an engineer for Rolls Royce and Mercedes Benz, and
holds approximately 300 patents worldwide. He invented coolant disc brakes,
invented a hydraulic suspension, invented and patented the Coates SRV Engine,
and invented and patented a turbine engine.

      Seven and one-half years ago, the SEC commenced proceedings against Mr.
Coates and CIL in the United States District Court, Southern District of New
York which, in August, 2001, was settled and the case dismissed. The SEC brought
a civil action against CIL, Mr. George Coates and related parties for alleged
breaches of federal securities laws in connection with certain private
placements that occurred in the early 1990's. Initially, the Court froze the
assets of CIL and George J. Coates, appointing a special master to manage CIL's
business affairs. Thereafter, CIL and George J. Coates negotiated a settlement
with the SEC and a consent judgment was signed by CIL and Mr. Coates. The
principal settlement provisions of this final consent judgment required: Mr.
Coates to transfer ownership of CIL's Wall Township business premises to CIL;
permitted Mr. Coates to retain title to the Coates Patents as long as he
reimbursed the Company for the costs associated therewith, and; CIL's commitment
to undertake a registered rescission offer to certain private placement
investors. George J. Coates agreed to use up to approximately $800,000 of his
own funds first to buy back CIL stock from those investors who chose rescission,
with any required further rescission funds necessary to complete the rescission
offer to be paid by CIL. The rescission offer was completed in 1997 with only 32
of the 328 private placement investors electing to rescind their investment. The
32 rescinding investors received $1,270,000 of rescission funds out of
approximately $6,500,000 invested by these investors. Following the rescission,
the Court dismissed the special master and the Company continued under the
control of Mr. Coates. In concluding this proceeding, Mr. Coates was assessed a
fine of $40,000 by the Court based upon its findings of four violations of
federal securities disclosure laws in connection with the private placements.
Specifically, the Court found that the private placement offering documents used
by Mr. Coates at the time misrepresented that (1) the Coates systems engine
surpassed the emissions standards imposed by the EPA; (2) the Company had a
substantial number of firm orders for engines equipped with the Coates System
when the orders were found to be provisional; (3) the Company owned the patents
to the Coates System when, at the time, they were owned by Mr. Coates, and; (4)
the offering documents omitted disclosing Harley Davidson's discontinuance of
testing the Coates prototype engines due to Harley's claims of malfunction.

However, Mr. George J. Coates, in response to some of these Court findings,
offers certain statements. With respect to emissions data, Mr. Coates states
that emissions tests undertaken during the 1993 registration of his Mercedes
Benz equipped with the Coates CSRV engine disclosed: 0 hydrocarbons and 0 carbon
monoxide after which the Mercedes Benz car equipped with the Coates engine was
duly registered by the New Jersey Division of Motor Vehicles and, therefore,
permitted to be driven on American roads.

                                       17
<PAGE>

With respect to engine orders during the subject period, the Company did receive
a $500,000 deposit from Millwest Corporation of Texas on a license for
industrial engines and orders for approximately $100,000,000 worth of engines.

The Company was involved with constructing and delivering a prototype motorcycle
to Harley Davidson for testing during the subject period. This motorcycle
prototype was equipped with the Coates CSRV engine. Mr. Coates states, however,
that it was his instructions to Harley Davidson that this new motorcycle engine
would be tested, initially, at a low "RPM" rate and with a reduced "load", or
drag weight, during the initial testing period. However and contrary to Mr.
Coates' instructions, Harley Davidson began the testing protocol by placing the
new motorcycle engine equipped with the Coates CSRV technology under a
full-weight load, at close to maximum throttle speed, permitting this new engine
to run for approximately five hours under these extreme conditions. As a result,
the Coates CSRV system sustained some minor damage while the Harley Davidson
gear section suffered substantial damage. Due to the SEC investigation and
subsequent civil action occurring at that time, Mr. Coates' was required to
devote substantial amounts of his time to defend these matters and consequently,
the Company was forced to abandon the motorcycle prototype project, whether with
Harley Davidson or a different motorcycle company and it was discontinued. The
particular prototype motorcycle tested at that time was subsequently repaired
and is operating at our facility today.

      Richard W. Evans became a director of CIL in May 1996, Dr. Evans, who
holds an ED.D degree from Rutgers University, was a Supervisor a Highland Park
School in Highland Park, New Jersey, a post held for more than the preceding
five years until his retirement in June 1996.

      Michael J. Suchar became a director of CIL in May 1996. Dr. Suchar, who
holds a Doctor of Dental Surgery degree from the Temple University Dental
School, has been a practicing pediatric dentist for more than the preceding five
years.

      We do not have an audit committee whose role and functions are managed by
      our Board of Directors.

Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------

      The Company knows of no person at any time during the fiscal year ended
December 31, 2003 to the date hereof, who was a director, officer or beneficial
owner of more than ten percent of any class of equity securities of the Company
(a "Reporting Person"), that failed to file on a timely basis any reports
required to be furnished pursuant to Section 16(a). Based upon a review of Forms
3, 4 and 5 furnished to the Company under Rule 16(a)-3(d), the Company knows of
no Reporting Person that failed to file the required reports within the required
time limits.

ITEM 11:  EXECUTIVE COMPENSATION.

      None of our executive officers has an employment contract. With respect to
each of calendar years 2001, 2002 and 2003, no executive officer had
compensation paid or accrued in excess of $100,000 for any such year except for
George J. Coates, our Chief Executive Officer, while compensation was as
follows:

                                       18
<PAGE>

                           SUMMARY COMPENSATION TABLE

      Name              Position                   Year                 Salary
      ----              --------                   ----                 ------
George J. Coates   President, Chief Executive
                   Officer and Chief Financial
                   Officer
                                                   2003                $183,549

                                                   2002                $182,057

                                                   2001                $183,549

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT PRINCIPAL SHAREHOLDERS

      The following table sets forth as of December 31, 2003 the ownership of
CIL Common Stock by (i) each person known by CIL to be beneficial owner of more
than 5 percent of the outstanding Common Stock, (ii) each director and executive
officer of CIL who owned shares, and (iii) all directors and executive officers
as a group.

Title
Percent           Name and Address of     Amount and Nature of
of Class          Beneficial Owner        Beneficial Ownership      of Class
--------          ----------------        --------------------      --------
Common Stock      George J. Coates*        207,252,760 shares(1)      78.19%
                  Gregory Coates*          14,032,520 shares           5.31%
                  Richard Evans            660,000 shares               .25%
                  Michael J. Suchar*       241,600 shares(2)            .09 %
                  All directors and
                  executive officers
                  as a Group (3 persons)   222,186,880 shares         83.83%

*c/o CIL, Highway #34 & Ridgewood Road, Wall Township, New Jersey 07719 (1)
Includes 1,956,960 shares owned by Mr. Coates' spouse, Bernadette Coates,
beneficial ownership of which is disclaimed by George J. Coates. (2) Includes
20,000 shares owned by Mr. Suchar's spouse, beneficial ownership of which is
disclaimed by Michael J. Suchar.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We paid $113,000 and $97,000 respectively, during fiscal years 2003 and 2002 to
Coates Precision Engineering, Inc., a company owned by George J. Coates, for
services rendered to us in connection with our research and development of the
Coates Generator Engine.

ITEM 14:  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

      Rosenberg Rich Baker Berman & Company ("Rosenberg") billed us in the
aggregate amount of $ 25,830 and $ 30,741 for professional services rendered for
their audit of our annual financial statements and their reviews of the
financial statements included in our Forms 10-KSB for the years ended December
31, 2003 and December 31, 2002, respectively.

                                       19
<PAGE>

AUDIT-RELATED FEES

      Rosenberg did not bill us for, nor perform professional services rendered
for assurance and related services that were reasonably related to the
performance of audit or review of the Company's financial statements for the
fiscal years ended December 31, 2003 and December 31, 2002.

TAX FEES

      Rosenberg billed us in the aggregate amount of $1,820 and $ 4,044 for
professional services rendered for tax related services for the fiscal years
ended December 31, 2003 and December 31, 2002, respectively.

ALL OTHER FEES

      The aggregate fees billed by Rosenberg for services rendered to the
Company during the last two fiscal years, other than as reported above, were
$3,104 and $13,944, respectively.

                                    PART IV

ITEM 15:  EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Index To Exhibits

Exhibit No.                   Description of Exhibit
3.1*        CIL's Restated Certificate of Incorporation
3.1(i)+     Certificate of Amendment to Certificate of Incorporation filed
            with the Secretary of State, State of Delaware on May 22, 2000.
3.1(ii)+    Certificate of Amendment to Certificate of Incorporation filed
            with the Secretary of State, State of Delaware on August 31, 2001.
3.2*        CIL's By-Laws
4.1*        Form of Certificate for CIL's Series A Non-Cumulative Convertible
            Preferred Stock
10.1*       Deed dated February 21, 1995 transferring title to CIL's
            Principal Facility at Route 34
10.2*       Assumption and Indemnification Agreement dated February 21, 1995
            between the partnership and CIL.
10.3*       License Agreement dated December 22, 1997 between George J.
            Coates and CIL. George J. Coates and CIL and First and Second
            Amendments thereto dated July 17, 1995.
10.4*       Third Amendment dated September 21, 1995 to License Agreement dated
            February 17, 1995 between George J. Coates and CIL.
10.5*       License Agreement dated February 22, 1993 between Gregory Coates and
            CIL and First Amendment thereto dated July 17, 1995.
10.6+       License Agreement, Dated September 29, 1999, with Well to Wire
            Energy, Inc.
10.7+       Amendment No. 1 to License Agreement, Dated April 6, 2000.
10.8+       Amendment No. 2 to License Agreement, Dated July 21, 2000.
10.9+       License Agreement, dated April 19, 1996, by and between the
            Company and Nicholson McLaren Engines, Ltd.
10.10x      License Agreement, dated April 12, 2002, by and between Coates
            International, Ltd. and McLean, England and Associates,LLC.
10.11#      Sublicense Agreement, dated April 30,2003, by and between Coates
            International, Ltd., as Sublicensor, and Coates Motorcycle
            Company, Ltd., as Sublicensee.

                                       20
<PAGE>

10.12#      License Agreement, dated April 30, 2003, by and between
            George J. Coates, Gregory G. Coates and the Coates Trust,
            collectively as Licensor, and Coates Motorcycle Company, Ltd.,
            as Licensee.
10.13       Amendment No. 1 to Sublicense Agreement, dated March 5, 2004,
            by and between Coates International, Ltd., as Sublicensor,
            and Coates Motorcycle Company, Ltd., as Sublicensee.
10.14       Amendment No. 1 to License Agreement, dated March 5, 2004,
            by and between George J. Coates, Gregory G, Coates and the Coates
            Trust, collectively as Licensor, and Coates MotorcycleCompany, Ltd.,
            as Licemsee.
10.15       Amendment to License Agreement, dated April 1, 2004, by and between
            Coates International, Ltd. and George J. Coates, as Licensor, and
            McLean, England and Associates, LLC, as Licensee.
31.1        Certification of  George J. Coates, Chief Executive Officer and
            Principal Financial Officer,  pursuant to Section 302 of
            Sarbanes-Oxley Act of 2002.
99.1        Certifications  pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002, 18 U.S.C. Section 1350.
--------------------------------------------
*     These Exhibits are hereby incorporated by reference into this Form 10-KSB
      for the fiscal year ended December 31, 2003, from the Company's
      Registration Statement filed on Form S-1 with the Securities and Exchange
      Commission on November 1, 1995, File No. 33-94884:
+     These Exhibits are hereby incorporated by reference into this Form 10-KSB
      for the fiscal year ended December 31, 2003 from the Company's
      Registration Statement filed on Form 10-SB12G and amendments thereto with
      the Securities and Exchange Commission, File No. 000-33155.
x     This License Agreement is hereby incorporated by reference herein from the
      Company's Form 8-K, filed with the Securities and Exchange Commission on
      or about April 16, 2002.
#     These exhibits are hereby incorporated by reference into this Form 10-KSB
      for the fiscal year ended December 31, 2003, from the Company's Form
      10-QSB for the quarter ended June 30, 2003.

      (b)  No reports on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 2003.

                                       21
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Form 10-KSB for the
fiscal year ended December 31, 2003 to be signed on its behalf by the
undersigned, thereunto duly authorized.

DATE: April 13, 2003                          COATES INTERNATIONAL LTD.
                                               /s/ George J. Coates
                                              ------------------------------
                                              George J. Coates, President
                                              Chief Executive Officer and
                                              Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

SIGNATURE                     TITLE                         DATE
---------                     -----                         ----


 /s/ George J. Coates
-------------------------
George J. Coates              Director, Chief               April 13,2004
                              Executive Officer,
                              President, and
                              Principal Financial Officer


 /s/ Richard W. Evans
-------------------------
Richard W. Evans              Director                      April 13, 2004


 /s/ Michael J. Suchar
-------------------------
Michael J. Suchar             Director                      April 13, 2004

                                       22